Just Taxes Blog by ITEP

State Rundown 5/13: States Get Federal Aid and Guidance as Many Sessions Wind Down

May 13, 2021

We had our noses buried in new American Rescue Plan guidance linked below under “What We’re Reading” when we heard the refreshing news that Missouri leaders are on the verge of modernizing their tax code, not only by becoming the final state to apply sales taxes to online purchases, but also by enacting an Earned Income Tax Credit (EITC). The EITC will give a needed boost to middle- and low-income families who pay the highest taxes in the state, and if they are able to make the credit refundable down the road, as Massachusetts are attempting with their childcare deduction, it will do even more to help Missouri’s families and businesses. Meanwhile, tax debates are also highly active in California, Colorado, Louisiana, Maine, and Nebraska. We also share some of our own reporting on recent efforts in Arizona and several other states to undermine voter-approved reforms and democratic institutions themselves.

Major State Tax Proposals and Developments

  • COLORADO leaders are proposing a major progressive tax rebalancing package that raises taxes on upper-income households and large businesses and uses most of that revenue to help middle- and low-income families and small businesses. That assistance is delivered by doubling the state EITC, funding a new refundable Child Tax Credit, and expanding some tax benefits for smaller businesses. The increases are achieved by capping itemized deductions, permanently eliminating a “pass-through” break for rich households, eliminating a deduction for unearned capital gains income, and reining in deductions and loopholes used by larger corporations. – MARCO GUZMAN
  • MISSOURI House and Senate members will meet in a conference committee this week to sort out differences on a bill that will likely cut the top income tax rate, apply the state sales tax to online sales, and finally create a (nonrefundable) Earned Income Tax Credit (EITC) in the Show Me State after many years of effort. – DYLAN GRUNDMAN O’NEILL
  • ITEP Research Director Carl Davis explains how some ARIZONA lawmakers are attempting to directly subvert the will of voters by turning a ballot-approved tax increase on rich Arizonans into a net tax cut via an unprecedented regressive income tax bracket overhaul. Davis and Communications Director Jenice R. Robinson discuss how this fits into a broader nationwide effort to undermine democracy and entrench the racist and inequitable status quo, with further examples from FLORIDA, MISSOURI, and WISCONSIN.

State Roundup

  • Earlier this week, the ALASKA House of Representatives passed their version of the state budget bill which has already advanced to the Senate. It does not include funding for the state’s permanent fund dividends, which are expected to be funded in a separate bill.
  • CALIFORNIA Gov. Gavin Newsom is proposing to put federal aid and the state’s recent budget surplus to use quickly. His plan would devote $8 billion to a second round of cash payments for middle-income families, $5 billion to assistance for people who have fallen behind on rent, and $2 billion in similar aid for catching up on utility bills, among other components to fight homelessness and support families and businesses.
  • Yesterday, GEORGIA Gov. Brian Kemp signed an executive order suspending state taxes on diesel and gas through Saturday night in response to higher prices related to the Colonial Pipeline cyber attack. In other news, voters will decide whether farms that form partnerships should qualify for the same farm equipment tax exemptions as they did prior to merging.
  • Adding on to KANSAS‘s list of recent tax cuts, state lawmakers approved a new property tax break for businesses that are shut down or restricted due to the pandemic.
  • LOUISIANA lawmakers advanced tax rates for sports betting, which most parishes voted to legalize last year. The bill would set a 10% tax for on-premise sports wagering and 18% for mobile betting. The state’s proposed tax swap bill that would eliminate the federal income tax deduction (FITD) on state income tax returns and reduce top income tax rates has come to a standstill.
  • A handful of tax policy proposals in MAINE would create new income tax brackets and higher rates on the state’s higher-income earners. Another would replace the existing graduated tax structure with a flat 5 percent tax rate, resulting in the largest tax cuts for the wealthiest Mainers.
  • The MASSACHUSETTS Senate released their version of the state budget for fiscal year 2022. The proposal includes no broad-based tax increases and draws $1.55 billion from the state’s Stabilization Fund. However, the Senate bill would notably convert the state’s child care and dependent tax deduction into a refundable credit, benefitting 85,000 low-income families.
  • MISSOURI lawmakers passed their bizarre plan to create a small amount of revenue for infrastructure and a large amount of paperwork for drivers, sending a bill to Gov. Mike Parson that will raise the gas tax by 12.5 cents per gallon over five years but also allow residents to apply for a full refund if they keep all their gas receipts for the year.
  • NEBRASKA legislators scaled down two tax cut proposals to try to pass them before their session wraps up, neither of which will help the state economy or upside-down tax code, but both of which would have been worse as originally proposed. First, they scaled back an unhelpful corporate tax cut proposal to be less expensive, bringing the top rate down to 7.25 percent over two years instead of all the way to 6.84 percent. They also moderated another unnecessary proposal to eliminate taxes on Social Security benefits—mostly for upper-income retirees—by slowly eliminating half of the taxes instead of all of them.
  • In addition to the tax cuts in the current budget proposal, NEW HAMPSHIRE lawmakers will also vote on whether to exempt the Payroll Protection Plan grants from tax liability.
  • NEW JERSEY joins a growing list of states looking into using a vehicle mileage fee to raise the funding needed to maintain infrastructure as electric and fuel-efficient vehicles reduce the revenue potential of the traditional gas tax.
  • After several days of debate, TEXAS lawmakers approved a minor two-year extension of the controversial Chapter 313 corporate tax welfare program rather than the decade-long expansion that was originally proposed.

What We’re Reading

  • As the Treasury Department begins distributing $350 billion in aid to states and localities included in the American Rescue Plan (ARP), the Center on Budget and Policy Priorities discusses how these funds can best be used to mitigate pandemic-induced hardships and advance equity, and CalMatters dives deeper into how the funds can be used as a down payment toward greater racial equity.
  • State and local officials are also closely reviewing recently released Treasury guidance on implementing ARP and understanding its restrictions on state tax cuts.
  • The Atlantic describes how Louisiana‘s former slave-driven plantation economy is linked to present-day toxic petrochemical manufacturing, and how corporate welfare supports this industry at the expense of local revenue and the health of rural Black communities.
  • Harold Meyerson writes in The American Prospect that California’s surplus shows its progressive tax system is a model for other states to follow to ensure a robust and equitable recovery.
  • Route Fifty reports on Tax Policy Center research into how recent federal tax changes may affect states, particularly through EITC and Child Tax Credit enhancements in states that piggyback on the federal versions of those credits.

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