March 22, 2018
March 22, 2018
The onset of spring this week proved to be fertile ground for state fiscal policy debates. A teacher strike came to an end in West Virginia as another seems ready to begin in Oklahoma. Budgets were finalized in Florida, West Virginia, and Wyoming, are set to awaken from hibernation in Missouri and Virginia, and are being hotly debated in several other states. Meanwhile Idaho, Iowa, Maryland, and Minnesota continued to grapple with implications of the federal tax-cut bill. And our What We’re Reading section includes coverage of how states are attempting to further public priorities by taxing carbon, online gambling, opioids, and inequality itself.
— Meg Wiehe, ITEP Deputy Director, @megwiehe
Major State Tax Proposals/Developments:
- Oklahoma’s Supreme Court ruled in favor of moving State Question 795 to the voters. If approved, the ballot initiative would set a flat 7 percent gross production tax on oil and natural gas wells, eliminating the sizable break for qualifying new wells. This decision comes as teachers plan a strike and lawmakers mull over ways to raise revenue for education needs. Proposals include eliminating the state’s capital gains deduction for the wealthy, a range of consumption tax increases, and changes to the state’s supermajority requirement for tax increases.
- West Virginia’s session has come to a close, and the Governor signed off on the state’s budget. On the heels of a nine-day teacher strike, the budget resulted in a 5 percent raise for educators. But rather than finding new revenue to cover the cost of the pay raises and freeze on PEIA changes, as the West Virginia Budget and Policy Center explains, lawmakers relied on budget cuts.
- Lawmakers in New Hampshire tabled action to repeal the state’s tax on interest and dividends, citing concern for the negatives effects the tax cut would have on the state’s bottom line.
- Wyoming’s legislative session also wrapped up. The biennial budget relies on unrealized capital gains from the state’s investment in the stock market and $1.6 billion in savings to fund ongoing expenses. Faced with a $900 million structural deficit, interim committees will likely be tasked with tackling the longer-term solution of identifying new sources of revenue.
- Nebraska‘s tax debate is heating up as a new version of Gov. Pete Ricketts’s tax cut advanced from committee to be considered by the full legislature. The latest version scraps its original personal income tax rate cuts but still does nothing to make the bill more fiscally responsible. It cuts the corporate income tax rate and phases in a refundable tax credit for property taxes that would eventually grow to 20 percent of residential property taxes (with a $500 cap) and 20 percent of agricultural property taxes (with no limit). Aside from raiding the state’s Rainy Day Fund for $35 million to pay for the first year of the cuts (which is less than one-tenth of the eventual annual cost), the bill identifies no funding for the cuts. Meanwhile, lawmakers successfully filibustered a bill designed to bring in some revenue by helping the state collect sales taxes owed on online purchases.
- Florida Rick Scott toured the state last week to tout $171 million of unnecessary tax cuts and then returned to Tallahassee to sign into law a state budget that fails to keep up with schools’ costs, does little to reduce waiting lists for state services, and draws down state reserves by $3.3 billion.
- Multiple tax and budget developments occurred in Alabama this week. Lawmakers slightly raised the threshold at which Alabamians can claim the maximum state standard deduction and rejected a regressive tax break that would have indirectly funneled tax dollars away from the public school system to subsidize private schools, but also advanced a preemption bill that would make it harder for municipalities to raise revenues through local sales taxes.
- Missouri legislators are on spring break this week but will be back to debate major tax legislation on Monday.
- Arizona lawmakers are considering bills to permanently extend Prop. 301, a six-tenths of a cent sales tax that was approved by voters in 2000. The funding stream, used primarily for education, is set to expire in 2021. But the Senate President says he plans to fast-track the extension through both chambers.
More State Responses to Federal Tax-Cut Bill:
- Maryland lawmakers are taking a more circumspect approach than their counterparts in Georgia and Idaho to the $360 million of revenue they could gain from the federal tax-cut bill, using $100 million of the gain to protect families by raising the standard deduction and $200 million to invest in education. But they may be simultaneously digging themselves a revenue hole by offering $5.6 billion in tax incentives to Amazon.
- With multiple tax-cut proposals circulating in Iowa it can be hard to keep track of them all, but Iowa Fiscal Partnership’s Tax Policy Kit helpfully summarizes the key issues and will be kept up to date with the latest developments, including a new breakdown of the proposed pass-through-income deduction. And as lawmakers debate further undermining state revenues through tax cuts, the House has voted to cut $11 million from state universities this year.
- Minnesota Dayton proposed last week that the state respond to recent federal tax changes by changing its starting tax point to federal adjusted gross income instead of taxable income, thereby avoiding tax changes to state deductions. The governor also proposes enacting a new personal and dependent credit for individuals making under $140,000 and expanding the Working Family Credit.
- Idaho lawmakers bumped the recently passed Child Tax Credit from $130 to $205 to extend the tax cut to larger Idahoan families that were left with a net tax increase after conforming to federal tax changes and the smaller version of the credit. The Tax Policy Center explains how this is an improvement but falls short of making everyone whole.
In Other News:
- Vermont’s House passed legislation this week that would change the way Vermonters pay for schools. The proposal would shift reliance on the property tax to an income tax surcharge. Gov. Phil Scott is not enthused.
- Doug Ducey signed a bill that requires any tax on food products to be uniform. In practice it will prevent Arizona cities and counties from taxing sugary foods or drinks.
- A new forecast in Alaska shows that the state will bring in $250m more than predicted. So oil revenues bail out Alaska lawmakers, for now, but even with this bump the state’s budget reserve will be close to empty at the end of the 2019.
- Georgia lawmakers passed a major tax bill recently that squandered an opportunity for more comprehensive reform and put the state at risk of serious revenue issues going forward, and are now considering further tax cuts that would reduce revenues by an additional $245 million over the next five years.
- Virginia legislators will return for a special session April 11th to attempt again to pass a budget, which has largely been held up by disagreement over expanding Medicaid.
- An Ohio bill to make the state’s back to school sales tax holiday permanent passed the Legislature and heads to Gov. John Kasich for signature.
- Anti-tax rhetoric reached a new low in South Carolina this week, where Gov. Henry McMaster called taxes “worse than war.”
- Wisconsin Senators signed off on a one-time $100 child tax rebate and a more limited sales tax holiday already passed by the House, but it is uncertain if they will sign off on the governor’s proposed tax break for paper company Kimberly-Clark.
What We’re Reading…
- Route Fifty succinctly explains the unhealthy fiscal dynamics that lead to underpaid teachers around the nation: “as state and local finances rebounded, many red and purple states cut their income taxes, with property taxes remaining depressed due to the subprime-mortgage crisis. The result: sharp declines in public-school funding per student, reduced salary increases through the recovery, and widespread teacher shortages.
- Governing reports on states looking into taxing drug manufacturers to stem the opioid epidemic.
- Governing also has the latest on state efforts to tax carbon pollution.
- According to Bloomberg, states looking forward to revenue from legalizing and taxing online sports betting should temper their expectations, as there will be significant operational costs involved that will eat into the revenue potential.
- The TaxProf Blog covers a fresh take on taxing inequality and wealth out of Ohio State University.
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