Just Taxes Blog by ITEP

State Rundown 6/30: Resolutions Are in Order for the New Fiscal Year

June 30, 2021

.ITEP Staff

Today is the last day of the fiscal year in many states, and some lawmakers might want to take the opportunity to make some new fiscal year resolutions. Legislators in Arizona, New Hampshire, Ohio, North Carolina, and Wisconsin, for example, should really cut back on the trickle-down tax-cut Kool-Aid, which may make parties with rich donors more fun but tends to be both harmful and habit-forming. And their counterparts in states including Florida and Massachusetts ought to quit indulging so much in sales tax holidays, the empty-calorie junk food of tax policy. But there are also many lawmakers who can resolve to keep building on good habits, such as those in Connecticut who started to direct the state’s attention to its upside-down tax code, and leaders in Oregon and other states who enhanced state-level Earned Income Tax Credits (EITCs) this year, as we recently highlighted here.

Major State Tax Proposals and Developments

  • The ARIZONA legislature approved a budget that would conditionally phase in a 2.5 percent flat tax and add a 4.5 percent cap on the top rate that wealthy taxpayers will pay. The $1.7 billion tax cut would almost exclusively benefit the rich, and most egregiously, comes on the heels of taxpayers approving a 2020 ballot proposition to increase taxes on high-income earners to specifically fund education services. – MARCO GUZMAN
  • NEW HAMPSHIRE lawmakers passed a biennial state budget last week with sweeping tax policy changes that overwhelmingly benefit corporations and the wealthy. Not only does the budget cut business taxes for the fourth time in a decade, the gradual elimination of the state’s narrow personal income tax on interest and dividends tax leaves the state’s tax code more regressive than ever. The legislature also approved a $100 million cut to the statewide education property tax (SWEPT), which will force lower-income towns to either raise taxes or cut programs for their local schools. – KAMOLIKA DAS
  • OHIO Republicans approved a 2022-2023 budget plan that includes a close to $2 billion tax cut over the biennium.  The richest five percent of households will garner well over half the benefit of the income tax cuts which include the elimination of the state’s top income tax bracket, a three percent across the board individual income tax reduction, and further reduction in the new top rate to 3.99%. – AIDAN DAVIS
  • OREGON lawmakers concluded a legislative session that featured advances in police accountability, infrastructure spending, and extending the state’s EITC to workers without Social Security numbers. They directed larger tax cuts, however, to upper-income households, for example by failing to decouple from a federal tax break that eliminates a cap on business losses and thus overwhelmingly benefits the richest 1 percent. – DYLAN GRUNDMAN O’NEILL

State Roundup

  • ARKANSAS‘s annual sales tax holiday, which will be held August 7-8th, includes select electronic devices this year such as cell phones, laptops, and tablets. Lawmakers claim that the sales tax holiday will help working families, but the benefits are poorly targeted and costly for the state.
  • CONNECTICUT lawmakers didn’t follow through this year on efforts to address the state’s upside-down tax code and ensure adequate funding for public priorities through tax increases on wealthy households and corporations. But many observers are noting the momentum to do so remains strong, and an upcoming state tax fairness study will help ensure these issues aren’t swept under the rug.
  • FLORIDA‘s new ‘Freedom Week’ sales tax holiday will start tomorrow through July 7th. Sales tax exemptions will apply to outdoor recreational supplies and tickets to concerts, museums, and performances. Economists projected that this will reduce state and local tax revenue by $54.7 million, despite the fact that sales tax holidays offer no significant retail boost. The sales tax holiday coincides with the start of online sales tax collection in Florida (and KANSAS).
  • The full MAINE legislature will vote on the budget this week, which provides hazard bonuses for over 500,000 workers, expands property tax credits, and increases the state contribution for K-12 funding, among other changes.
  • MASSACHUSETTS Gov. Charlie Baker filed legislation to make August and September completely tax-free holidays. As MassBudget stated, shifting the tax system away from sales taxes make sense but the state could have used the surplus to make transformative investments in education, childcare, transit, and other priorities. In other news, the Supreme Court refused to hear NEW HAMPSHIREs case against MASSACHUSETTS over the collection of income taxes.
  • MISSOURI lawmakers remain in special session and have only until tomorrow to fix the hole they left in the budget by not renewing a key tax that funds the state’s Medicaid program. If they fail to do so, Gov. Mike Parson has threatened across-the-board cuts to core services for all Missourians.
  • NEVADA continues to pay the price for straightjacketing lawmakers with anti-tax restrictions on their ability to raise the funds needed to meet public needs. The latest example: a $1 per transaction DMV fee that raised $5.1 million will have to be refunded – $1 at a time at a total cost of $7.8 million – because extending the tax in 2019 was recently ruled to run afoul of the state’s constitutional amendment requiring a supermajority vote for tax increases.
  • NORTH CAROLINA legislators continue to work toward harmful tax cuts that would slash funding for shared priorities like schools and healthcare by nearly $5 billion per year and worsen inequalities by giving about three-fourths of the cuts to the richest fifth of North Carolinians.
  • A WISCONSIN budget bill that would cut the rate of the second highest bracket from 6.27 percent to 5.3 percent and reduces property taxes by $650 million passed through the Republican-dominated Assembly with the support of four Democrats.

What We’re Reading

  • Pew researchers break down how federal fiscal relief varies from state to state.
  • Governing documents how aging infrastructure poses a huge problem for small cities that indicates a need for federal help. But Route Fifty notes that these smaller towns and cities face a paradoxical challenge related to federal fiscal relief: they can sometimes lack the resources necessary to effectively accept and utilize the additional resources.
  • Governing highlights efforts at the local level to take the lead and prioritize reparations policies.
  • Credit Suisse’s newest Global Wealth Report reveals that the share of U.S. wealth held by the richest 1 percent has risen to over 35 percent, which is nearly double the top 1 percent’s share in Japan, for example.
  • Chauncey Devega connects the intersectional dots in Salon to explain how America’s staggering wealth inequality is deeply entrenched in race and gender inequities and white supremacy.
  • Former New Hampshire State Senator Jeanne Dietsch wrote an op-ed highlighting the outside conservative forces that helped shape and pass the biennial budget, despite the fact that most voters do not support many of the measures included.
  • Former Kentucky Gov. Paul Patton asks a crucial but often overlooked question about property taxes: why do we tax the wealth of regular families (our homes) while leaving the wealth of the truly wealthy (primarily stocks and other financial assets) untouched? Patton and many others agree that a reasonable federal wealth tax would go a long way toward rectifying this inequity.
  • Johnson City Press columnist Ed McKinney explains how Tennessee‘s tax code favors the wealthy.

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