Just Taxes Blog by ITEP

State Rundown 3/6: March Tax Debates Contain Sanity Amid Usual Madness

State Rundown 3/6: March Tax Debates Contain Sanity Amid Usual Madness

March 6, 2019

Meg Wiehe
Meg Wiehe
Deputy Director

State policymakers around the nation this week served up a handful of harmful and upside-down tax proposals, but these were refreshingly outnumbered by sound tax and budget policy proposals in several other states. NEW JERSEY Gov. Phil Murphy made tax fairness an explicit priority in his budget address, the NEW MEXICO House passed progressive reforms to improve the state’s schools and tax code, states such as VERMONT are looking to raise funds from legalized cannabis and put it to good use, and many states, including ALABAMA, ARKANSAS, OHIO, and WISCONSIN, are seriously considering much-needed gas tax updates to improve their infrastructure.

— MEG WIEHE, ITEP Deputy Director, @megwiehe

Major State Tax Proposals and Developments

  • NEW JERSEY Gov. Phil Murphy focused on tax fairness, spending restraint, and education investments in his budget address Tuesday. Murphy proposes to raise $447 million by extending the state’s mega-millionaires’ tax to income over $1 million as originally planned, save $800 million by reconfiguring public employee health benefits, and raise further revenue by legalizing and taxing cannabis and raising taxes and fees on guns and ammunition. The revenues would help the state put $3.8 billion toward closing the state’s pension shortfall and take steps toward tuition-free community college and universal pre-kindergarten. The millionaires’ tax will face opposition from legislative leaders, and critics also argue that the budget does not adequately fund K-12 schools. — DYLAN GRUNDMAN
  • NEBRASKA lawmakers continue to mull over a diverse list of tax proposals, now with $110 million less wiggle room due to a revised revenue forecast. Gov. Pete Ricketts’s proposal to drive down school funding through a property tax cap was introduced, as was a regressive half-cent sales tax increase to fund property tax cuts. Another bill considered this week took a more holistic and responsible approach to the state’s property tax and education issues: reducing property taxes through greater state investments in schools, funded via a progressive mix of base-broadening and loophole-closing measures, while also increasing the state EITC to further boost the workforce and help offset tax increases for low- and middle-income families. — DYLAN GRUNDMAN
  • The NEW MEXICO House passed sweeping tax reforms last week that would increase the state’s ability to meet its constitutional requirements to adequately invest in public education while reducing reliance on the oil and gas industry and simultaneously improving tax fairness. Highlights of the bill include increasing top income tax rates, expanding tax credits targeted to low- and middle-income families, collecting gross receipts taxes from online retailers, and imposing new taxes on hospital and e-cigarettes. — LISA CHRISTENSEN GEE
  • UTAH lawmakers finally released the details of a massive tax reform proposal last week. The 257-page bill lays out plans for an extensive expansion of the sales tax to cover most services, including closure of many existing sales tax exemptions, enabling lowering of the general sales tax rate. The bill also includes several income tax measures, including dropping the rate, increasing the deduction for children for taxpayers with moderate incomes, and creating a modest EITC for families experiencing intergenerational poverty. The net impact is a shift from the income tax (which is the source of funding public education in the state) to the sales tax, which is unsurprisingly regressive in its impact. As suggested by the Salt Lake Tribune Editorial Board, we could all use more time to sort through the details of the impact. Refinements are underway and lawmakers are expected to take up consideration of the bill later this week. — LISA CHRISTENSEN GEE

