State Rundown 5/3: Progressive Revenue Solutions to Fiscal Woes Gaining Traction

This week, Arizona teachers continued to strike over pay issues and advocates unveiled a progressive revenue solution they hope to put before voters, while a progressive income tax also gained support as part of a resolution to Illinois’s budget troubles. Iowa and Missouri legislators continued to try to push through unsustainable tax cuts before their sessions end. And Minnesota and South Carolina focused on responding to the federal tax-cut bill.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Major State Tax Proposals/Developments:

• Arizona’s teacher walkout continues. But educators have committed to ending the strike if the Legislature passes a budget to fund a 20 percent teacher pay increase by 2020. Unfortunately for educators and the state, the plan under consideration does not raise new sustainable revenue for the additional funding. Rather, it would rely on spending cuts, fund sweeps, and shifting more of the cost onto local taxpayers. What’s next in Arizona? For lawmakers, more tax cuts For everyone else? Ballot initiatives. A newly unveiled ballot initiative aims to tax Arizona’s top 1 percent to fund education. More here.
• North Carolina is the next state to watch in the growing movement to increase investments in public education. Teachers across the state have committed to using personal leave days on May 16^th, the first day the General Assembly convenes, to rally and the capital and meet with lawmakers.  The Durham County School Board officially voted to cancel classes on the day and other school districts will likely follow.  It’s no surprise Tarheel State teachers are joining this cause – state per pupil funding remains far below pre-Recession levels and lawmakers have prioritized tax cuts (at the tune of a $3.5 billion annual loss by next year) over increasing investments in public education.
• Iowa Kim Reynolds and legislative leaders have yet to release details of their compromise tax plan despite holding a press conference last week to announce they had reached a deal. Some lawmakers and observers are urging leaders to look to the tax-cut mistakes in Kansas, Oklahoma, and elsewhere and abandon their plan to slash revenues amid already serious budget shortfalls.
• Missouri lawmakers are still trying to push through a tax cut package despite earlier versions losing steam due to their high cost and regressive shift from wealthy Missourians to low- and middle-income families. The most recent version was poorly received in a public hearing earlier this week.
• Mainers will be taking to the ballots of the issue of funding for a universal home care system. Funding for the proposal is a 3.9 percent payroll tax on higher-income residents whose earnings exceed the Social Security income threshold. In other Maine news, lawmakers have returned to the state capital to respond to Gov. Paul LePage’s vetoes. But many issues remain unsettled, including the state’s response to federal tax conformity.
• Lawmakers in Oklahoma approved a $7.6 billion budget and the bill was then signed by Gov. Mary Fallin early this week. The Oklahoma Policy Institute describes why the novel title “Been Down So Long It Looks Like Up to Me” applies to the Sooner State’s situation here.
• The Minnesota House has passed a conformity bill that would cut personal and corporate income tax rates beyond what is required to hold taxpayers harmless from state tax increases resulting from federal tax reform. The Senate is also out with its plan, which preserves more deductions, lowers the first income tax rate (as opposed to the second), and increases the threshold for the estate tax from $3 million to $5 million.
• South Carolina legislators have taken their time in assessing the implications of the federal tax-cut bill for their tax system and are now considering a couple of competing conformity bills with only a few days left in their session.
• Illinois lawmakers have put forward a nonbinding resolution expressing support for a progressive personal income tax without specifying a particular rate structure.

In Other News:

• A petition drive in Nebraska to create a large, unfunded, income tax credit based on school property taxes paid has been abandoned by its proponents, who will try again to address property taxes through the legislature next year.
• Delaware legislators will consider raising the state minimum wage to $10.25 per hour.
• Massachusetts’s Charlie Baker voiced support for a ballot initiative to reduce the state’s sales tax rate from 6.5 to 5 percent. He has yet to outline which public priorities the state would cut to be able to afford such a massive tax cut.
• Florida lawmakers’ repeated tax cuts over the years are catching up with them, as this week the state Supreme Court agreed to hear a case over whether the state is meeting its constitutional obligation to provide high-quality public education, just as the state was found to be near the bottom in public school funding per pupil. Meanwhile, corrections officials are having to cut substance abuse services and prisoner re-entry programs thanks to state funding cuts creating a $28 million budget gap.
• Lawmakers in Indiana are debating whether to extend lodging taxes to Airbnb operators.
• Lawmakers in Kansas continue to negotiate a budget and tax cuts in the final week of session, with the House reluctant to accept the Senate’s proposals to cut taxes beyond what is needed to hold taxpayers harmless from recent federal tax changes.

What We’re Reading…

• The St. Louis Federal Reserve has a recent Economic Synopses essay explaining lessons on tax reform and corporate legal structure from Kansas’s failed tax experiment.
• Politico reports on how state supermajority requirements and other limitations in Arizona, Oklahoma, Colorado and elsewhere hamper states’ ability to raise revenue and, in turn, can harm public priorities like education.
• The West Virginia Center on Budget and Policy released a study on the merits of modernizing and increasing the state’s soda tax.
• The District of Columbia Fiscal Policy Institute released a helpful review of how taxes in DC have (or haven’t) changed over the past couple of decades.
• Some states are proposing taxing prescription pain killers in response to the opioid epidemic, and unsurprisingly, drug makers are pushing back.

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 Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.

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