State Rundown 4/12: Season in Transition as Some States Close, Others Open Tax Debates

This week in state tax news we see Louisiana‘s session getting started, budgets passed in New York and West Virginia, Kansas lawmakers taking a rest after defeating a harmful flat tax proposal, and Nebraska legislators preparing for full debate on major tax cuts. Nevada lawmakers may make tax decisions related to tampons, diapers, marijuana, and property before closing their session this week. And gas tax update efforts are gaining steam in Alabama, South Carolina, and Tennessee.

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• The Louisiana regular legislative session started on Monday, April 10, with high aspirations but uncertainty about whether the political will exists to tackle substantive tax reform. There is great urgency to act, as lawmakers have had to grapple with closing 15 budget gaps over the past nine years and the temporary sales tax hike enacted last year will expire halfway through 2018, leaving a $1.3 billion shortfall. There is no shortage of ideas. In addition to the Task Force for Structural Changes in Budget & Tax Policy’s recommendations, plans from advocacy organizations, and the governor’s proposal, the legislature has already begun hearings for various legislative proposals. With a high threat of political gridlock, the governor’s opening remarks focused on finding bipartisan solutions.
• Legislators in New York and West Virginia passed budgets last weekend. The budget agreement in New York includes a two-year extension of the state’s surcharge on millionaires. It also includes an overhaul of the state’s workers’ compensation program and a plan to waive state college tuition for many middle-class families. By contrast, the West Virginia legislature passed a budget last weekend that includes heavy spending cuts and no tax increases. The agreement, now under consideration by Gov. Jim Justice, draws $90 million from the state’s rainy day fund and cuts the medical services line item in Medicaid, higher education, regional education service agencies, and WV public broadcasting. It also lacks any teacher pay increases.
• A flat tax proposal that had the support of Gov. Brownback fell flat last week in the Kansas Senate. In addition to eliminating the exemption for business pass-through income and lowering the sales tax on food, the bill would have substituted a single 4.6 percent rate for the current three rate/bracket structure. Lawmakers are on recess until May, when tax reform discussions will pick back up again.
• Although major tax-cut bills in Nebraska have advanced from committee to the full legislature, some lawmakers remain displeased with the effort to slash income taxes to primarily benefit wealthy urban Nebraskans.
• Delaware‘s legislators will return from recess in a couple of weeks to take up Gov. John Carney’s budget balancing plan that includes both funding cuts and income tax increases.
• Tennessee‘s needed gas tax update continues to be the center of controversy, as the bill advanced through a key House panel last week but some lawmakers are still working on finding ways to avoid increasing the gas tax.
• Alabama appears poised to update its gas tax with a 4-cent increase this year, another 2-cent increase in 2019, and an optional increase of 3 cents in 2024. The revenue would be split between state infrastructure bond payments and city and county roads needs. The bill advanced through a House committee this week and has broad support.
• South Carolina‘s gas tax debate is set to recommence in earnest when legislators return from recess next week, though the outcome remains uncertain. Gov. Henry McMaster has vowed to veto any gas tax increase, leading some lawmakers in the Senate to attempt to add an income tax cut to the bill to attain a veto-proof majority, while others are hoping to fill the state’s $1 billion annual transportation funding gap by building and taxing new casinos.
• Nebraska lawmakers have given first-round approval to a bill to collect sales taxes on online purchases, but Gov. Pete Ricketts may veto it.
• Nevada lawmakers have a few issues left to settle before ending their session at the end of this week. They may still pass a fix to the state’s property tax cap that has been causing major revenue problems for local governments, and are still considering bills to exempt tampons and diapers from sales tax. The state is also working out how to tax recently legalized marijuana and where to devote the resulting revenue.
• Idaho Gov. Butch Otter vetoed legislation that would have excluded food from the sales tax base, stating that “the costs of this particular proposal are too high and the potential for imminent financial need too great for the small amount of tax relief it would provide.”
• A tax incidence study published in Minnesota shows the state significantly narrowed gaps in the effective tax rates paid by taxpayers at varying levels of household income between 2009 and 2014, when the state enacted a new top rate of 9.85 percent on incomes greater than $150,000 if single or $250,000 if married filing jointly. Thanks to its progressive graduated rate structure and refundable tax credits, Minnesota has the fifth least unfair state and local tax system in the country.

What We’re Reading…

• An op-ed penned by New Jersey Policy Perspective makes a good case for a change of approach to New Jersey‘s fiscal issues, arguing that “Instead of the annual ritual of scores of groups with important needs fighting for tiny scraps of an ever-shrinking pie of funding, New Jersey needs to take a serious look at making that pie larger.” The op-ed offers a few excellent suggestions for how to accomplish this goal.
• A new report by the Keystone Research Center (KRC) provides estimates of the impact of property tax elimination proposals. The analysis shows that eliminating Pennsylvania‘s school property taxes would increase taxes on the middle class while hampering the state’s ability to adequately fund public schools.
• The Louisiana Budget Project has just released an analysis of Gov. John Bel Edward’s tax plan—a plan that suggests adopting a Commercial Activities Tax and significant changes to the personal and corporate income taxes that would require both legislative and voter approval. If all components of the tax reform package were to be enacted, collectively these reforms would be a move toward a more adequate tax system for the state.
• The Iowa Fiscal Partnership has released a brief on elements to consider when discussing tax reform and debunking some of the myths currently driving the debate.
• The Georgia Budget and Policy Institute takes a look back at this year’s session, noting the state avoided some harmful regressive tax cuts but also passed a number of smaller changes that add up to a significant reduction in revenue for state services.

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