State Rundown 8/10: States Still Talking Taxes as IRA Dominates Headlines

While federal tax policy has dominated the headlines with the Senate’s recent approval of the Inflation Reduction Act, lawmakers in statehouses across the country are still busy trying to determine how best to put their budget surpluses to use. Unfortunately, cutting taxes remains a popular option. Arkansas is looking like it’s set on using revenues to accelerate the phase-in of tax cuts passed last year. And though lawmakers in West Virginia just ended their special session, they are continuing to negotiate a tax plan that incorporates some of Gov. Jim Justice’s proposed income tax cuts and their cuts to business inventory taxes. Meanwhile, the Supreme Court’s decision in Dobbs is already having unique tax implications, as pregnant women in Georgia can now claim fetuses as dependents.

Major State Tax Proposals and Developments

• As their week-long special session begins, ARKANSAS lawmakers have already advanced tax cuts that would accelerate individual and corporate income tax reductions approved the year prior. – NEVA BUTKUS
• As WEST VIRGINIA lawmakers continue to discuss tax cut options, some are tossing around the idea of a hybrid plan, which would include some provisions from the governor’s proposal and theirs. Specifically, the plan would only reduce some of the income tax rate brackets and cut business inventory taxes and other taxes on tangible personal property. – KAMOLIKA DAS
• RHODE ISLAND’s one-time Child Tax Credit passed and payments of $250 per child (up to $750 total) will start going out in October to married couples with incomes below $200,000 and single-earner families with incomes below $100,000. – DYLAN GRUNDMAN O’NEILL

State Roundup

• CALIFORNIA voters will have a lot to think through at the ballot box in November as they decide on Proposition 30, which would fund electric vehicle subsidies through a tax increase on high-income households. Gov. Gavin Newsom, who has championed both progressive taxation and climate change mitigation in the past, opposes this proposition, calling it a “cynical scheme” led by the Lyft corporation to avoid their responsibilities to the environment.
• COLORADO residents will no longer owe sales tax on purchases of feminine hygiene products and diapers after Gov. Jared Polis signed the legislation into law.
• CONNECTICUT’s one-time child credit application period has closed, with the state receiving nearly 250,000 applications representing over 350,000 children. That represents about 70 percent of potentially eligible families in the state.
• Pregnant women in GEORGIA can now claim fetuses as dependents on their state taxes, a ruling that received national attention from the New York Times, The Guardian, and National Public Radio for its relation to the broader debate over women’s reproductive rights. Georgia does not provide a refundable state Earned Income Tax Credit or Child Tax Credit to families with children.
• GEORGIA Gov. Bryan Kemp is considering additional tax rebates to be sent to residents out of the current budget surplus, which candidate Stacey Abrams has proposed. Gov. Kemp is reportedly also considering a homeowner property tax rebate.
• INDIANA residents can expect to receive $200 rebate checks as soon as mid-August after the proposal was approved during the special legislative session. Concerns about worsening inflation led to lawmakers reducing the originally proposed $225 refund.
• NEBRASKA sellers of fuel containing more than 10 percent ethanol can now start applying for new tax credits intended to incentivize greater use of E15 gas, which contains 15 percent ethanol. Credits are capped at $2 million total in the first year, growing to up to $4 million in future years.
• A group of NEW JERSEY legislators introduced a new bill, dubbed as the “Stay in Jersey” bill.  It’s aimed at curbing the costs of tolls to New York and New York’s congestion tax, which is slated to start in 2023. This bill would create a tax credit program for businesses that expand operations into New Jersey. It also has a $15 million per year cap and lasts through 2027.
• The League of OREGON Cities is asking state lawmakers to help improve city services by either increasing state taxes that flow to cities or expanding the options available at the local level. Alcohol, marijuana, and property taxes are their areas of emphasis.

What We’re Reading

• Cristobal Young and Ithai Lurie with the Washington Center for Equitable Growth published a brief examining the effect of tax reform and the pandemic on tax flight among millionaires in the United States.
• Courthouse News Service reports on the growing trend of cities in California taxing vacant homes to fund local needs (usually related to housing and homelessness) and relieve pressure in the housing market, an idea cities in other states have considered as well.
• The Oklahoma Policy Institute’s Interim Executive Director Shiloh Kantz wrote an op-ed about the pitfalls of the legislature’s latest tax policy ideas, which includes creating a flat tax. She goes on to explain how regressive the Oklahoma tax system already is and how a flat tax only makes that worse. She also refutes tax cuts for inflation’s sake and argues that if lawmakers are worried about inflation, they should look to expanding the state’s Sales Tax Relief Credit and EITC.
• Amy Blouin of the Missouri Budget Project recommended that lawmakers avoid making cuts to the state’s income tax rate, especially as the country faces a potential recession.
• Policy Matters Ohio updated a brief highlighting the “LLC loophole,” which allows individuals to avoid paying taxes on income up to $250,000 and pay a low, flat rate on income above that threshold. The brief argues that the loophole disproportionately benefits a small group of wealthy taxpayers and does little to spur job creation.

 

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