State Rundown 5/9: Iowa Digs a New Hole as Other States Try to Avoid or Climb Out of Theirs

This week we have news of a destructive tax cut plan finally approved in Iowa just as one was narrowly avoided in Kansas. Tax debates in Minnesota and Missouri will go down to the wire. And residents of Arizona and Colorado are considering progressive revenue solutions to their states’ education funding crises.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Major State Tax Proposals/Developments:

• Iowa lawmakers finally revealed the tax plan they had worked out behind closed doors on Thursday and then enacted it Saturday, giving the public or the opposition no meaningful time to understand the proposal and offer input. The bill cuts rates and expands some deductions, guaranteeing major tax cuts over the next few years for the same high-income Iowans who are already getting an enormous federal tax cut, while making the provisions most likely to help low- and middle-income families dependent on a distant revenue trigger, and costing the state billions in revenue on top of existing budget shortfalls.
• The Kansas legislative session came to a close without passage of a heavily debated tax cut bill. Concerns over budget uncertainty and meeting the demands of increased education financing ultimately won out, though some lawmakers are bracing for fallout.
• Petitions for a ballot initiative that would raise more revenue for public education through a graduated income tax are circulating in
• North Carolina residents, too, are finding that revenue issues are at the heart of their own education system’s problems.
• Legislative leaders in Louisiana have expressed support for ending their regular session early so as to return to Special Session to address the state’s fiscal cliff, but no early end date has been committed to in legislation.
• There are two weeks left in Minnesota’s legislative session and three major tax plans at play—one from each legislative chamber and the Governor. For an overview of each and possible bargains that may emerge, keep reading here!
• Missouri lawmakers continue to try to rush a tax cut through while also finalizing the budget and preparing to impeach Gov. Eric Greitens.

In Other News:

• South Carolina lawmakers fast-tracked their response to the federal tax-cut bill in hopes of passing it before their session ends. The bill reinstates a small personal exemption to reach a revenue neutral result, which means it fails to bolster the state budget at a time of great need, but also does not cut revenues below where the state already is (as happened in Iowa, Georgia, and elsewhere).
• Vermont’s response to federal conformity remains tied up in discussions around the state’s education funding system. The Senate, shaking up the House’s proposal, is behind a plan that would increase residential property tax rates by 5 cents. Gov. Phil Scott is pushing back with a controversial proposal to use one-time money to maintain the current rates.
• Alaska lawmakers adopted a plan to withdraw money from the state’s Permanent Fund to fund state government, resulting in cuts to per-person dividends from the fund. Lawmakers continue to work toward a final budget.
• A new effort to reexamine the sales tax exemption on food in Arkansas and replace it with a targeted low-income tax credit is likely dead in the water as Gov. Asa Hutchinson signaled his opposition to the policy change last week.
• Some Arizonans are questioning whether the 20 percent teacher raise is actually funded. All the while, Gov. Doug Ducey and the state Chamber of Commerce are pushing back against a ballot initiative that would raise taxes on wealthy Arizonans to further fund education.
• Meanwhile, school districts in Kentucky and Ohio struggle with budget cuts.
• In a story familiar to tax-cut-obsessed states, Mississippi college tuition is climbing as state funding for higher education drops.
• Lots of tax happenings in California this week, including: a new proposal to expand the state’s EITC to include young adults, seniors, and immigrant workers; the latest on the effort to repeal the gas tax increase; lagging marijuana revenues; and efforts among localities to share in sales tax revenues collected from online retailers.
• Oklahomans reflect on an eventful session that came to an early close. While progress was made in tackling budget challenges, many argue that legislators still have their work cut for them.
• North Dakota is now dealing with the fallout of short-sighted income tax cuts enacted during the state’s oil boom.
• East coast states are experimenting with charging drivers by the mile.

What We’re Reading…

• A Vox article points to the regressive tactics lawmakers have been using to fund teacher raises.
• Route Fifty has some bad news for the state of education and social justice in America: “public” colleges and universities are now funded more by tuition than by public dollars, restricting higher education ever more to those who can afford it.
• A Moody’s Investors Service report covered by CNBC reviews how the proliferation of wind farms is helping bring in needed revenue to local governments, particularly in rural areas.
• Route Fifty also brings a mix of good and bad news for state revenue performance in the short and medium term, respectively.
• The Working Life podcast discusses the teacher uprisings around the nation and how they are contributing to public perception of tax cuts.

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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