Just Taxes Blog by ITEP

State Rundown 2/9: We <3 Taxes

February 9, 2023

The great women’s philosopher, Pat Benatar, once said “love is a battlefield,” and there’s no greater test of our love for state tax policy than following the ups and downs of state legislative sessions. Here are some highlights:

  • Major tax cut plans have been announced by governors in Puerto Rico, Connecticut, and Michigan. While two of the three plans include boosts to their state Earned Income Tax Credit, they are coupled with things like the repeal of the tax on retirement income (Michigan) and income tax rate cuts (Connecticut).
  • The West Virginia Senate passed their version of a regressive tax cut proposal, which would reduce state revenues by at least $600 million.
  • Kentucky senators passed HB1, a bill that would further reduce the state’s flat tax, limiting the state’s ability to fund vital public services.

“Heartache to heartache, we stand,” with only one promise: to continue fighting for tax justice.

Major State Tax Proposals and Developments

  • CONNECTICUT Gov. Ned Lamont’s budget proposal’s tax components center as expected on a plan to cut the two bottom income tax rates from 3 and 5 percent to 2 and 4.5 percent, respectively. He also proposes to continue the state’s 10 percent corporate tax surcharge and increase the state Earned Income Tax Credit (EITC) to 40.5 percent on a permanent basis. Many are disappointed the proposal does not include a permanent Child Tax Credit, which was enacted on a temporary basis last year and would be an important boost to middle- and low-income families’ budgets while advancing tax fairness. — DYLAN GRUNDMAN O’NEILL
  • The KENTUCKY state Senate passed House Bill 1, which would lower the state’s income tax from 4.5 percent to 4 percent. — ELI BYERLY-DUKE
  • PUERTO RICO Gov. Pedro Pierluisi unveiled a major tax reform proposal that includes cutting both the individual and corporate tax rates, cuts aimed at seniors, and changes to the sales and import tax. The plan is expected to reduce revenues by over $545 million. — MARCO GUZMAN
  • WASHINGTON State’s landmark Working Families Tax Credit, an EITC-based credit for middle- and low-income families, launched at the beginning of this month, adding a vital piece of progressive tax policy to what has been the most regressive tax code in the nation. — DYLAN GRUNDMAN O’NEILL
  • The WEST VIRGINIA state senate passed a bill with roughly $600 million dollars in tax cuts, consisting mostly of substantial cuts to personal income and property taxes. Although less catastrophic than Gov. Justice’s competing proposal, which has passed the house, the plan would deliver the bulk of its benefits to corporations and the highest earning West Virginians. — ELI BYERLY-DUKE

Governors’ Annual Addresses and State of State Speeches

  • Gov. Kevin Stitt of OKLAHOMA delivered his State of the State address this week and called for two major tax cuts: an end to the state’s 4.5 percent sales tax on groceries and a reduction of state’s personal income tax rate to 3.99 percent. Both Democrats and Republicans support the elimination of the sales tax on groceries. Both cuts are expected to cost the state around $612 million a year, based on estimates from the Governor’s office.
  • TENNESSEE Gov. Bill Lee made extending the one-month grocery tax exemption by three additional months a priority in his 2023 State of the State address.

State Roundup

  • In ARKANSAS, Rep. Lanny Fite (R-Benton) introduced HB1032, which would increase the Homestead Property Tax Credit from $375 a year to $425 in 2024. Increasing the tax credit is projected to cost the state about $34 million. The bill is in competition with other bills in the House Revenue and Tax Committee, such as a bill that has been filed to increase the standard deduction on income taxes. Members of the committee plan to meet and prioritize bills.
  • FLORIDA Gov. Ron DeSantis announced his $115 billion budget outline, which included a family-focused permanent sales tax exemption. The exemptions range from cribs to pet food. The budget also includes potentially banning the installation of new gas stoves, proposing a permanent tax exemption for them.
  • HAWAII’s Senate Judiciary Committee gave preliminary approval to Senate Bill 925, which would enact a 1 percent tax every year on the net worth of individuals with assets in Hawaii of more than $20 million.
  • IOWA Governor Kim Reynolds floated a cut in the state’s personal income tax to 2 percent and expressed her desire to take the rate to zero.
  • MARYLAND lawmakers introduced legislation that would require corporations to file a single, combined return, which would prevent corporations from engaging in tax avoidance by filing a separate return for each related corporate entity. Similar legislation passed the House in the past but failed to gain traction in the Senate.
  • MICHIGAN Gov. Gretchen Whitmer and Democratic lawmakers announced a tax cut package that combines repealing the state’s 4.25 percent tax on retirement income, increasing the Earned Income Tax Credit (EITC) from 6 percent to 30 percent, and providing inflation relief checks of $180 per household. The announcement comes after both the House and Senate passed separate legislation on cutting retirement taxes and EITC increases.
  • MONTANA House members approved six bills, including income tax rebates of up to $2,500 for joint filers, a property tax rebate of up to $500 for owners’ primary residences, and a replacement of the capital gains exclusion with reduced tax rates, among others.
  • In refreshing contrast to NEBRASKA Gov. Jim Pillen’s proposed income tax cuts that disproportionately benefit upper-income households while doing nothing to grow the state economy, lawmakers held a hearing this week on a Child Tax Credit (CTC) bill that would provide a needed and targeted boost to middle- and low-income families in Nebraska. The proposed CTC would provide $1,000 per child with an income phase-out to ensure the aid is focused on families who could most use the boost. This targeting also keeps the cost down to about $380 million per year, another stark contrast to Gov. Pillen’s rate cuts that would cost some $735 million annually once fully implemented.
  • A bill introduced by House Republicans in NORTH CAROLINA would eliminate state income taxes on public retirement plans.
  • To address OREGON’S housing shortage, the House Committee on Housing and Homelessness passed legislation that would allow homeowners to subtract up to $12,000 per rented room from their state taxable income each year.
  • The VERMONT Agency of Transportation is preparing a proposal to make up for lost gas tax revenue by creating a mileage-based fee system for electric vehicle owners.
  • WISCONSIN Governor Tony Evers proposed a significant restructuring of the state’s sales tax structure to send more sales tax dollars to localities, and to authorize counties to impose an additional local option sales tax by referendum.
  • The WYOMING House Revenue Committee approved a bill that would cut the tax on premium cigars in half. Currently, cigars are taxed at 20 percent and the bill would cap the tax at 30 cents per cigar.

What We’re Reading

  • In a recent report, Center on Budget and Policy Priorities consultant Don Griswold and Senior Fellow Michael lay out how states should follow New York’s lead in closing a tax avoidance strategy that very wealthy people use—ING Trusts—to avoid paying state income tax on their, often inherited, income.

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