State Rundown 3/28: Tax Cut Madness, But Our Brackets Bet on Tax Fairness

While madness is typically reserved for basketball in March, several high-profile, regressive tax cuts are making their way through state legislatures this week. In KANSAS, the House unanimously passed cuts to income, sales, and property taxes while trying to circumvent a veto from Gov. Laura Kelly. The MISSOURI House passed a bill that would fully eliminate the state’s tax on profitable corporations, despite its roughly $880 million annual revenue loss and the fact that most of the bill’s benefits would flow to out-of-state shareholders. Meanwhile, lawmakers in NEBRASKA are eyeing an increase to the state’s sales tax, among other measures, to fund property tax cuts. VERMONT is a notable exception to this spate of regressive tax cutting, as the House Ways and Means Committee approved three bills that would generate $500 million, mostly by taxing wealthy households and corporations.

Major State Tax Proposals and Developments

• A “compromise” tax cut bill unanimously passed the House in KANSAS, despite the fact that nearly half of the benefit would flow to the state’s top 20 percent of earners with average annual incomes exceeding $315,000. The bill flattens and reduces the state’s personal income tax, eliminating the bottom tax bracket and lowering the top two rates by .05 percentage points. It would also increase the state’s personal exemption and standard deduction, indexing them to inflation. All Social Security income would be tax-free, effective immediately, differing from the Senate plan that would phase out these taxes. The bill would also cut the state’s property tax millage for schools and increase the homestead exemption. Before amendments were made in the House, the original bill was estimated to reduce revenue by $412 million during its first year of implementation. – NEVA BUTKUS
• The MISSOURI House passed a bill that would fully eliminate the state’s corporate income tax, currently at 4 percent, by 2028. The tax brought in about $880 million in FY 2023. It is already one of the lowest corporate tax rates in the nation, but an important revenue raiser and progressive feature of the state’s tax system. – ELI BYERLY-DUKE
• NEBRASKA lawmakers began debate on a regressive tax shift championed by Gov. Jim Pillen that would raise the state sales tax by one cent, close some sales tax exemptions, raise or create an assortment of other taxes such as the cigarette tax, and devote the revenue to property tax cuts. Opposition is coming from multiple angles, including those who do not want to see the state’s tax system lean even more heavily on middle- and low-income families who already pay the highest rates in the state, as well as those who don’t think the proposal goes far enough. Proponents have paused the debate to craft another amendment to the plan, which has seen many iterations. – DYLAN GRUNDMAN O’NEILL
• The VERMONT House Ways and Means Committee approved three revenue raising bills that are estimated to generate about $500 million. The proposals include doubling the property transfer tax on homes over $600,000, creating a new top marginal income tax rate to 11.75 percent, increasing corporate taxes from 8.5 percent to 10 percent, among other improvements. – MILES TRINIDAD

State Roundup

• A proposed constitutional amendment in IOWA that would require a two-thirds majority vote to raise taxes passed the House. The legislation would also constitutionally mandate a flat income tax. Meanwhile, lawmakers are looking to enact a 25 percent excise tax on consumable hemp products.
• LOUISIANA lawmakers are considering a bill that would create education savings accounts, that would use public dollars to subsidize private school tuition. Nonpartisan, good government groups are forecasting the legislation to cost $520 million annually.
• MICHIGAN state lawmakers have asked the state’s Supreme Court to reverse an appeals court’s ruling that the inflation-based income tax cut was only temporary. Current law mandates that if state revenue exceeds inflation by a certain amount, the income tax rate would be reduced, and the appeals court ruled that the 4.05 percent income tax rate for 2023 would revert to 4.25 percent.
• NEW JERSEY Gov. Phil Murphy signed bills that would increase the state gas tax 1.9 cents per gallon for 5 years and authorize a $250 fee on electric vehicle owners. The package of bills are a part of an eight-year Transportation Trust Fund reauthorization bill, which is mandated by 2016 law that requires a “steady stream of revenue” to support the program.
• SOUTH DAKOTA Gov. Kristi Noem signed legislation that revises the maximum property tax levies for school districts for 2025.
• The TENNESSEE House is debating changes to a Senate-passed measure to cut the state’s Franchise Tax and provide refunds. The House version would cost $800 million and require disclosure of corporations receiving rebates. The Senate measure would cost $1.9 billion and has no such requirement. Meanwhile, 16 of 25 Republican senators declared a personal interest in the law before voting for it, one Democrat who voted in opposition made the same declaration. One other potential beneficiary: Tennessee Governor Bill Lee, who has stated he does not know if his firm would benefit.
• The state of WEST VIRGINIA filed a tax lien of about $3.5 million on The Greenbrier Resort, a prominent hotel and resort owned by state Governor Jim Justice, for unpaid sales taxes.
• WYOMING Gov. Mark Gordon signed four bills that will cut property taxes by expanding a range of exemptions for eligible filers.

What We’re Reading

• Stateline’s Tim Henderson gives a national level view of how states are responding to tightening revenue as the economy normalizes and COVID money runs out. Revenues are slowing across the board and many states are facing tough choices. Especially for those who cut taxes “funded” by one-time surpluses.

 

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