State Rundown 4/17: Tax Cut Proposals and the Consequences of Bad Tax Cuts

Happy (belated) Tax Day! While filing your taxes likely prompted discussions around household finances, fiscal responsibility, budgeting, and (at least in our families) the role of tax revenues in funding the things we care about, the same unfortunately cannot be said for certain statehouses. The Kansas legislature is still determined to use the state’s projected $2.8 billion surplus on permanent income tax cuts. And Virginia’s Gov. Glenn Youngkin may force a special session over the legislature’s reluctance to enact income tax cuts. Other states are seeing the consequences of tax cutting play out: S&P Global Ratings lowered Mississippi’s credit outlook, citing concerns over their recent, deep personal income tax cuts, budgeting woes, and weak economy. And a property tax cap in Washington state is jeopardizing the ability of local governments to fund basic services.  

But not all states are moving in that direction. For instance, both the House and Senate in Maine have passed legislation that would increase the progressivity of the state’s income tax by expanding existing brackets and enacting new brackets on high earners. 

Be sure to check out our latest data and charts which build upon our flagship report, Who Pays?, and tease out how doubling down on regressive tax policies can lead to less than desired outcomes.  

Major State Tax Proposals and Developments 

• The KANSAS legislature sent a new tax cut compromise package to Gov. Laura Kelly. This new plan would cut existing personal income tax rates but does not enact a flat tax, unlike previous plans. Other income tax changes in the plan include fully exempting Social Security income from tax, increasing the state’s standard deduction and personal exemption, and creating a new dependent exemption. The plan would also cut property taxes by increasing the homestead exemption to $100,000 and reducing the property tax millage for schools from 20 to 19.5 mills. The plan is expected to cost $1.57 billion over three years. An analysis by ITEP shows 55 percent of that cut would flow to the top 20 percent of Kansan households. Gov. Laura Kelly has not yet announced whether she will sign or veto the plan but has expressed concern over the price tag. – NEVA BUTKUS 
• VIRGINIA Gov. Glenn Youngkin rejected the General Assembly’s budget and proposed an amendment to remove the expansion of the state sales tax to digital products – a provision that he originally proposed but paired with an income tax cut that was not included. If the General Assembly does not approve Youngkin’s amendment, it would lead to a veto of the entire budget and require a special session to draft a new budget. Youngkin also vetoed legislation that would have allowed all counties and cities to impose a 1 percent sales tax to fund school construction and renovation. – MILES TRINIDAD 
• In MAINE, a proposed bill that would add progressivity to the state’s income tax by expanding tax brackets and adding additional rates for wealthier filers has been approved by both the House and Senate. Meanwhile, Gov. Janet Mills signed a bill repealing a 2005 law that placed limitations on municipal tax collection. – MARCO GUZMAN 

State Roundup 

• A coalition in ILLINOIS released a report titled “Funding our Futures” which calls for $1.5 billion in new revenue through higher taxes on the wealthy and closing corporate loopholes.  
• MINNESOTA lawmakers are considering legislation that would allow cities to fund certain capital projects such as convention centers, libraries, and sports complexes by levying city or county-level local sales taxes. 
• S&P Global Ratings lowered MISSISSIPPI’s rating outlook from stable to negative, citing weak economic and demographic trends, anticipated income tax cuts (that continue to phase in) resulting in a challenging budget environment, and an increasingly underfunded pension program.  
• The MISSOURI House advanced a measure clarifying eligibility for the state’s senior property tax freeze. 
• NEBRASKA lawmakers will wrap up this year’s session tomorrow, holding one last vote on a pared-back version of Gov. Jim Pillen’s property tax cut plan. The bill no longer includes a sales tax rate increase but still contains strict budget growth limits on local governments, conversion of an existing property tax credit from a rebate on income tax forms to a direct offset on property tax bills, and several small tax increases such as sales taxes on pop and candy, lottery tickets, and some services. And helpfully for middle- and low-income working families, the bill now does contain an increase to the state EITC. Whether the bill passes or not, many are expecting a special session to seek further property tax cuts. 
• The Futures Commission of Cincinnati, OHIO recommends raising the city’s earnings tax among other proposals aimed at positioning the city for future growth. 
• House members in the OKLAHOMA state legislature continue to call for cuts to the state’s personal income tax. However, Senate leaders continue to insist they will not continue more tax cuts after eliminating the state’s 4.5 percent grocery tax in late August at a cost of about $418 million per year. 

What We’re Reading 

• Multiple tax cut proposals are still making their way through the Iowa statehouse. Mike Owen from ITEP state partner Common Good Iowa discusses the bleak outlook for the state if these proposals that will not only cut additional taxes but also make it harder to raise revenue in the future make it through in The Gazette.  
• States considering property tax caps should take a look at what’s happening in Washington state right now, as a long-time cap has led to major structural revenue shortfalls. As one county administrator put it, “County revenues are simply not growing fast enough to keep up with expenses…If we cannot figure out a way to pay for these costs…we’re going to be letting criminals out on the street.” Other jurisdictions are similarly worried about their ability to fund health clinics, services for victims of domestic violence, and even basic election infrastructure. 
• Whitney Tucker of the Center on Budget and Policy Priorities released a new report that provides states with a roadmap to implementing the Black Women Best economic framework towards state fiscal policy.  
• The Harris School of Public Policy’s Public Money Pod interviewed California Legislative Analyst Gabe Petek, who leads the Legislative Analyst’s Office, on how the state’s progressive tax structure affects cyclical revenues and what the state’s options are to address its present deficit. 

 

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 Aidan Davis at [email protected]. Click here to sign up to receive the Rundown via email. 

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