 Governors’ Budget Proposals and State of the State Speeches

  • FLORIDA Gov. Ron DeSantis gave his first State of the State address, taking the opportunity to repeat disproven anti-tax myths crediting the state’s low overall taxes for its economic and population growth, while omitting the oft-ignored fact that Florida actually has the fourth-highest taxes in the country for low-income families.
  • MICHIGAN Gov. Gretchen Whitmer’s budget proposal is taking a lot of heat for two of the tax ideas included—nearly tripling the state’s fuel taxes by raising the rates 45 cents per gallon and levying an income tax on pass-through entities with incomes over $50,000 in order to fund more retirement tax relief for seniors. Doubling the state’s EITC from 6% to 12% of the federal credit is also proposed to help offset the regressive impacts of raising the fuel tax, though ITEP analysis indicates that the lowest-income families is the state would still experience a net tax increase of around $50 a year.
  • TENNESSEE Gov. Bill Lee’s budget calls for beefing up the state’s rainy day fund in anticipation of the next recession, pay raises for teachers and correctional officers, and improved funding for infrastructure, as well as a school voucher pilot program and a task force to study potential healthcare savings.
  • Highlights from WISCONSIN Gov. Tony Evers’ budget include tax proposals to increase the gas tax by 8 cents per gallon, legalize medical marijuana, tax capital gains at the same rate as salaries and wages, limit a top-heavy tax credit for agricultural and manufacturing investments, enact a 10 percent tax credit for middle-class families, and expand the state’s EITC. Unsurprisingly, the Republican-controlled legislature is expected to assemble their own budget from scratch.

State Roundup

  • ALABAMA Gov. Kay Ivey has called a special session to raise the state’s gas tax.
  • The ARKANSAS House passed two measures yesterday that address road funding—one that would levy a new wholesale sales tax on gasoline and diesel while also increasing registration fees on electric vehicles and another that would ask voters to approve extending a ½ cent sales tax for highways. Both bills now head to the Senate for a final vote.
  • Lawmakers in CONNECTICUT are pushing Gov. Lamont to consider proposals that would ask the wealthy to pay their fair share.
  • One recent proposal in CONNECTICUT includes a statewide 1 percent property tax that would also end local taxes on motor vehicles and create a statewide tax between 15 and 19 mils.
  • A proposal to increase the homestead deduction in the DISTRICT OF COLUMBIA advanced out of committee and is headed to the full council for a vote next week. The bill has drawn equity concerns as it would provide a larger benefit to high-value homeowners than owners of lower-value property or renters, thus favoring wealthy, white homeowners more than low-income residents and residents of color.
  • INDIANA lawmakers killed two proposals to increase the state cigarette tax despite 70 percent support for the increase among state voters.
  • MARYLAND General Assembly leaders introduced legislation to devote more than $1 billion to schools over two years to begin meeting the recommendations of a recent education reform study commission, but did not propose ways to raise revenue for those improvements.
  • MARYLAND lawmakers are also moving forward on boosting the minimum wage to $15 per hour by 2025.
  • In contrast to MONTANA Steve Bullock’s plan to increase some excise taxes, GOP lawmakers have advanced SB 217 which would cut taxes on Social Security and some other retirement income.
  • Tribal and state leaders in NORTH DAKOTA have reached a new agreement on how to share oil tax revenues.
  • On the heels of the Governor’s proposal for an 18-cent increase, lawmakers in OHIO are proposing a smaller gas tax increase – an increase of 10.7 cents over the next three years, along with a 20-cent increase over the same period for diesel. The bill is coupled with calls to raise registration fees for electric and hybrid vehicles.
  • The VERMONT Senate passed legislation last week that would establish a taxed and regulated market for cannabis sales in the state. The legislation calls for a 16 percent excise tax and a two percent local option tax.
  • A bill that would cut taxes on Social Security income is moving through the WEST VIRGINIA legislature. The latest version adds a phase-in provision and targets the impact to low and middle-income families, adding an income tax cap of $50,000 for single and $100,000 for married filers.

What We’re Reading

  • With all this talk of taxing wealth, how big is the wealth gap anyway? This interactive graph and this animated video help demonstrate the extreme disparities that wealth taxes propose to reduce.
  • Land Line magazine and Governing survey the 20 states where gas tax updates are being considered this year.
  • The Center on Budget and Policy Priorities reports on new research highlighting the particularly strong positive effects of investing in both K-12 and Pre-K education.
  • A recent report by the National Academies of Sciences, Engineering and Medicine recommends expanding the EITC and Child and Dependent Care Tax Credit as part of a policy packages aimed to reduce child poverty within 10 years.
  • A MINNESOTA columnist weighs in on the obvious benefits of and accompanying problems with tax avoidance.
  • Another downside of corporate tax incentives? Businesses often break their promises but don’t face public accountability for doing so.
  • Route Fifty explores the pros and cons of creating state banks to help local governments with infrastructure financing.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.