March 14, 2018
March 14, 2018
With many state legislative sessions about halfway through, the ripple effects of the federal tax-cut bill took a back seat this week as states focused their energies on their own tax and budget issues. Major proposals were released in Nebraska and New Jersey, one advanced in Missouri, and debates wrapped up in Florida, Utah, and Washington. Oklahoma and Vermont are considering ways to improve education funding, while California, New York, and Vermont look to require more of their most fortunate residents. And check in on “what we’re reading” for resources on the online sales tax debate, the role of property taxes in racial inequity, and more.
— Meg Wiehe, ITEP Deputy Director, @megwiehe
Major State Tax Proposals/Developments:
- New Jersey Phil Murphy introduced his bold plan to begin restoring sanity to the state’s tax and budget situation. After years of skipping pension payments and underfunding schools and infrastructure in favor of tax cuts, Gov. Murphy’s plan would reverse course and raise $1.7 billion in revenue for the state’s many needs. A major step toward rebalancing the state’s finances, the proposal would institute a tax on local millionaires, roll back an expensive sales tax cut that was the ransom for a desperately needed gas tax update in 2016, legalize and tax cannabis use, reform corporate taxation, and broaden the sales tax, while also strengthening the state’s Earned Income Tax Credit (EITC), creating a new child and dependent care credit, and expanding an existing property tax deduction. The plan, while significant, is only a start toward rebalancing the state’s finances.
- A tax package has advanced in the Missouri The bill slashes personal and corporate income tax rates, leaving a hole in the general fund that is only partially filled by other components of the bill, which include eliminating a property tax credit for low-income seniors, limiting deductions for federal income taxes, and requiring a single method of corporate profit allocation. The bill also counts on nearly $200 million of online sales tax revenue although the state cannot access that revenue without federal action. The same bill increases driver’s license and plate fees to raise $173 million for state infrastructure, which a separate bill in the Senate proposes to do through a 10-cent per gallon gas tax increase.
- Just as Nebraska lawmakers begin debating deep cuts to higher education and other priorities, they have also received the latest version of Gov. Pete Ricketts’s tax cut proposal. It makes several tweaks to try to get more support but none of them make the bill more fiscally responsible. The proposal would keep the state’s existing property tax credit in place while adding a new refundable income tax credit for property taxes paid that would eventually refund 20 percent of property taxes, as well as cutting the top corporate income tax rate. The package would come at a tremendous cost to the state but lawmakers are not identifying any funding for it aside from tapping the state’s already underfunded Rainy Day Fund to pay for the first year of the tax cuts.
- Utah session wrapped up with lawmakers passing a tax bill that would reduce personal income tax rates, adopt a single sales factor for apportionment of corporate income, enact a five-year property tax freeze, and require a non-binding resolution be put to voters as to whether the gas tax should be increase 10 cents a gallon to boost education funding.
- Florida‘s legislators finished their work on the state budget, generally disregarding Gov. Rick Scott’s proposed tax cuts but passing $171 million of cuts including a three-day back-to-school sales tax holiday, a new hurricane preparedness holiday, a reduction in the business rent tax, and assorted exemptions and refunds for those affected by Hurricane Irma. As we noted last week, lawmakers also put a constitutional amendment on the ballot that will hinder budget balancing by requiring a special supermajority vote threshold for tax increases.
- Washington state also ended its legislative session passing a supplemental budget that directs more money to public education and enacts a one-time property tax cut.
More State Responses to Federal Tax-Cut Bill:
- Idaho Otter signed the state’s response to federal tax changes into law last week, enacting a $200 million tax cut via rates cuts and a refundable child tax credit. However, it may not be over yet, as lawmakers are advancing legislation to increase the value of the new child credit to account for its inadequacies in holding large families harmless from the elimination of the personal exemption.
- In Oregon, lawmakers have decided that families will not be able to get tax breaks for tuition paid to private K-12 schools despite the tax break approved as part of federal tax reform, but the fate of legislation to uncouple from the federal deduction for business pass-through income remains up in the air given uncertainty as to whether it will garner the governor’s signature.
- Florida lawmakers conformed the state’s corporate income tax code to the latest federal changes, and due to uncertainty in how those changes will affect businesses and state revenues, included an automatic rate cut that will take effect if corporate tax revenues exceed projections by more than 7 percent.
- As Minnesota grapples with issues of how to respond to federal tax conformity, the Minnesota Budget Project stands at the ready to represent the interest of low- and middle-income families!
In Other News:
- In response to education funding needs and a looming teacher strike, Senate leadership in Oklahoma added three revenue raising tax proposals to existing bills this week. They would exempt groceries from the sales tax, raise the sales tax on the remaining base by one cent, and increase the tax rate for oil and gas production.
- Lawmakers in Vermont are considering an income tax surcharge to help fund education. The reform aims to reduce average homestead property tax rates and is coupled with a range of personal income tax changes in reaction to the Trump-GOP tax bill passed late last year.
- Groups composed of New York millionaires continue to make the case for higher state taxes on themselves, claiming that it is the right policy decision and the “right thing to do morally”.
- A new report in California shows that a millionaire’s tax to fund mental health services has boost programs throughout the state helping to reduce homelessness, incarcerations, and hospitalizations.
- Despite education funding challenges, Arizona lawmakers continue to push for tax cuts. Gov. Doug Ducey has proposed raising the personal income tax exemption for military pensions. Other proposals would increase the dependent exemption, lower the amount of capital gains subject to state income taxes, and specify that certain digital goods and services are not taxable.
- Massachusetts’s Charlie Baker is again pushing for a permanent sales tax holiday.
- Wyoming lawmakers exempted virtual currencies from the state’s property tax.
- Policy groups in Colorado are urging lawmakers to shore up public investments and stop digging budget holes via proposals to cut income tax rates and divert general fund dollars for transportation projects.
- An online sales tax bill in Idaho that has already passed the House has been endorsed by the Senate panel.
- In Kansas, proposals to raise taxes on the wealthy to cut the sales tax on food met a cold reception, while a proposal to increase transparency regarding the beneficiaries of business tax incentives passed the House.
- An effort to raise tobacco taxes in Mississippi is all but dead for this year.
- Just five years ago, state lawmakers in Iowa enacted a property tax reduction for businesses and promised to replace the lost revenue for cities and counties with state dollars, but in a familiar story to local government officials around the country, legislators are now considering reneging on the deal, removing the funding but leaving the property tax cut in place. The state recently got some good revenue news, but still has a projected shortfall.
What We’re Reading…
- Governing maps out the various ways states are approaching the Supreme Court’s upcoming decision that could authorize them to finally collect sales taxes already due on online purchases.
- The Rockefeller Institute warns of rocky revenues ahead as a result of the federal tax-cut bill.
- The Tax Professor Blog highlights research from Andrew Kahrl on how the property tax has been used against communities of color.
- The Center on Budget and Policy Priorities writes about how a further decline in union power could result in even worse income inequality in the states.
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