State Rundown 6/1: Time Is Ripe for Closer Look at Intergovernmental Relations

This week, Virginia lawmakers overcame their budget impasse and approved an expansion of Medicaid, North Carolina’s behind closed doors budget debate appears to be wrapping up, and Vermont’s special session continues in the wake of the governor’s vetoes of the state budget and accompanying tax bills. New research highlighted in our What We’re Reading section shows that both corporate income tax cuts and business tax subsidies contribute to wider economic inequality. And the possible reconstitution of a federal commission on intergovernmental relations could not come soon enough, as other headlines this week include a state-to-local shift in school funding, governments turning to the gig economy for staffing and revenue needs, and state-federal tensions heating up as the IRS cracks down on gimmicks designed to evade the $10,000 cap on the federal deduction for state and local taxes.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Major State Tax Proposals/Developments:

• North Carolina’s Senate approved the state’s budget adjustment and the House is set to follow suit with a debate and vote planned later this week. Budget negotiations have been held behind closed doors and the final bill will allow for no amendments before heading to Gov. Roy Cooper’s desk. Unsurprisingly, lawmakers did not follow the governor’s lead on taxes as they will continue to allow $900 million of scheduled personal and corporate income tax cuts to go into place next year.
• Late last week, Vermont’s Phil Scott vetoed the state budget and accompanying tax bills. Steps that the state plans to take to decouple from federal tax changes, in turn, were also vetoed by the governor and remain stalled by the property tax fight. The state’s special session continues this week.
• Virginia lawmakers have finally reached agreement on a budget that includes expanding Medicaid to insure 400,000 Virginians, creating a hospital tax to fund the state’s 10 percent share of the cost. As part of the compromise, the state will be requesting federal permission to add a work requirement for Medicaid benefits.

Further State Fiscal News:

• The Massachusetts Senate passed their FY 2019 budget agreement. The bill will now move to a conference committee where the Senate and House will work out their differences before moving it to Gov. Charlie Baker’s desk. Meanwhile, a state poll shows strong public support for taxing millionaires.
• Although use-tax revenues are growing in Mississippi thanks to enhanced collections on online sales, none of that revenue is being shared with city and county governments whose sales tax base is also eroding.
• Business groups and others in Missouri are hoping voters approve a gas tax update that will be on the ballot in November.
• New Jersey Phil Murphy is not backing off of a $5 billion tax subsidy offer to Amazon made under previous governor Chris Christie.
• North Dakota‘s post-fracking-boom decline has left 14,000 to 25,000 jobs unfilled, roughly estimated to be costing the state $13 million to $39 million.
• Recreational cannabis sales and tax revenues in Nevada had their best month yet in March and have continued to exceed projections year-to-date.

What We’re Reading…

• A Governing analysis links big business tax breaks to income inequality, finding that cities who give away the most in tax incentives tend to be those with greater levels of income inequality.
• New research out of Harvard and Duke finds that corporate tax cuts increase inequality as the benefits flow to wealthy owners rather than regular workers.
• Governing reports on the expansion of Medicaid in Virginia and identifies Idaho, Nebraska, and Utah as the most likely states to do so next.
• An effort is afoot in Congress to re-constitute a version of the Advisory Commission on Intergovernmental Relations, which from 1959 to 1996 helped shine a spotlight on interactions between federal, state, and local policy decisions such as unfunded federal mandates.
• The Center for Budget and Policy Priorities (CBPP) points out that, according to new Census data, a large share of states are providing less school funding than they were a decade ago. The data also show a sizable state to local shift in education funding.
• State and local governments are now beginning to tap into the “gig economy” to fill staffing needs in addition to their attempts to tax the emerging sector to fill revenue needs.
• The IRS has warned states not to attempt to circumvent the new $10,000 cap on federal deduction for state and local taxes through “workaround credits” converting tax payments into faux charitable contributions. A new ITEP report explains the close parallels between the new workaround credits and existing state tax credits, including those benefiting private schools.
• Route Fifty reports on a Moody’s study that identifies Kentucky, Louisiana, and Michigan as the states with the most risk of revenue declines should international trade relations deteriorate further.

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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