State Rundown 4/27: Health, Wealth, and State Tax Policy

This week the importance of state tax policy is center stage once again. The governor of Kansas took a massive step towards preserving tax equity. And new research found a strong correlation between progressive state tax systems and decreased infant mortality rates. Earlier in the week, Gov. Laura Kelly vetoed a tax bill that would have flattened the personal income tax and enacted deep cuts to the tune of almost $1.4 billion over the next three years, explaining that “It is a throwback to the Brownback tax experiment, and we all know how that turned out.” Like many states right now, Kansas has seen an uptick in surplus revenue, but Kelly offered a word of caution to lawmakers: “They think our record surplus is a license to push through reckless legislation like this tax bill.” The Sunflower State also dodged another attempt when lawmakers in the Senate failed to override the governor’s veto.

The news of Kansas preserving a key progressive feature of its tax code also comes as a new journal article on the association between state taxes and infant mortality was published. Researchers from Boston Children’s Hospital and Harvard Medical School used ITEP’s Who Pays? report to help measure state tax systems and found that increases in tax revenue and their index of tax progressivity “were both associated with decreased infant mortality.” The findings highlight, once again, the vital role state tax policy can play in our everyday lives as “an important and modifiable social determinant of health.”

Major State Tax Proposals and Developments

• The Senate’s attempt to override KANSAS Gov. Laura Kelly’s veto of a bill that would have implemented a 5.15 percent flat income tax has failed. In addition to consolidating Kansas’ progressive income tax brackets into a single rate, the bill would also cut taxes on Social Security for higher-income Kansans, provide corporate tax cuts and property tax cuts, increase the state’s standard deduction, and accelerate the elimination of the sales tax on groceries. Gov. Kelly is instead calling for a one-time tax rebate of $450 for single filers and $900 for married filers instead of an expensive and permanent income tax cut. – NEVA BUTKUS
• The NORTH DAKOTA legislature passed legislation with tax cuts totaling about $515 million, which includes a mix of income and property tax cuts. Income tax cuts make up nearly 70 percent of the total cost. The income tax cuts would consolidate the state’s five tax brackets into three by eliminating the tax for single filers and joint filers earning $44,725 and $74,750, respectively, applying a 1.95 percent tax for income between $44,725 and $225,975 for single filers and between $74,750 and $275,100 for joint filers, and applying a 2.5 percent tax on income above those thresholds. All income tax brackets will be at a lower rate than current law, and the state’s current top rate is 2.9 percent.  The remaining tax cut from the legislation will go towards $500 property tax credits for primary residences and expanding eligibility for the Homestead Property Tax Credit. Gov. Doug Burgum has said that he plans to sign the legislation. – MILES TRINIDAD

State Roundup

• As lawmakers continue to debate competing tax proposals in ALABAMA, calls to eliminate the tax on groceries remains a popular option on both sides of the aisle.
• DELAWARE became the 22^nd state to legalize marijuana and will levy a 15 percent sales tax.
• Legislators in HAWAII are nearing the end of their legislative session, so budget negotiations are underway. The major topic of debate is taxes, and they are close to approving $350 million in tax cuts targeted to working families.
• The LOUISIANA legislature will consider extending its $180 million film tax credit program from 2025 to 2035.
• MICHIGAN Gov. Gretchen Whitmer signed legislation that would exempt delivery and installation costs from the state sales tax, which is estimated to cost $70 million per year.
• The NEBRASKA legislature’s appropriations committee approved an about $5 billion budget that does not have room for the full set of proposed tax cuts. The budget proposal now advances to the full chamber.
• The NEW YORK state budget is over three weeks late, and no final decision has been made on a proposed tax increase on household income of $5 million and above. Gov. Hochul is opposed to additional tax increases, a stance that is at odds with many Democratic lawmakers.
• NORTH DAKOTA Gov. Doug Burgum signed legislation that would exempt all property built after January 1, 2023, that is part of a natural gas pipeline transmission or distribution system from the state’s property tax for 15 years.
• The OHIO House Finance Committee passed the state’s operating budget, which includes a provision that would consolidate income tax brackets for those earning between $26,050 and $92,150 and reduce 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.  Some lawmakers are making a push to instead make the state’s EITC refundable.
• The WASHINGTON legislature sent a bill to Gov. Jay Inslee’s desk that would exempt local newspapers from the state’s 0.35 percent gross receipts tax for ten years.
• WISCONSIN Republican lawmakers have introduced a flat income tax bill that would replace the state’s progressive income tax brackets with a 3.25 percent flat rate by 2026, costing the state $5 billion in revenue. The plan, however, isn’t the only option on the table, as Gov. Tony Evers has proposed targeted cuts for low- and middle-income households. The governor also mentioned earlier in the year that he would not sign any legislation that includes a flat tax proposal.

 

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