May 6, 2021
May 6, 2021
This week’s state fiscal news brings a reminder that even though advocates for great economic and racial justice have won some major progressive victories recently, anti-tax zealots have been hard at work too. Lawmakers advanced or enacted troubling regressive tax cuts or shifts in Idaho, Kansas, and Montana, and are actively debating them in Iowa, Nebraska, New Hampshire, and Texas. Still, as we reported last week, seeds planted a decade ago to bring progressive improvements to Washington’s tax code budded last week with lawmakers’ approval and bloomed this week with Gov. Jay Inslee’s signature.
Major State Tax Proposals and Developments
- IDAHO legislators passed a controversial property tax bill with bipartisan opposition; the bill increases the homeowner’s exemption, creates a modest boost to the “circuit breaker” tax break, and provides tax breaks for developers and businesses. In other news, the legislature is one step closer to passing regressive tax cuts that would reduce the state’s top income tax bracket, cut the number of income tax brackets, and cost the state $383 million the first year. – MARCO GUZMAN
- MONTANA legislators are ending the 2021 legislative session with more than $100 million in tax cuts including a reduction of the top income tax rate, an expansion of the property tax credit, an expansion of business property tax exemptions, and a reduction in local property taxes that support schools. – MARCO GUZMAN
- NEBRASKA lawmakers came within two votes yesterday of advancing a dangerous proposal to replace the state’s income, sales, property, and inheritance taxes with a single consumption tax. As written, the bill would reduce funding for schools, roads, health care, and other priorities by about $4 billion annually while giving the largest tax cuts to rich Nebraskans like the ultra-wealthy gubernatorial candidate supporting it. ITEP’s preliminary estimates indicate that if the consumption tax rate was raised to make the proposal revenue-neutral, the rate would need to be 20 percent or higher and would create an even more dramatic tax shift that would raise taxes on middle- and low-income families and cut them only for the highest-income households. – DYLAN GRUNDMAN O’NEILL
- WASHINGTON Gov. Jay Inslee signed into law the two bills we reported on here last week—a first-of-its-kind excise tax on extraordinary profits from capital gains transactions and a Working Families tax rebate modeled after the federal EITC—officially bringing to life two progressive tax improvements advocates had worked for years to enact. The excise tax faces one court challenge already and another is expected. – DYLAN GRUNDMAN O’NEILL
- ARKANSAS Gov. Asa Hutchinson signed legislation to end sales taxation on precious metals like gold and silver. As of now, 40 states fully or partially exempt gold and silver from sales taxes.
- CONNECTICUT residents protested outside Gov. Ned Lamont’s home over the weekend to support progressive tax reforms in the legislature’s budget that Lamont opposes.
- FLORIDA lawmakers passed a nearly $200 million tax package that includes a number of new tax cuts such as tax credits for businesses that offer college internships and the $61.5 million ‘Freedom Week’ sales tax holiday starting July 1. Tax-exempt items will include tickets for music and sporting events, fitness memberships, and outdoor recreational supplies.
- GEORGIA Gov. Brian Kemp signed a set of tax measures creating a process for evaluating tax credits while also adding new special-interest tax breaks that could jeopardize $50 million in federal funding.
- HAWAII’s legislative session came to a close last week. While failing to act on tax increases for the rich (SB 56, SD 1) or an extension of the state’s Earned Income Tax Credit (EITC) (which is set to expire at the end of 2022), lawmakers did improve the state’s low-income housing credit, increase a rental car tax, and give authority to counties to raise the transient accommodations tax.
- INDIANA lawmakers passed an EITC increase from 9% to 10% before adjourning their 2021 legislative session last week.
- IOWA lawmakers are past their originally scheduled adjournment date, still debating proposals to accelerate income tax cuts and eliminate the state inheritance tax, among other matters.
- The KANSAS legislature voted to override Gov. Laura Kelly’s veto of Senate Bill 50, a large tax cut bill that primarily benefits multinational corporations and high-income earners. The bill also includes a modest increase to the standard deduction. Part of the costs will be offset by requiring marketplace facilitators to collect and remit sales taxes.
- Lawmakers in MAINE continue to weigh a range of spending and tax proposals. There seems to be bipartisan support on issues ranging from municipal revenue sharing to property tax relief and infrastructure.
- The MASSACHUSETTS House of Representatives passed their budget for 2022. It includes the creation and extension of tax credits, along with a delay in reinstating the state’s deduction for charitable contributions.
- MISSOURI lawmakers are entering a busy home stretch with two weeks to go in their session and final decisions still to come on the gas tax, online sales taxes, and tax credits for middle- and low-income families.
- NEW HAMPSHIRE lawmakers are considering a bevy of tax cuts including reducing the meals and rooms tax, lowering business taxes, exempting some small businesses from paying the business enterprise tax, and phasing out the interest and dividends tax. The New Hampshire Fiscal Policy Institute estimates that these cuts could cost the state $158 million over the next budget biennium.
- A TEXAS lawmaker introduced a misguided proposal to replace the state property tax with higher consumption taxes.
What We’re Reading
- The TaxProf Blog highlights recent research arguing that the federal deduction for state and local taxes (SALT), by primarily benefitting wealthy households and communities, essentially subsidizes economic segregation.
- Economist Michael J. Hicks from Ball State University writes in MarketWatch that the common narrative around people and businesses moving to low-tax states is both a flawed reading of the data and a mistaken understanding of how people make decisions. In short, “Taxes represent one price for living in a particular city or town, but value — not price — is the key decision variable. For the average family, value comes from tangible amenities like safe, livable neighborhoods, high-quality schools and great parks and trails…Both businesses and families are acting upon this information, moving to places with better schools and safe, livable neighborhoods. In the process they are moving to places with much higher taxes, reflecting a hunt for value, not price.”
- As people direct their attention to what post-pandemic life might look like, Route Fifty reports on how local government officials are envisioning the new normal, with about half expecting to continue virtual board meetings, for example.
- Relatedly, Governing notes that increased automation and use of robots spurred by the pandemic is likely largely permanent, creating a lasting shift in the labor market that will be very challenging for workers and society to adapt to.
- Route Fifty also reports on increased rent debt nationwide and the states and cities where the issue of people falling behind on rent is worst.
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