Just Taxes Blog by ITEP

State Rundown 6/1: State Revenue Highs and Lows

June 1, 2023

Short-sighted tax cuts continue to make their way to governors’ desks this week. In Florida, Gov. DeSantis signed a $1.3 billion tax cut package with $550 million of the tax cuts from sales tax holidays, alone. The Nebraska legislature also sent $6.4 billion in tax cuts to Gov. Pillen’s desk which includes an enormous personal income tax cut that will reduce taxes on the top 1 percent by tens of thousands of dollars.

But while Florida and Nebraska are foregoing important revenue that could be used to invest in education, healthcare and infrastructure, tax collections from Washington state’s new capital gains tax exceeded initial revenue projections. Over $800 million will go to early childhood education, K-12 education, and K-12 capital improvement projects – all made possible by raising taxes on the state’s wealthiest residents.

Major State Tax Proposals and Developments

• FLORIDA Ron DeSantis has signed a $1.3 billion tax cut package. The package provides permanent sales tax exemption on diapers, baby products, and hygiene products along with multiple sales tax holidays for back-to-school, disaster preparedness and a three-month “Freedom Summer” that exempts many recreational activities from the sales tax. Energy star appliances and gas stoves were also included in a one-year sales tax exemption. – NEVA BUTKUS

The NEBRASKA legislature passed massive cuts in its income tax, sending the bill to Gov. Pillen. The bill, LB754, will eventually cut the state’s top individual income tax rate from 6.84 percent to 3.99 percent with the first cut starting immediately. Those in the second to last bracket will additionally eventually receive a tax cut. While the bill also cuts corporate tax rates, adds exemptions for retirees, and creates a refundable credit for child care expenses, the vast majority of its cost is in the cuts to personal income tax rates. While the credit would help some families with children, it is only about 2 percent of the total cost of the package once fully implemented. – ELI BYERLY-DUKE

State Roundup

A bill providing a $150 tax rebate for single filers and $300 for joint filers has been sent to ALABAMA Gov. Kay Ivey’s desk. Meanwhile, legislation to reduce the state’s grocery sales tax from 4 to 2 percent is still moving through the legislature and a study commission has been created to evaluate the impact of eliminating all sales tax on groceries in future years.

In Savannah, GEORGIA, the City Council approved increasing the hotel/motel tax from 6 percent to 8 percent; this is the first time the city raised the rate in nearly 30 years.

• MINNESOTA Gov. Tim Walz signed legislation legalizing adult-use cannabis. Recreational cannabis will be subject to a 10 percent gross receipts tax, the state general sales tax of 6.875 percent and any additional local sales tax. An additional $130 million in new revenue is expected annually in fiscal year 2027.

• NEW JERSEY’s Assembly Speaker introduced legislation that would create a new property tax credit program called StayNJ that would provide a 50 percent credit on seniors’ property taxes. The credit would be capped at $10,000, available to homeowners 65 or older, and there is no income limit for eligibility. Gov. Phil Murphy voiced concerns over the plan amid declining state revenue.

In OHIO, the Cincinnati Action for Housing Now is advocating for a small increase in the local income tax rate from 8 percent to 2.1 percent to fund an affordable housing trust fund. The organization is collecting signatures to advance the potential ballot measure.

• OKLAHOMA’s Governor was disappointed that their regular session didn’t include any passage of significant cuts to the personal income tax and grocery tax, so he has discussed calling a special session to focus on tax cuts.

The PENNSYLVANIA House Finance Committee advanced legislation that would broaden eligibility requirements and increase benefits provided by Property Tax and Rent Rebate Program. The program provides rebates to seniors and people with disabilities, however, the program has not been adjusted for inflation since previous changes 16 years ago, resulting in fewer residents qualifying for the program each year. The legislation, which was also included in Gov. Josh Shapiro’s budget proposal, would increase the maximum income eligibility from $35,000 per year to $45,000 and increase the maximum benefit from $650 to $1,000.

In TEXAS, tensions are high between Senate and House on each chamber’s property tax plans. Both chambers passed their respective bills, but the two bills conflict with one another. The Senate recessed until Friday and the House adjourned for the special session. The Senate’s bill included property tax reductions and an expansion of the homestead exemption. But the House’s bill only featured a straight reduction to property taxes.

Revenue collections from WASHINGTON’S new capital gains tax, which recently went into effect after the state’s Supreme Court ruling, are far exceeding expectations as the state estimates it will collect approximately $849 million in its first year, which is $601 million more than earlier projections. Revenue from the tax is used for K-12 and early childhood education, and any revenue above $500 million is allocated to one-time school construction projects.

What We’re Reading

A recent opinion piece in the LA Times lays out how Proposition 13 contributes to California’s massive racial inequality. In fact, California’s Black homeownership rate was lower in the 2010s than in the 1960s, when overt discrimination was both legal and common.

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