State Rundown 4/1: Most States Resisting Foolish Tax Cut Games That Tear Revenues Apart

Supporters of tax fairness and adequate funding for public needs are hoping West Virginia’s income tax elimination effort turns out to be a prank, but most states are not fooling around with such harmful policies this year. For example, Mississippi lawmakers walked back their own income tax elimination plans to study the issue more seriously over the summer, Connecticut leaders are showing their child tax credit proposal for middle- and low-income families is no joke, and Florida may finally get real about collecting online sales taxes. States aren’t even giggling about cannabis legalization anymore, as a new study in Washington shows its economic and revenue benefits and New York and Virginia look to follow suit.

Major State Tax Proposals and Developments

• The WEST VIRGINIA Senate Finance Committee advanced their own version of state income tax elimination. HB 3300 has a lot in common with the governor’s plan, but Gov. Jim Justice has been vocal about his displeasure with the differences. Analysis of the plan shows tax cuts for the wealthy, tax increases, and budget cuts for everyone else. – AIDAN DAVIS

State Roundup

• CONNECTICUT leaders are optimistic about implementing a state Child Tax Credit this year after the idea received strong support at a recent hearing. The proposal would provide an income boost of up to $1,800 for middle- and low-income families.
• DELAWARE lawmakers had an opportunity this year to modernize the state income tax and bring in nearly $100 million in revenue from upper-income households by adding three personal income tax brackets, but the proposal was voted down by a House committee amid (debunked) fears that the state could lose residents and revenue.
• The DISTRICT OF COLUMBIA Council will again consider an excise tax on sugary drinks.
• The FLORIDA Senate approved a bill that will require out-of-state online retailers to collect and remit sales tax.
• GEORGIA Republicans have voted to eliminate Delta Air Lines’ jet fuel tax breaks after the company’s CEO criticized the state’s recently enacted law that added a slew of voting restrictions. The bill, however, was not taken up by the Senate before it adjourned.
• HAWAII’s Senate Ways and Means Committee approved a proposal to increase the top rates for state capital gains taxes on businesses and wealthier individuals. The House already approved a similar measure. The Senate Committee is also considering changes to existing inheritance and conveyance taxes. If approved, the proposed conveyance tax changes would apply to non-owner occupant properties worth $4 million or more. The state inheritance tax exemption would decrease from the existing $5.49 million to $3.5 million.
• The KENTUCKY legislature narrowly overrode Gov. Andy Beshear’s veto of the controversial school choice measure which he called a “direct attack” on public education.
• The MISSISSIPPI Senate has once again hit the pause button on proposals to phase out and eliminate the state’s income tax, preferring instead time to study the state’s tax structure. A thoughtful approach would be wise given that the proposals to date would provide a huge boon for the state’s wealthiest while asking low-income and elderly taxpayers to pay more.
• MISSOURI House Budget Committee members are attempting to overrule voters by rejecting funding for voter-approved Medicaid expansion.
• NEVADA lawmakers attempting to add some stability to funding for schools and other local services have proposed a 3-percent growth floor to accompany the existing 5-percent ceiling on residential property taxes. The floor would help keep local funding from declining or falling as far behind needs during recessionary periods.
• NEW YORK legislators and Gov. Andrew Cuomo have reached agreement on legalizing and taxing cannabis, though it does not appear they will meet their goal to pass an “on time” budget by April 1, as negotiations continue regarding the budget and proposed tax increases on high-income households.
• NORTH CAROLINA’s Gov. Roy Cooper called for restoring the state’s Earned Income Tax Credit in his budget proposal. He also proposed a Child and Dependent Care Tax Credit, based on the federal, to help families fund child-care expenses.
• KANSAS lawmakers have sent a $130 million tax cut bill to Gov. Laura Kelly. The bill allows taxpayers to itemize on state returns regardless of how they filed on their federal return and allows corporations to move overseas profits to the state without paying taxes.
• VIRGINIA Gov. Ralph Northam is proposing to accelerate cannabis legalization by moving the change up to this year instead of three years from now.
• A WYOMING bill that helps fill a $300 million shortfall in education funding will head to the Senate without a half-cent sales tax increase (if the state’s primary savings account drops below $650 million) included.

What We’re Reading

• We are looking forward to our April 8 webinar on The High Cost of Corporate Tax Avoidance, featuring experts from ITEP, Good Jobs First, the Institute for Local Self-Reliance, and Athena.
• Governing has the latest on how federal funds in the American Rescue Plan will affect state Medicaid programs and K-12 schools.
• WASHINGTON State University estimates that cannabis legalization has contributed about $2 billion annually to the state economy and generated hundreds of millions in funding for shared priorities.
• Route Fifty summarizes President Biden’s infrastructure proposal, which includes $56 billion in grants and loans for states to modernize their water systems.
• Our own newest report, “Taxes and Racial Equity: An Overview of State and Local Policy Impacts,” helps establish a foundation for future work on how taxes and racial justice issues intersect and how we can direct state and local tax policy toward mitigating rather than exacerbating racial inequities.

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