State Rundown 4/19: Revenue Discussions Heat Up Like the Temperature

Tax season has ended for most filers, but the topic remains a hot one in states around the country. Up north, in Alaska, the governor revealed in talks with legislators that he plans to include a state sales tax as a part of his upcoming budget. ITEP finds that a heavy reliance on sales and excise taxes are a characteristic of the most regressive state tax systems. Lawmakers in The Last Frontier will have options other than an inequitable sales tax for raising revenue. A proposal to enact a 2 percent personal income tax on earnings over $200,000 (with those under the threshold paying $20) has also been introduced. Minnesota legislators also have their eye on revenue, but progressive revenue that asks more of those most able to pay. The House has a plan that would create a new bracket for those with incomes over $1 million and implement worldwide combined reporting. Additionally, the bill would create a Child Tax Credit that, if enacted, could reduce child poverty by more than 20 percent. Meanwhile, states like Ohio continue to chip away at their revenue bases via cuts to the state’s personal income tax.

Major State Tax Proposals and Developments

• ALAKSA Gov. Mike Dunleavy is expected to include a statewide sales tax as a part of his long-term budget plan. Legislators have proposed several revenue-generating options, including a 2 percent sales tax, an individual income tax on incomes over $200,000, and limiting the tax credit available to oil producers. – MARCO GUZMAN
• The MINNESOTA House has proposed a tax plan that would levy higher taxes on wealthy Minnesotans and businesses while cutting taxes for low- and middle-income households. The proposal would raise revenue by creating a new tax bracket on households with income over $1 million and by implementing worldwide combined reporting, extending reporting to international tax havens. It would also create a $1,175 Child Tax Credit that is estimated to reduce child poverty by 23 percent, make changes to property tax credits for homeowners and renters, provide a one-time rebate of $275/filer, and expand the state’s Social Security exemption. – NEVA BUTKUS
• The OHIO House Finance Committee approved its version of Gov. Mike DeWine’s budget, which includes a provision that would consolidate the lowest income tax bracket with the second lowest bracket, effectively condensing brackets for those earning between $26,050 and $92,150 and reducing the rate of the new bottom bracket to 2.75 percent. The legislation, expected to cost $153 million in FY 2024, would also suspend the indexing of income tax brackets and exemptions for inflation for tax years 2023 and 2024. – MILES TRINIDAD

State Roundup

• The Senate Finance and Tax Committee in FLORIDA passed a $973 million tax break package that includes breaks for thoroughbred tracks and breeders, tax exemptions on firearm-storage devices, and multiple sales tax holidays.
• The INDIANA legislature is considering extending its annual one-cent state gas tax increase to 2025.
• Lawmakers in IOWA are pushing for a 3 percent cap on property tax increases unless home improvements are made, lowering the state’s uniform levy from $5.40 to $4.40. The bill has received bipartisan support.
• The LOUISIANA House Ways and Means Committee shelved a bill that would have eliminated the state personal income tax. The bill proposed replacing the billions in revenue from Louisiana’s income tax with a higher state sales tax, lower homestead exemption, a phase out of certain business tax breaks, and by shirting more responsibility of funding public schools to local governments.
• MICHIGAN Gov. Gretchen Whitmer signed legislation that would exempt firearm storage and safety devices from the state’s sales and use tax. The legislation is estimated to cost $1.4 million in FY 2024-25.
• The MISSOURI Senate is writing a significantly more expansive budget than their colleagues in the House with additions of almost $2 billion. Instead of investments in infrastructure, the House has proposed spending the one-time surplus on a permanent $1 billion tax cut
• NORTH DAKOTA Gov. Doug Burgum signed legislation that will allow retired law enforcement personnel who served for 20 years to deduct federally taxable benefits from the state income tax.
• OKLAHOMA’s Gov. Kevin Stitt released his tax plan that includes grocery sales tax elimination alongside personal income tax and corporate income tax cuts. In total, the plan would result in a billion plus annual revenue loss.
• The TEXAS Senate passed their version of the budget, which includes $16.5 billion for property tax cuts earmarked to raise the state’s homestead exemption from $40,000 to $70,000. In contrast, the House’s recently passed budget would use $17 billion to halve the appraisal cap to 5 percent.
• Republicans in WISCONSIN have introduced another bill that would replace the state’s graduated income tax brackets with a 4.5 percent flat rate and exempt income taxes from households making less than $13,810 as single filers and $18,400 if married.

What We’re Reading

• A commentary piece in the Indiana Capital Chronicle reminds state lawmakers that there is still time to center Indiana communities and people this session by passing an Earned Income Tax Credit expansion and adding a Housing Stability Pilot Fund to the budget.
• ProPublica provides a peek into the financial reality of the ultrawealthy, finding that wages only make up a small portion of their earnings and, when compared to the average household, do not have incomes that are defined by normal tax forms.
• The Internal Revenue Service is reporting that it has completed its first “normal” tax filing season since the onset of the coronavirus pandemic, due in part, to new scanning technology that was purchased with the help of the $80 billion (over 10 years) in new funding for the agency. Over the past decade, consistent budget cuts have left the IRS depleted, as it was forced to reduce its staff by 20 percent over the same period.

 

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