State Rundown 7/21: States Go for Tax Policy Gold This Olympics Season

It’s Olympics season! As countries around the globe battle for first place in a plethora of sports and contests it’s as good a time as any to look around America to see which states deserve a gold medal in the ‘Equitable Tax Policy’ event. Starting with the gold: The District of Columbia secured funding for vital services like early childhood education, housing vouchers for the unhoused, and an EITC increase by increasing the marginal tax rate on high earners. The silver medal goes to Connecticut’s new Baby Bond program that will invest taxpayer money into children born under Medicaid, and California’s budget secured bronze by making solid use of taxpayer funds by investing in pandemic relief and meals for students—the increased film tax credits and SALT cap workaround, however, affected its overall score. And while not everyone can be a winner, Missouri certainly deserves a warm, “At least you tried,” for passing an odd bill that increases the gas tax but refunds the money for those who save their receipts and apply.

Major State Tax Proposals and Developments

• CALIFORNIA lawmakers and Gov. Gavin Newsom approved a state budget about two weeks into the new fiscal year. The package includes $600 payments to residents with income less than $75,000, plus $500 for families with children, and extends payments to undocumented immigrant families with children who were overlooked in federal recovery aid. It allocates more than $7 billion to help cover utilities and unpaid rent from the pandemic and almost $5 billion to alleviate homelessness. The budget also institutes a new school year called “transitional kindergarten” for all 4-year-olds, funds two free meals per day for all public school students, and invests heavily in after-school and summer school programs. On the tax front, they increased film tax credits by $330 million and created a workaround allowing some pass-through businesses to avoid the $10,000 federal cap on state and local tax deductions (SALT).
• The DISTRICT OF COLUMBIA Council approved a budget amendment that would increase the marginal income tax rate on residents who earn at least $250,000 a year. The amendment passed 8-5 after a similar amendment failed last year 5-8. If it passes final approval, the new revenue will be dedicated towards increasing wages for early childhood educators, providing housing vouchers for unhoused residents, and increasing the Earned Income Tax Credit (EITC) to 55 percent of federal and turning it into a monthly stipend.

State Roundup

• ALABAMA just closed out its 16^th back-to-school sales tax holiday this past weekend which waived the 4 percent sales tax on school-related supplies and clothing.
• CONNECTICUT’s new $600 million Baby Bond program began July 1, the first of its kind in the country. The program invests $3,200 in each child born under Medicaid insurance and allows them to retrieve the money—estimated to grow to $10,000—at age 18 after passing a financial literacy course.
• As IDAHO ends its fiscal year with a record budget surplus of nearly $900 million, Gov. Brad Little explained that he intends on using the funds to cut taxes and provide investments in the education sector.
• Some INDIANA residents will be getting money back in the form of a tax credit in 2022 because the state’s reserves exceed the mandated 12.5 percent of general fund appropriations, excluding K-12 education reserves.
• This past week, MASSACHUSETTS Gov. Charlie Baker signed the state’s budget. The deal includes no new taxes and a deposit into the state’s Stabilization Fund. It also permanently extends the state’s tax credit for film production.
• MICHIGAN Gov. Gretchen Whitmer has vetoed a bill that would have provided a SALT cap workaround.
• MISSISSIPPI will hold a sales tax holiday on purchases of clothing, footwear, and school supplies that are less than $100 per article on July 30th and July 31st.
• MISSOURI Gov. Mike Parson signed the legislature’s odd gas tax bill that will raise the tax and then refund the money to those who save receipts and apply.
• NEW JERSEY’s recently passed budget included a provision requiring the Division of Taxation to conduct a study of the digital economy and how it is—and isn’t—being taxed in the Garden State.
• NEW JERSEY lawmakers and Gov. Phil Murphy are being called out, however, for the rushed and opaque process through which the budget was debated and approved, a process that shunned the notion of transparent governance and reinforced systemic racism.
• As lawmakers in NORTH CAROLINA work to develop the House budget proposal, advocates for equitable taxes and sustainable revenues push back against the Senate tax cut plan.
• RHODE ISLAND preserved an estimated $47.8 million in general fund revenue through the state’s partial break from federal rules on forgiven Paycheck Protection Program (PPP) loans. Gov. Dan McKee recently signed the state budget, making The Ocean State one of seven states to break proactively from the provision.

What We’re Reading

• In a webinar hosted by ITEP and the Economic Security Project, our own Aidan Davis spoke on an expert panel about the impact and benefits of the expanded Child Tax Credit, which was made possible by the American Rescue Plan.
• ITEP’s Carl Davis added an insightful comment on an opinion column from Binyamin Appelbaum at the New York Times, who bid farewell to the tax preparation behemoth Intuit after the company exited a federal program that let some taxpayers use a free version of their TurboTax filing software.
• William E. Spriggs, the chief economist for the AFL-CIO, authored an opinion piece in the New York Times highlighting the need for and importance of focusing on Black unemployment rates in America, which is especially relevant as states across the country continue to enact highly regressive tax cut plans that will reduce funding for important services that help people get ahead and secure well-paying jobs.

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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