State Rundown 6/16: Progressive Tax Policy Keeps Racking Up Wins

Taxing rich households and large corporations to fund vital investments in education and other shared priorities has long been a winner in the eyes of the American public, and more recently has also enjoyed a string of victories in state legislatures and at the ballot box. That win streak continued this week as Arizona’s voter-approved tax surcharge on the rich and Seattle, Washington’s payroll tax on high-profit, high-salary businesses both survived court challenges, and Massachusetts leaders approved a millionaires tax to go before voters next year. Louisiana lawmakers are also sending a mixed bag of tax changes to the ballot to be voted on later this year.

Major State Tax Proposals and Developments

• Several legal challenges to ARIZONA‘s recent voter-approved 3.5 percent surcharge on wealthy taxpayers were thrown out. However, whether the new revenue will exceed the state’s K-12 constitutional spending limit has yet to be determined. — MARCO GUZMAN
• LOUISIANA Gov. John Bel Edwards is set to sign a tax overhaul package that would eliminate personal and corporate income tax deductions for federal income taxes paid, lower the state’s income tax rates, permanently eliminate the corporate franchise tax for small businesses, lower the corporate franchise tax rate for other businesses, and create triggers that would automatically lower tax rates if Louisiana reaches a certain level of growth. Although eliminating the deduction for federal income taxes paid is a long-awaited positive change, the remaining changes reduce revenue and prevent lawmakers from making new investments. Further, the triggers introduce more uncertainty into the tax system. Louisianans will vote on the proposal in October. — KAMOLIKA DAS

State Roundup

• CALIFORNIA legislators passed a placeholder budget bill last week in order to meet a deadline, but many details and negotiations with Gov. Gavin Newsom remain to be settled. Funding for health departments, child care, homelessness programs, and wildfire and drought response are all among the lingering debates.
• CONNECTICUT lawmakers failed to get a Child Tax Credit across the finish line this year—which would have advanced economic justice and reduced racial inequalities—but they did take one step in that direction by approving a “baby bond” program for Connecticut children born into poverty.
• Lawmakers in the DISTRICT OF COLUMBIA withdrew proposed legislation that would have replaced the city’s current sales tax on sugary drinks with an excise tax of 1.5 cents per ounce.  After a racially-charged debate at last month’s public hearing, the bill ultimately did not have enough support to move forward.
• The FLORIDA legislature approved a 30-year agreement granting the Seminole Indian Tribe exclusive rights to operate sports betting in the state, but before this can be implemented, the deal must pass several legal challenges that have far-reaching implications on other governing agreements between states and Indian tribes.
• MASSACHUSETTS lawmakers approved the millionaires’ tax for a public vote on the state’s 2022 ballot. The tax, also known as the “Fair Share” constitutional amendment, would impose a 4 percent surtax on wealthy households with income exceeding $1 million.
• Lawmakers in MINNESOTA have agreed on a deal to create a $5 million-a-year tax credit for film and TV production—the first of its kind in the state.
• The NORTH CAROLINA Senate approved a massive tax cut and revenue loss package that would eliminate the state’s corporate income tax, cut the personal income tax rate from 5.25 percent to 4.99 percent, increase the standard deduction, and cut the franchise tax. The bill now moves back to the House for consideration.
• Cannabis sales and tax revenues in OREGON hit all-time highs this year, and lawmakers are considering allowing cities and counties to raise tax rates to increase collections even further.
• House Democrats in RHODE ISLAND are set to release their annual budget proposal later this week. They continue to weigh issues such as raising the top marginal income tax rate, increasing the real estate conveyance tax rate, and a tax on sugary drinks, among other things. In the Senate, the state’s Senate Judiciary Committee advanced a plan to legalize cannabis. It will now move to the full Senate for consideration.
• SOUTH CAROLINA‘s gas tax will increase by 2 cents to 26.75 cents per gallon as part of a six-year process to bring the gas tax to 28 cents per gallon. State officials fear that the increase is not enough for adequate long-term road maintenance.
• The TENNESSEE legislature voted to allow restaurants to continue selling alcohol to-go but with a 15 percent added tax on the purchases.
• The graduated payroll tax on large companies paying high salaries in Seattle, WASHINGTON, has survived a court challenge and will likely take effect as intended beginning in 2022.

What We’re Reading

• Tax expert and author of The Whiteness of Wealth Dorothy A. Brown joins the State of Working America podcast to discuss how tax policy choices can advance or inhibit racial equity.
• Dorothy A. Brown also weighs in on the racial injustices overlooked in ProPublica’s major expose on how America’s richest households are dramatically under-taxed, pointing out that “policies supporting wealth building in America have always been designed by rich white men for their benefit” and explaining how some of the tax breaks used by these households came to be.
• Stateline reports on efforts in Maryland and at least eight other states to tax digital advertisements and the sale of personal data, particularly by giant tech companies like Google and Facebook.
• The Center on Budget and Policy Priorities has new research and guidance out on how states can improve their Rainy Day Funds.
• Experts from Pew advise on how states can use American Rescue Plan funds to improve their fiscal positions and expand access to broadband.
• Governing summarizes findings from a National League of Cities report on the top priorities and challenges for city officials in 2021.

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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