March 23, 2023
March 23, 2023
As nature bursts into life and color with the arrival of spring, state tax proposals are doing the same as the legislative seeds planted by lawmakers earlier this year start to grow, blossom, and in some cases rot. However, some governors are not entirely happy with what state lawmakers have produced.
South Dakota Gov. Kristi Noem’s efforts earlier this year to sow the seeds of repealing the state’s sales tax on groceries were quickly overwhelmed by competing efforts to reduce property taxes or the overall sales tax, with the latter plan receiving a reluctant (green) thumbs up from the governor. In New Mexico, lawmakers’ planted a $1.1 billion tax package – a portion of which was aimed toward tax cuts for low- and middle-income households. But the plan could wither away as Gov. Michelle Lujan Grisham has expressed concerns that lawmakers may have overdone it and poured on the tax cuts as the state’s volatile oil-based revenue could dry up in the future. As state lawmakers continue to tend to their state budgets, the outlook of the ensuing seasonal hay fever looks more likely to manifest as tax cut fever symptoms as some poorly targeted, top-heavy proposals continue to spread like ragweeds.
Gardens (and communities) thrive when state and local tax policies are both equitable and sustainable.
Major State Tax Proposals and Developments
- ARKANSAS lawmakers passed legislation that would increase the property tax homestead tax credit from $375 to $425. Gov. Sarah Huckabee Sanders is expected to sign the bill into law. – BRAKEYSHIA SAMMS
- The NEBRASKA revenue committee has advanced LB 754, which would dramatically cut both corporate taxes and personal income taxes paid by high earners. The measure would take the state’s top PIT rate down to 3.99 percent over time (from its current 6.64 percent). The bill will now be considered by the state’s unicameral legislature alongside major property tax and education provisions. – DYLAN GRUNDMAN O’NEILL
- The NEW MEXICO legislature passed a $1.1 billion tax package at the end of its legislative session. The package includes tax refunds to working families, reducing tax rates, and increased incentives for private industry. More specifically, the bill includes a restructure of the personal income tax brackets that lowers the rates for single filers earning under $66,500, $500 individual tax rebates, an increase in the state’s Child Tax Credit that will bring the maximum credit up to $600 per child, an incremental tax reduction on sales and business services, a flat corporate income tax rate of 5.9 percent, a cap on the capital gains deduction of $2,500 or 40 percent of up to $1 million in gain, reducing the state’s gross receipts tax from 5 percent to 4.375 percent over four years, and $90 million in tax incentives for the film industry. The bill has received mixed reception from Gov. Michelle Lujan Grisham, who said she supports providing meaningful tax reform but criticized the bill as cutting taxes too deeply and quickly. Grisham has until April 7 to sign or veto the legislation. – MARCO GUZMAN
- UTAH Gov. Spencer Cox signed legislation, estimated to cost $400 million, that would reduce both personal and corporate income taxes from 4.85 percent to 4.65 percent, increase the state’s nonrefundable Earned Income Tax Credit from 15 percent to 20 percent, allow taxpayers with a newborn child to claim the $1,750 personal exemption twice within the year of the child’s birth, and removes the state’s sales tax on food and ingredients in 2025 if voters approve a constitutional amendment. – MARCO GUZMAN
- SOUTH DAKOTA Gov. Kristi Noem signed legislation to temporarily lower the state’s overall sales tax rate from 4.5 percent to 4.2 percent until 2027. Gov. Noem originally critiqued the proposal and instead pushed for a repeal of the sales tax on groceries, but the legislature rejected the proposal. The overall sales tax reduction is estimated to reduce revenue by $104 million. – MILES TRINIDAD
- CONNECTICUT legislators are wisely taking a cautious approach to Gov. Ned Lamont’s proposed income tax cuts, choosing to try to keep the cut focused on middle- and low-income families and keep the overall size of the cut modest.
- FLORIDA lawmakers in the House Ways and Means Committee voted to advance a constitutional amendment that would lower the cap on annual increases of property assessment values from 3 percent to 2 percent. The proposal is estimated to cost $146 million statewide, with $93 million and $53 million coming from county and public school budgets respectively.
- The FLORIDA Senate passed legislation that would reduce taxes on cell phone, cable, and satellite plans by 1.44 percentage points to 6 percent, matching the state’s sales tax rate. The bill is expected to cost $168.75 million.
- The IOWA senate is continuing to consider eliminating the state’s personal income tax after the measure passed out of Senate committee last week.
- After the KANSAS House Committee on Taxation held its first hearing on HB 2457, a top-heavy tax cut package, the state’s Division of the Budget released an estimate that the bill would cost about $691 million once fully implemented in 2026. The bill would create a flat individual income tax rate, gradually exempt Social Security income from taxable income for all earners, increase the standard deduction, repeal the state’s sales tax on food while also repealing its Food Sales Tax Credit, and decrease the corporate income tax rate.
- In MINNESOTA’s budget from Gov. Tim Walz and Democratic Leaders, it includes a spending target of $17.9 billion of spending where $3 billion is reserved for tax cuts. Details on the plan have not been released and still need to be worked out.
- The MISSOURI House advanced a major tax proposal to accelerate and increase last year’s cuts. The measure would take the state’s PIT rate on income above about $22,000 to 4.5 percent from its planned rate of 4.95 percent (already a cut); cut corporate taxes in half; and eliminate taxes on Social Security. Overall, the proposal would cost the state about $1 billion annually and would further hollow out the state’s weak capacity to provide critical services like education and infrastructure.
- NORTH DAKOTA lawmakers passed legislation that would repeal an automatic tax increase for oil production and extraction whenever the price of oil reaches around $95 per barrel. The legislation passed both chambers with veto-proof majorities.
- The NORTH DAKOTA Senate passed legislation that would exempt diapers from the state’s sales tax, which is estimated to cost $1.75 million over the next two years.
- The OKLAHOMA House voted to repeal the 4.5 percent state sales tax on groceries, HB 1955 now moves to the Senate. House lawmakers are also debating multiple income tax cut bills: HB 2285 would create a flat income tax rate of 4.5 percent that gradually decreases by 0.25 percent every year the state reaches certain income thresholds; HB 1954 would reduce the personal income tax rate by one-half of a percentage point for all tax brackets beginning in 2024; and HB 1953 would decrease the personal income tax rates for all tax brackets by 0.25 percent. All bills were given a do pass recommendation by the House Appropriations and Budget Committee.
- Efforts in OREGON to increase the tax rate on beer and wine to pay for addiction treatment failed to advance in the legislature. The bill was estimated to raise $175 million per year to pay for alcohol-related programs and services, including public education and treatment.
- The TEXAS Senate passed a $16.5 billion package to lower property taxes. The plan includes a few separate bills, including SB 3 which would raise the state’s homestead exemption for school districts from $40,000 to $70,000 with an additional $20,000 increase for seniors, SB 4 which would require the state to distribute at least $5.38 billion into public schools and would cut school property tax rates by 7 cents per every $100 in property value, and SB 5 which would cut business property taxes by $1.5 billion. The package now heads to the House.
What We’re Reading
- Common Good Iowa warns that tax-cut-obsessed legislators are risking cutting the general fund in half by moving to eliminate the state income tax. The move would jeopardize funding for public education, health, and safety.
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