State Rundown 4/13: Teacher Strikes, Special Sessions, Federal Cuts Haunting States

This Friday the 13^th is a spooky one for many state lawmakers, as past bad fiscal decisions have been coming back to haunt them in the form of teacher strikes and walk-outs in Arizona, Kentucky, and Oklahoma. Meanwhile, policymakers in Maryland, Nebraska, New Jersey, Oregon, and Utah all attempted to exorcise negative consequences of the federal tax-cut bill from their tax codes. And our What We’re Reading section includes yet another stake to the heart of the millionaire tax-flight myth and other good reads.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Major State Tax Proposals/Developments:

• This week, Kentucky’s Matt Bevin vetoed the state’s budget and revenue bills and signed a pension reform bill into law. Legislators are now weighing whether to override the governor’s vetoes and pass any additional legislation during the final days of session. Teachers rallied at the state capitol today to defy budget cuts and push to restore increases to education funding. As of Friday afternoon, the Kentucky House overrode the governor’s veto. A move that will provide some additional funding for education, but at the cost of a highly regressive tax plan that will cut taxes for the wealthy and hike taxes for the other 95 percent.
• Oklahoma’s teacher strike came to an end this week, after a nine-day walkout. While falling short of meeting their goals, many teachers view this not as the end of the movement but as a change in tactics. Gov. Mary Fallin signed bills this week to repeal the state’s hotel and motel tax, tax dice games, and to enforce tax collection on purchases made over the internet. A number of revenue raisers remain on the table — including reinstating the state’s top income tax rate of 5.25 percent and eliminating the capital gains exemption, a costly break for Oklahoma’s high-income earners.
• Arizona’s Doug Ducey announced a plan to give the state’s teachers a 20 percent raise by 2020. However, educators are skeptical given that no details have been released in terms of funding the increase. Rather, the governor claims he will do this “all without raising taxes while maintaining Arizona’s balanced budget.”
• Iowa House lawmakers held a public hearing on Gov. Kim Reynolds’s tax proposal Monday and then replaced it with a substantially revised version that maintains the state’s regressive tax deduction for federal income taxes paid, makes more modest personal income tax rate cuts, increases the state standard deduction, among other changes. The bill retains Gov. Reynolds’s ill-advised and highly regressive proposal to add a deduction for “pass-through” income equal to 25 percent of the new federal deduction. Senate leaders then offered their own plan that slashes taxes even deeper. Time is short, as lawmakers are hoping to adjourn early next week.
• Nebraska legislators were unable to reach agreement on a mix of property and income tax cuts this session, leading some to call for a special summer session and increasing the momentum for a ballot initiative that would create a $1 billion property tax credit – and a $1 billion hole in the state budget.
• Lawmakers in Kansas passed a school funding bill just in the nick of time late last week before being reviewed by the state Supreme Court. The bill allocates an additional $534 million phased in over 5 years and will require tax increases to fund in the future. The governor intends to sign it.

More State Responses to Federal Tax-Cut Bill:

• Maryland‘s response to the federal tax bill is now final. Lawmakers used part of the revenue gain resulting from the federal tax cut to expand the Earned Income Tax Credit, increase the standard deduction, expand tax benefits for retired veterans and public safety employees, and cut taxes for multi-state corporations, while directing most of the money into K-12 education investments and the state Rainy Day Fund.
• Nebraska‘s response, which preserves the state’s personal exemption credit and slightly raises the standard deduction, is now final as well. The bill was noncontroversial and passed unanimously, though some in the state noted that it leaves the state with no margin for error if revenues underperform.
• Oregon Brown signed the bill decoupling state tax law from the new deduction for business pass-through income while calling for a special session in June to consider issuing a separate tax break for small businesses. Decoupling from the business tax break will save the state from losing around $1 billion over the next few budget cycles.
• Utahans with large families are coming to terms with the fact that lawmakers’ response to federal tax changes was to cut tax rates—disproportionately benefitting the most well-off residents—instead of addressing the tax increases large families they will face in the future thanks to the elimination of the personal exemption.
• New Jersey legislators passed a bill creating a workaround to the federal cap on state and local tax deductions, authorizing local jurisdictions to allow people to make fully deductible “donations” to new “charitable” funds instead of paying property taxes.

In Other News:

• The Massachusetts House proposed a $40.98 billion state budget for the coming fiscal year. The proposal, like the governor’s, would increase the state’s Earned Income Tax Credit (EITC) to 30 percent of the federal credit.
• Mississippi Phil Bryant declared a state of emergency that immediately closed 83 unsafe bridges around the state, reviving debate about the state’s badly outdated gas tax, though Bryant himself and Lt. Gov. Tate Reeves remain opposed. Lawmakers already decided to borrowed $250 million for various infrastructure needs that will have to be paid back at a future time.
• Alabama Kay Ivey signed a law expanding the state’s online sales tax collection efforts to include third-party vendors selling good through online marketplaces like Amazon.
• Missouri lawmakers restored some higher education cuts, received strong push-back on a proposal to reduce cities’ ability to raise sales tax revenues to fund local services, and continue to discuss major tax cuts, including a corporate income tax rate cut that appears to be fast-tracked for passage. But most attention is on calls for Gov. Eric Greitens’s resignation in the wake of a graphic report accusing him of sexual assault.
• New Jersey Phil Murphy’s proposal to institute a millionaire’s tax, reverse Chris Christie-era tax cuts, legalize and tax cannabis, and make other changes to re-invest in the state and move the budget toward solvency have yet to be debated in the legislature, but received two votes of confidence this week: acting treasurer Elizabeth Muoio argued that “it’s time to face the facts” and admit such changes are necessary, and New Jerseyans gave Murphy a higher approval rating than either of the two previous governors received at the same poinr in their terms.
• South Carolina gubernatorial candidate Catherine Templeton proposed her own tax plan this week and made it clear she prioritizes tax cuts over protecting funding for public services, calling for a 29 percent cut in the state income tax rate (from 7 percent to 5 percent) as part of her “Cut Spending, Cut Taxes, Cut Bureaucracy” plan.
• Virginia Ralph Northam has proposed a higher hotel tax and real estate transfer tax to fund the state’s share of an agreement to improve public transit in the District of Columbia metro.
• While some Louisiana lawmakers are trying to message away the state’s fiscal crisis, Gov. Bel Edwards is encouraging lawmakers to pass a budget in order to end the regular session early so they can go into special session to address the expiring sales taxes.
• New Mexico Martinez is celebrating a 13 percent increase in state revenues after years of budget cuts; state economists are cautious, attributing the uptick to the oil and gas industry, highlighting the state’s heavy reliance on a very volatile revenue source.

What We’re Reading…

• The TaxProf Blog summarizes the latest research from academic Charles Varner debunking the “millionaire migration myth” by showing the negligible effects of state tax rates on wealthy migration patterns even between border communities along state lines.
• Chuck Collins of org has a new book coming out provocatively titled “Is Inequality in America Irreversible?“.
• Washington Post’s Wonkblog and Vox report how tax cuts are a driving force behind Oklahoma’s teachers strike. Others weigh in on how tax cuts are also driving disinvestment in Arizona.
• An editorial from Maine’s BDN argues that the state’s tax changes should target those who were left out of the federal tax cuts – namely working-class Mainers and their families.
• The Oklahoma Policy Institute released a fact sheet explaining how the education funding increases are a start, but do not do enough to fund education priorities.
• Governing has the latest on state and city efforts to tax ride sharing services like Uber and Lyft.

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.

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