March 30, 2022
March 30, 2022
Several states have dropped a few late-session surprises, and from the looks of it, they’re not the good kind. In Mississippi, state leaders agreed to replace the graduated income tax rate structure with a flat, 4 percent income tax. While it’s a relief that lawmakers didn’t move forward with eliminating the income tax outright—which many lawmakers in state were working hard to do—the change will further exacerbate the state’s inability to adequately invest in Mississippians. Meanwhile, Nebraska lawmakers are currently having discussions about cutting the top personal and corporate income tax rates and exempting Social Security income after those proposals were defeated and then quickly amended into another bill. And finally, after weeks of debate, Georgia leaders in the Senate unveiled their tax plan, which would move it to a 4.99 percent flat tax and create a nonrefundable Earned Income Tax Credit, among other things. While we hope the end-of-session surprises will let up soon, one thing that is not surprising is Fitch Ratings’s analysis of 2022 state tax cut plans, as they note that there could be serious effects if states are unable to sustain current levels of revenue growth.
Major State Tax Proposals and Developments
- The GEORGIA Senate finally revealed their long-awaited tax cut plan following the House’s $1 billion flat tax proposal. The Senate plan would replace the state’s graduated rate structure with a flat 4.99 percent tax rate over the next decade, given certain fiscal conditions. The plan also includes a nonrefundable 10 percent state Earned Income Tax Credit, increases personal exemptions, and caps the film tax credit to $900 million a year. While limiting the film tax credit would be a welcome change, the flat tax provision would make the state tax code even more regressive. – KAMOLIKA DAS
- MISSISSIPPI leaders finally came to an agreement on a tax giveaway to wealthy Mississippians that will replace the state’s current tax brackets with a flat 4 percent income tax rate over four years. While far better than full income tax elimination, the permanent, unsustainable tax cut will reduce state revenues by nearly $200 million in the first year and $525 million once fully phased in—a massive loss for a state that regularly ranks poorly on key indicators such as education and healthcare. The final top-heavy plan does not include a grocery tax cut as proposed in earlier versions, meaning that on top of massive revenue loss the plan does little to benefit the state’s poorest residents. – KAMOLIKA DAS
- At the time of publication, NEBRASKA lawmakers are actively debating a last-ditch attempt to cut the top rates of the personal and corporate income taxes, which would undercut revenues and predominantly benefit high-income households. A hasty attempt last week to add these regressive cuts to a less controversial Social Security tax cut bill failed and now both proposals have been added to a third bill. – DYLAN GRUNDMAN O’NEILL
- Late last week, the OKLAHOMA House passed more tax cut bills that would phase out and ultimately eliminate personal and business income taxes. They would also expand sales tax rebates and create a new, one-time $125 tax rebate that would be issued ahead of the November general election. This comes one day after approving nearly $500 million in tax cuts. – BRAKEYSHIA SAMMS
- ARIZONA Republican State Senator Paul Boyer announced in an Op-ed that he will not vote for a major tax cut unless the legislature also approves $900 million in funding for education services, including before and after school programs and opportunity scholarships. Boyer, who chairs the Senate Education Committee, is one of 16 Republican senators whose support is needed to pass a bill along party lines and overcome the 14 votes Democrats hold in the Senate.
- CALIFORNIA legislators voted down a proposed gas tax suspension and turned to considering two alternative approaches. Gov. Gavin Newsom’s proposal would send $400 debit cards to vehicle owners, provide grants to transit agencies to fund three months of free rides, suspend a part of the diesel tax, and pause inflation adjustments on fuel taxes. Another proposal would also send rebates to drivers, combined with a new tax on gas suppliers when their prices are out of proportion with crude oil prices.
- CONNECTICUT lawmakers approved a gas and sales tax holiday bill quickly last week as expected, cutting into possible funding for more targeted proposals like Gov. Ned Lamont’s proposed property tax credit increase.
- DELAWARE lawmakers have agreed on sending residents who filed a 2020 tax return $300 direct payments instead of adopting a gas tax holiday. The rebates will cost the state $187 million in revenue.
- An attempt to pass a constitutional amendment that would require supermajorities to raise taxes in KANSAS failed in the Senate.
- Senators in KENTUCKY have passed House Bill 8 which cuts Kentucky’s flat individual income tax from 5 to 4 percent. Triggers are included in the bill that could further reduce the rate.
- A MAINE bill that would have suspended the state’s 30 cent gas tax for the rest of 2022 has been blocked after losing support, including support from Gov. Janet Mills, who has proposed $850 in direct relief to residents.
- MARYLAND Gov. Larry Hogan and other state leaders have proposed a nonrefundable tax break for seniors that would cost the state approximately $300 million annually. Due to the lack of refundability, the tax break would not benefit seniors with the greatest need.
- As NEW YORK’s budget debate winds down, some advocates are fighting to include a credit for caregivers who support their loved ones.
- Although revenue projections in NORTH DAKOTA have exceeded expectations, a revenue-spending gap that is filled by tapping into funds from oil taxes remains. About 21 percent of the 2021-2023 budget comes from oil revenue and the gap has been partially caused by income tax reductions from 2009 to 2015 that cut rates by 50 percent.
- In OKLAHOMA, a bill passed the House that would eliminate income tax on veterans’ retirement pay. There was a similar bill that aimed to do the same that passed in the Senate.
- An OHIO bill that would double the amount of historic preservation tax credits from $60 to $120 million cleared the Senate.
- TENNESSEE Gov. Bill Lee proposed suspending the state and local grocery sales tax for thirty days, which would reduce state revenues by $80 to $110 million.
What We’re Reading
- Fitch Ratings issued a post explaining that recently enacted state tax cuts from around the country could have long-lasting, negative implications if states aren’t able to maintain current revenue growth levels.
- The Commonwealth Institute in Virginia published a blog post depicting the true beneficiaries of gas tax suspensions.
- An Op-ed from South Carolina Appleseed in the Post and Courrier demonstrates the need for investment in South Carolinians over income tax cuts.
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