June 7, 2021
June 7, 2021
Just as an early summer heatwave brought soaring temperatures this past weekend through much of the lower 48 states, several state legislative sessions are heating up as legislators scramble to make tough budget decisions. Massachusetts lawmakers are voting on a fiery new “millionaires’ tax” that would support transportation and education revenue needs, and Connecticut will likely restore its state Earned Income Tax Credit (EITC) back to 30 percent. Illinois’s decision to cut back corporate tax breaks also provided a breath of fresh air. Unfortunately, we’d give other state tax proposals a more lukewarm reception: New Hampshire, North Carolina, and Ohio are all considering tax cuts that would either primarily benefit the wealthy or create unsustainable revenue shortfalls. But it’s not too late to cool it and adopt more responsible and equitable tax policies.
Major State Tax Proposals and Developments
- A slew of new provisions have been added to the ARIZONA budget with the hopes that it will be enough to get it through the House. Some of the changes include increasing the amount of income tax shared between the state and cities to 17 percent (to make up for lost revenue from implementing a flat tax) and moving changes to the angel credit and affordable housing credit to their own separate bills.
- ILLINOIS lawmakers ended their 2021 legislative session on Memorial Day by passing a budget that pays off a federal loan for money borrowed during the pandemic, prioritizes education funding, and generates more than $655 million in revenue by curtailing corporate tax breaks including accelerated depreciation deduction, capping corporate net operating loss deductions, rolling back the TCJA foreign-source dividend deduction, and freezing the corporate franchise tax. Missing from the budget was an expanded Earned Income Credit, which advocates have worked tirelessly to enact over the past two years, building a strong foundation of support from which they will continue to advance better tax policies for working families in the future.
—LISA CHRISTENSEN GEE
- In ALASKA, lawmakers weigh whether to backtrack on their 2018 decision to manage the state’s Permanent Fund more like an endowment with a 5 percent spending limit. They are now considering exceeding that limit to fill short-term deficits and pay out larger dividends to Alaska residents. Alaska lacks broad-based taxes, such as a personal income tax or statewide sales tax. And yet, discussions about responsibly filling the state’s shortfalls with tax revenue have proven to be nonstarters.
- Lawmakers in CONNECTICUT near a deal, opting for a $46 billion state budget that includes an increase to the state’s EITC back to the previous rate of 30 percent. The tentative agreement fails to include any tax increases—including an increase in capital gains taxes and a new consumption tax on high-income earners. The compromise also leaves out key measures such as a state Child Tax Credit, and the governor’s transportation climate initiative.
- LOUISIANA legislators are debating a proposal to make permanent a 0.45 percent state sales tax that was set to expire mid-2025. Supporters of the sales tax want to use the revenue for infrastructure projects while opponents argue that new federal government dollars could pay for infrastructure. In other news, the legislature passed a tax reform bill that would replace the state’s fragmented system of collecting sales taxes with a centralized sales tax commission; voters will vote on the proposal on October 9.
- Lawmakers in MASSACHUSETTS plan to vote this week on a constitutional amendment to add a 4 percent surtax on all household income above $1 million. The measure must pass two consecutive legislation sessions to qualify for the ballot. If passed, the measure is expected to bring in nearly $2 billion in new revenue for state transportation and education needs.
- The NEW HAMPSHIRE Senate approved a $13.5 billion two-year budget that includes revenue-reducing tax changes proposed by the House that primarily benefit businesses and high-income households. The proposal lowers the business profits tax, business enterprise tax, and rooms and meals tax; it also phases out the interest and dividends tax, even though almost half of the tax elimination would flow to the top 1 percent of earners.
- The NORTH CAROLINA Senate introduced a package of tax cuts that would include eliminating the corporate income tax (over five years), lowering the personal income tax rate from 5.25 percent to 4.99 percent, and increasing the standard and child deduction. The North Carolina Budget and Tax Center identifies the implications and explains how the richest 20 percent of North Carolinians would receive 56 percent of the overall tax cut.
- The OHIO Senate aims to outdo the House’s proposed 2 percent tax cut by cutting personal income taxes by 5 percent, costing the state $874 million. They would also, among other things, make it more difficult for cities to collect needed revenue through substantial changes to the COVID rules for collecting commuter taxes. Policy Matters Ohio summarizes the proposal and shows how it would primarily benefit the state’s wealthiest.
- TENNESSEE is holding a year-long sales tax holiday for gun safety equipment following the state’s new permitless carry bill that will allow any Tennessean aged 21 and older to carry a handgun without a permit.
What We’re Reading
- The Arizona Center for Economic Progress highlights, yet again, how the proposed flat tax would negatively impact the state and exacerbate inequalities for people of color.
- Governing explains the story behind a failed proposal in California to create excise taxes on the sale of new guns to fund gun violence prevention programs.
- A new study found that Alabama’s grocery tax is strongly correlated with an increase in household food insecurity and poor nutrition.
- A North Carolina editorial pushes back against the state’s recent tax cut plan and calls out the inherent lie of stimulating economic growth through tax cuts on the rich and corporations.
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