State Rundown 6/28: Budget Deals Reached in Nick of Time

This week, lawmakers in Louisiana, Pennsylvania, Rhode Island, Vermont, and the District of Columbia wrapped up their budgets in time for the new fiscal year that starts July first in most states, with some of these resolutions coming after contentious debates and repeated special sessions. New Jersey’s debate is not yet finished as leaders clash over spending priorities and the taxes on millionaires and corporations needed to fund them. Meanwhile, signature drives to put tax-related questions on fall ballots are heating up in several other states. And our “What We’re Reading” section includes helpful resources on implications of the Supreme Court’s Wayfair online sales tax decision last week.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Major State Tax Proposals/Developments:

• Days before the start of the new fiscal year, Louisiana lawmakers concluded their third Special Session having finally approved a budget that avoided deep cuts for the coming year by extending the sales tax rate to 4.45 until 2025. NOLA has a breakdown of winners and losers from the compromise deal that finally passed.
• New Jersey may be headed for a government shutdown if leaders cannot find agreement to overcome their impasse on taxes and spending. Gov. Phil Murphy has threatened to use his line-item veto power to cut funding for important services if legislators are unwilling to agree to a sufficient revenue package to generate that funding. He has offered to compromise on some of the tax details though, so a deal could yet be in reach but the newest options put forward by Senate President Steve Sweeney are likely not to cut it.
• North Carolina legislators are considering whether to add a constitutional amendment to the November ballot that would cap the state’s income tax rate.. When it was clear that the original plan to cap the rate at 5.5 percent did not have enough support to clear the House, the bill was amended to set the cap at 7 percent and as of this writing is just one more House vote away from approval.  However, the Senate would still need to sign off on the amendment and it is unclear whether there is support for the higher cap.  No matter the rate, an income tax cap is a bad idea.  Opponents are rightfully speaking out against the change citing the negative impact it would have on public services, including education.
• In Vermont, the third time is a charm. Days before the deadline, Gov. Phil Scott stated that he will allow the third budget and tax bill approved by the legislature to become law without his signature. The final bill, H 16, increases the statewide non-residential property tax rate to $1.58 per $100 of assessed value and responds to federal tax conformity with a number of state tax policy changes.
• Pennslyvania and Rhode Island also wrapped up their budget negotiations and sessions this week. Neither include broad-based tax increases. Pennsylvania’s budget bill includes no new revenue at all, despite a continued push from Gov. Tom Wolf to create a severance tax. Rhode Island’s budget, in tax news, continues to phase out the state’s car tax, expands the state’s film tax credit program, and legalizes sports betting.
• District of Columbia council members have finalized their budget, which increases ride-hailing taxes on companies like Uber and Lyft to improve transportation infrastructure, increases cigarette taxes $2 per pack, decouples from the federal estate tax exemption in order to maintain more of the revenue from this progressive tax, and creates a $5,000 small business tax credit, while also improving funding for arts, infrastructure, and other priorities.
• South Carolina lawmakers head back into session this week to discuss, among a few other things, conformity to the federal tax code in the wake of the Tax Cuts and Jobs Act. Read our overview of what’s at stake in this debate here.
• The Kansas legislature has another year to get its education funding plan into “constitutional compliance” according to the state’s Supreme Court, which found the plan continued to be inadequate because it didn’t account for inflation.

Further State Fiscal News:

• California lawmakers are quickly advancing legislation that would temporarily ban municipalities from enacting new soda taxes until 2031. The legislation is intended to stave off a ballot initiative the beverage industry has been petitioning for that would require supermajority support of the public to increase local government taxes.
• The California initiative to repeal new gas taxes and fees has collected enough signatures to appear on the November ballot.
• In Maine, Gov. Paul LePage is floating a new hospital tax to fund Medicaid expansion. Also, the ballot language for universal home care has been released.
• New Mexico lawmakers received a new tax model that will help them analyze proposed changes to their state tax system in coming legislative sessions. The findings of the accompanying study aren’t shocking, but reiterate the challenges the state faces by having some many exemptions from its gross receipts tax.
• An Oregon effort to require three-fifths vote for any changes to fees, exemptions, deduction or credits that would result in more revenue for the state has collected enough signatures to appear on the November ballot.
• In response to the Supreme Court’s decision regarding the collection of sales and use taxes from online retailers, Wisconsin Scott Walker has indicated the state will start collecting these new revenues but offset the gain from equal cuts to other taxes. Similarly, Nebraska Gov. Pete Ricketts has proposed to direct online sales tax revenues to property tax reductions.

What We’re Reading…

• Many experts and news outlets are weighing in on what the Wayfair online sales tax decision means for states going forward. Some of the best are from Governing, The Hill, Bloomberg, and Route Fifty.
• Route Fifty reports on how the Trump administration’s federal restructuring plan affects state and local governments as well.
• What are corporate tax incentives and why do cities spend so much on them? Read here for a good primer.
• Two new books on economic theory speak to the limits of Hayekian economics and the importance of progressive taxation to stave off “runaway” inequality.

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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