July 26, 2019
July 26, 2019
OHIO legislators passed a budget with unfortunate income tax cuts for high-income households. Other states turned their attention to unconventional ideas during their legislative off-seasons, for better and for worse. And there are many gems to be found in our “What We’re Reading” section below, including new research on the racial inequities that continue to pervade our communities and schools.
— MEG WIEHE, ITEP Deputy Director, @megwiehe
Major State Tax Proposals and Developments
- OHIO lawmakers reached a budget deal in the nick of time last week, signing off on a plan that reduces state revenues by $350 million a year via personal income tax cuts. The tax cuts eliminate income tax liability for anyone with taxable income under $21,750 and cut all other marginal rates by 4 percent, with the biggest beneficiaries being the wealthiest taxpayers. In terms of missed tax opportunities this session, the budget failed to pare back film tax credits or the preferential tax treatment for business pass-through income (the latter of which costs the state more than $1 billion annually).
- MASSACHUSETTS lawmakers enacted a budget this week 22 days into the new fiscal year. The budget, for the most part, does not include new revenues other than requiring remote online sellers to collect sales taxes.
- Proponents of enacting an income tax in Seattle, WASHINGTON, have been encouraged by a state court ruling equating income to property and stating that Washington cities can, therefore, tax income because it is property, but under current law must do so at a flat rate.
- An ALABAMA lawmaker has filed an ill-advised (and ill-named) “Fair Tax” bill to eliminate the state’s income and sales taxes and replace them with a broad consumption tax.
- Walmart is testing the dark store theory in its home state of ARKANSAS, arguing that its profitable retail stores should be assessed at the same value as vacant ones. This practice is used by big-box retailers to dodge taxes and results in depriving local governments of revenue for funding schools and other services. In other areas, Walmart won an assessment determination in MICHIGAN but didn’t make out so lucky in MINNESOTA.
- State tax collections in CALIFORNIA are performing well, helping to stock the state’s reserve funds for use during the next economic downturn. Simultaneously, local governments are losing out on $1 billion in revenue due to online retailers levying their influence to garner generous tax incentives for locating warehouses, distribution centers, or sales offices in a particular jurisdiction. The soda tax debate isn’t fizzing out any time soon as a coalition of medical and dental groups plan to work with lawmakers to take the issue of a statewide soda tax to the 2020 ballot.
- In local CALIFORNIA news, a proposal to tax IPOs in San Francisco is getting re-worked to narrow its scope to not unintentionally apply to all stock-based compensation, but a revision is expected in advance of the November 2020 ballot. Voters in San Francisco will decide if a new ride-sharing tax will be approved in November, designed to offset traffic congestion in the home of Uber and Lyft.
- A legal effort in COLORADO challenging the Taxpayer Bill of Rights (TABOR) has been hung up over procedural issues for the past eight years, but now may be heard on merit. A state appeals court ruled earlier this week that the plaintiffs—local government entities—did have standing to bring the case. Efforts are also underway to repeal TABOR entirely through a ballot measure.
- Income tax collections fell short of forecasts for the year in IDAHO. Given this and potential wildfire costs this summer, appetites for a tax cut to spend the state’s $100 million cash balance should be quelled.
- Some conservative groups are speaking out against “corporate cronyism” in MICHIGAN, the practice of extending state tax credits to big businesses. In other news, Fiat Chrysler Automobiles’ tax incentive package for converting engine plants for Jeep assembly may increase to $400 million as they seek to add new Tax Increment Financing (TIF) measures to the deal.
- A new effort is underway to legalize recreational cannabis use in MINNESOTA.
- NEW HAMPSHIRE lawmakers and Gov. Chris Sununu are attempting to buck the trend of states embracing the U.S. Supreme Court’s Wayfair decision to allow states to collect sales taxes on online purchases. Gov. Sununu signed a bill into law last week to challenge attempts from other states to require New Hampshire businesses to collect such taxes.
- In OREGON, opponents of a bill to raise $1 billion per year to help fund schools through a new business tax have dropped their attempt to put the bill before voters in November.
- Lawmakers in PENNSYLVANIA have plans to create a legislative task force to address the state’s growing infrastructure needs. And one lawmaker has a plan for eliminating the state’s property tax—a proposal he plans to introduce mid-August. To replace the $15 billion in revenue currently brought in by the statewide property tax, the bill would increase the sales tax 2 percent, increase local individual income taxes, and levying a new 5 percent tax on retirement income (excluding Social Security).
- WEST VIRGINIA lawmakers have been in special session again this week, signing off on more money for aid to local schools and approving a tax break to save a struggling coal-fired power plant.
What We’re Reading
- The New York Times editorial board takes on the role state tax systems play in worsening income inequality, featuring ITEP’s work on the distributive impact of state and local tax systems and the ILLINOIS ballot initiative to adopt a graduated income tax.
- The Center on Budget and Policy Priorities (CBPP) released a report this week explaining how our federal tax code has exacerbated racial inequities and offers suggestions for how it could be leveraged to advance racial equity.
- A new report from EdBuild explores the patterns and history of school segregation in America, particularly how a little-known Supreme Court case over school district boundaries and a school finance system based on local property wealth have helped lock in stark racial inequities even between closely neighboring districts. National Public Radio and Vox have more.
- The Atlantic profiles economist Raj Chetty as not only the man who has helped dispel the myth of social mobility but who has a plan for making economic opportunity real.
- Hyper-partisanship is leading to the use of previously unthinkable political tactics, including the increasing prevalence of recall campaigns such as underway right now in Colorado. Pew has the story. Could the example of how a divided government in MINNESOTA this year worked through its budget negotiations provide an example to the nation in a time of intense partisanship? One contributor would like to hope so.
- Twenty-two states had bills introduced to eliminate the sales tax on personal hygiene products. What happened? The New York Times reports.
- Not all companies maximize for tax avoidance. Chicago Booth Review explores.
- The U.S. House Ways and Means Committee signed off on a bill that would strengthen the federal Earned Income Tax Credit (EITC) for workers without children and extend the full value of the Child Tax Credit to low-income families. See CBPP’s analysis of the bill here.
- The New York Times covers some of the reasons most tax experts (including us, here and here) consider sales tax holidays to be unhelpful and distracting gimmicks.
- What does a big gap in a COLORADO highway between Boulder and Denver have to do with TABOR? Colorado Fiscal Institute’s Carol Hedges explains.
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