Just Taxes Blog by ITEP

State Rundown 6/22: Some Tax Debates Heat Up as Others Cool Off

June 22, 2023

Summer is here and many states are nearing the end of their legislative sessions. Temperatures are rising in more ways than one in some state legislatures while others seem to be cooling off.

A tax package debate in Massachusetts is heating up as the House and Senate need to reconcile a nearly half-billion-dollar difference between their plans. A fiery debate over a top-heavy property tax credit for seniors in New Jersey is cooling off following a compromise between Gov. Phil Murphy and legislative leaders. The Vermont legislature voted to override Gov. Phil Scott’s veto following his chilly reception to a new payroll tax to fund increased childcare subsidies. And Rhode Island will get a reprieve from heated budget debates after Gov. Dan McKee signed next year’s budget into law.

Major State Tax Proposals and Developments

The MASSACHUSETTS Senate unanimously passed a $590 million tax package that is almost half a billion dollars smaller than the House plan. The Senate bill focuses on many of the same priorities as the House bill, including increases to the state’s Earned Income Tax Credit and other credits. It leaves out a top-heavy cut to the short-term capital gains rate and includes a requirement that married couples who file jointly on their federal returns file joint state tax returns as well. – MARCO GUZMAN

• NEW JERSEY Phil Murphy and leaders in the statehouse have come to an agreement on a proposal to provide seniors with incomes up to $500,000 a $6,500 property tax cut beginning in 2026. The plan, like the one before it, however, still does not include renters. – MARCO GUZMAN

• RHODE ISLAND Dan McKee signed legislation that would provide a $50,000 exemption for the state’s tangible property tax for businesses, which would eliminate the tax for an estimated 75 percent of businesses, increase the Earned Income Tax Credit from 15 percent to 16 percent of the federal amount, and provide Rhode Islanders a rebate for the 4 percent gross receipts tax on electric bills and the 3 percent gross receipts tax on natural gas bills. – MILES TRINIDAD

The VERMONT legislature voted to override Gov. Phil Scott’s veto on legislation to boost childcare funding by $120 million, which would be partially funded by a new payroll tax. In separate legislation, Scott signed into law an expansion of the state’s Earned Income Tax Credit and Child Tax Credit to all residents regardless of immigration status. – MILES TRINIDAD

State Roundup

• ALABAMA Kay Ivey signed a bill reducing state sales tax on groceries. The tax will drop from 4 to 3 percent in September of 2024 and could drop to 2 percent if the state’s Education Trust Fund hits a statutory growth target. While the sales tax reduction will reduce revenues by around $300 million annually, the savings will disproportionately benefit low-to moderate-income households.

• ARIZONA Katie Hobbs vetoed a Republican-backed transportation plan—that includes the extension of a half-cent sales tax set to expire in 2025—noting that it did not align with the bipartisan plan championed by Phoenix’s regional planning agency. The bipartisan plan would put more money toward public transportation and light rail.

• GEORGIA’s film tax credit, which costs the state $900 million annually, is receiving heavy criticism during a House-Senate panel that is assessing state tax breaks.

• NEBRASKA advocates are gearing up for a ballot initiative fight over the state’s new tax credit for private schools. By creating a dollar-for-dollar tax credit for donations to private and parochial schools, the credit effectively evades Nebraska’s constitutional prohibition of public funding for private and religious schools. The Nebraska State Education Association is gathering signatures for a ballot measure overturning the credit and Sen Lou Ann Linehan (R-Omaha) is leading a campaign to defend the measure, which she authored.

The OREGON Legislature’s Joint Committee on Tax Expenditures unanimously approved legislation that would create a $1,000-per-year Oregon Kids Credit, which is estimated to cost $37.5 million per year. The legislation would allow households earning up to $25,000 per year to receive a $1,000 annual credit for every child under the age of six, as well as a smaller credit for families with incomes up to $30,000. The proposal now waits for consideration in the House.

The PENNSYLVANIA House passed legislation that would create a $2,500 tax credit for newly certified teachers, nurses, and law enforcement officers after working in the state for three years. The bill was included in Gov. Josh Shapiro’s budget request. The bill is estimated to cost $64.6 million, which is higher than the estimate in Shapiro’s budget proposal due to more certification types being eligible in the bill.

The TEXAS Senate passed a new property tax bill that includes $18 billion in homestead exemptions and business franchise tax exemptions (doubling the latter to nearly $2.5 million). The ultimate compromise will require voter approval via changes to the state’s constitution. However, in order to move forward, the House will need to consider and ultimately vote on the bill. The governor has reiterated his support for the House legislation which does not include changes to the homestead exemption.

Tony Evers in WISCONSIN signed a bill that increases shared revenue with local governments and allows the city and county of Milwaukee to raise sales taxes. Gov. Evers has also signed legislation that eliminates the state personal property tax. Meanwhile, Republican legislators announced a tax cut plan that involves lowering income tax rates.

What We’re Reading

The Center on Budget and Policy Priorities’ Wesley Tharpe highlights the trend in states cutting personal and corporate income taxes, and details how the cuts will eventually do harm to state budgets while allowing the wealthiest residents to reap most of the benefits.

Route-Fifty discusses how the South Dakota v. Wayfair decision boosted state reliance on sales tax revenue.

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