February 22, 2018
February 22, 2018
This week, major tax packages relating to the federal tax-cut bill made news in Georgia, Iowa, and Louisiana, as Minnesota and Oregon lawmakers also continue to work out how their states will be affected. New Mexico’s legislative session has finished without significant tax changes, while Idaho and Illinois’s sessions are beginning to heat up, and Vermont’s school funding system is under the microscope.
— Meg Wiehe, ITEP Deputy Director, @megwiehe
Several States Focused on Tax Packages Responding to the Federal Tax Cut Bill:
- Iowa Senate lawmakers have followed Gov. Kim Reynolds’s massive tax cut plan with one of their own, proposing to eliminate the state’s pointless income tax deduction for federal income taxes paid, but also cut both personal and corporate income tax rates and fully adopt the federal tax-cut bill’s misguided deduction for pass-through business income, among other changes, for a total tax cut amounting to about $1 billion annually even as federal funding cuts loom just around the corner.
- Georgia Gov. Nathan Deal has quickly and drastically changed his stance on how the state should respond to the federal tax cut bill. Though Deal originally urged lawmakers to wait until 2019 when the full effects of the bill will be more clear, last week he proposed a plan that would have used the temporary revenue gain to fund temporary and mildly progressive tax cuts. Now, Deal and legislative leaders have announced a new plan that takes an even less cautious approach, permanently cutting top income tax rates and modestly increasing the state’s standard deduction. This latest plan would cut revenues by nearly $400 million per year according to an ITEP microsimulation model analysis.
- Although state taxes are increasing in response to federal tax reform in Louisiana, the legislature began its Special Session this week to address its substantial budget deficit which is substantially larger than the uptick in state revenues. The governor is urging compromise, the House Speaker wants spending caps, many lawmakers are eying the temporary sales tax increase as the most viable source of a solution, but more dissent than deals are being created right now, as Democratic lawmakers favor changes to the personal income tax and Republican lawmakers are advocating for permanent increases to the sales tax.
- Addressing issues of conformity to federal income tax changes is a top priority for the Minnesota legislature as it convenes its short session this week.
- In Oregon, the state’s latest economic forecast suggests it may not face a lasting budget hole from federal tax reform if the economy continues to perform as it has. Lawmakers in the Senate are taking another pass at decoupling from the federal deduction for pass-through income.
Major Tax Debates Ongoing in Other States as Well:
- It’s a “taxing” time in the Idaho legislature! After years of attempts to pass a bill on internet sales, a bill requiring out of state retailers to collect and remit Idaho sales taxes passed out of the House Revenue & Taxation Committee. And while Gov. Otter signals his support for competing tax bills, a House Committee has killed an option put forward by Senate Tax Chairman Johnson and the full House passed a bill that would automatically cut personal and corporate income tax rates as state revenues rise.
- While the governor is proposing to balance Illinois‘s budget with a rollback of the 2017 income tax rate increase, discussions over adopting a progressive income tax are heating up in the state.
- Legislative session wrapped up in New Mexico without major action on tax reform.
- Vermont lawmakers have been working to develop a new funding method for financing the state’s education system. Details of the plan remain in the works but include a reduced reliance on the property tax and a heavier reliance on a new school income tax. Vermont’s Public Assets Institute has weighed in on the potential shortfalls of the proposal.
- A Nebraska a proposal to create an (unfunded) income tax credit worth half of residents’ school property taxes has likely died in committee, which means the parallel effort to put the proposal before voters in November may gain steam. Other major tax bills appear unlikely to advance as well, with the best chance of passage currently belonging to a more straightforward bill that would offset the effect of the federal tax-cut bill’s elimination of the personal exemption.
- On the heels of a budget agreement, Oklahoma faces a $167 million revenue shortfall in fiscal year 2019. Gov. Mary Fallin says that without new revenue this could result in a 2.5 percent cut to state agencies.
- Michigan lawmakers reached a deal to increase the state’s personal exemption to $4,900 by 2021 and forgive driver fees. The bill is expected to be signed into law by Gov. Snyder.
Still Other States Debating Smaller Tax Tweaks:
- West Virginia lawmakers are considering a 2 cent per ounce sugary drink tax. The bill aims to encourage residents to make healthier choices and would help fund the state’s rising health insurance costs.
- The Utah House has approved a bill eliminating the sales tax on food while raising the general sales tax rate from 4.7% to 4.92%. In the Senate, a bill to enact an EITC for families impacted by intergenerational poverty passed out of committee and is on its way to the floor. The House passed the bill earlier this session.
- Connecticut’s House Speaker has called for the elimination of the state’s car tax. This issue has a storied history in the state, leading to ongoing debate. Opponents include some municipalities who worry about needing to make up the lost revenue.
- After determining that the ride sharing company is responsible for collecting state and local sales tax, Ohio’s Department of Taxation has order Uber to pay $1.6 million in sales taxes and penalties. Uber is appealing the order. Policy Matters Ohio weighs in on the controversy here.
- Proposed legislation in Wyoming would temporarily cut the state’s severance tax, from 6 to 3 percent, in an effort to attract oil and gas companies. Skepticism remains as to whether the reduction would sway companies to drill in Wyoming.
- Recent economic forecasts in Washington state are projecting over a billion dollars in new revenue over the next few years, spurring tax bills as lawmakers are assembling a supplemental budget and working to meet the full demands for education funding set by the McCleary
- The Arizona House passed legislation this week to provide a tax break on capital gains – increasing the current deduction to 50 percent. This proposal would cost the state $23 million a year and largely benefit those with the largest incomes in the state.
- In Wisconsin, the House has voted on several key measures as the session moves towards conclusion, including a proposal for a one-time child tax rebate and sales tax holiday championed by Gov. Walker and the Assembly leadership. It’s uncertain how the tax breaks will fare in the Senate.
- After last year’s drama in which then-New Jersy Chris Christie threatened to end an income tax reciprocity agreement with Pennsylvania, state lawmakers are now considering a bill that would take that power away from the governor’s office.
What We’re Reading…
- ITEP’s Carl Davis points to recent research in calling out New Hampshire’s school choice bill as a tax shelter for the wealthy.
- Why has American democracy failed to stem the growth of income inequality despite theoretical predictions that point in the other direction? Read Thomas Edsall’s thoughts in this New York Times piece.
- Pew has tracked state revenue performance since the recession and notes that only 29 states have rebounded to pre-recession levels so far.
- Watch out local governments—the “dark store theory” of property assessment is gaining popularity among big box retailers and eroding your tax base.
- Many cities aren’t twiddling their thumbs waiting to see what kind of infrastructure plan comes out of DC—rather, they are using revenues from new fees associated with ride sharing services to pay for filling pot holes and addressing other transit needs.
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