Just Taxes Blog by ITEP

State Rundown 8/26: Progressive Revenue Ideas Featured in Many States’ Fiscal Debates

State Rundown 8/26: Progressive Revenue Ideas Featured in Many States’ Fiscal Debates

August 26, 2020

ITEP
.ITEP Staff

Voters could significantly change the tax landscape through ballot measures this November regarding oil taxes in Alaska and a high-income surcharge for education funding in Arizona. Legislators are doing their part to bring progressive tax ideas to the fore as well, including a possible wealth tax in California, a millionaires tax in New Jersey, and a pied-a-terre proposal in New York. And Nebraska lawmakers reached a property tax and business tax subsidy compromise before closing out their session, but did not identify progressive revenue sources to fund it and will likely be back at the bargaining table before long.

Major State Tax Proposals and Developments

  • ALASKA’s oil tax initiative, Ballot Measure 1, would tax the state’s three biggest, highly profitable oil fields on the North Slope. If passed, it would raise the tax from 4 percent to 10 percent on the gross value of crude oil, up to $50 per barrel, with a percentage point increase for every $5 dollar price increase up to the cap of 15 percent. The ballot measure will appear before voters this November. – AIDAN DAVIS
  • The ARIZONA Supreme Court reversed a lower court’s decision and held that Invest in Education’s 100-word description of their November ballot initiative (that would impose a surcharge on wealthy earners) “did not create a significant danger of confusion or unfairness.” Voters will now have the opportunity to enact a surcharge on the state’s wealthiest earners. – MARCO GUZMAN
  • CALIFORNIA leaders have teamed up with top scholars to design and propose a first-of-its-kind state wealth tax that would apply a 0.4 percent rate to net worth, excluding real estate, in excess of $30 million per household. The proposal cannot be officially debated or voted on in the current legislative session, but certainly has people talking regardless. Advocates, including a new Commit to Equity coalition, see it as an ambitious but achievable way of funding state needs while reining in unprecedented inequalities and envision this tax on high net worth working in combination with “millionaires tax” proposals on very high incomes. – DYLAN GRUNDMAN
  • NEBRASKA lawmakers closed their session with a “grand compromise” on property taxes and business tax subsidies, though it’s unlikely to be grand enough to forestall the debate returning again soon. While the property tax rebates and credits are considered significant, and there are some limitations on the growth of the subsidies, it is not clear the state can afford to fund the package’s growing costs over time without raising other taxes or slashing important funding down the road. In fact, while the budget was balanced for the short term, the bills contribute to a projected revenue shortfall for the state’s next budget that approaches $1 billion. – DYLAN GRUNDMAN
  • NEW JERSEY Gov. Phil Murphy’s new budget plan is receiving generally high marks so far. The plan relies on $4 billion in borrowing, which is down from $10 billion in earlier proposals. It maintains school funding and restores property tax protections for low-income and elderly residents, while also making a record contribution toward the state’s pension debt and beginning an innovative “baby bond” program. Most importantly, as recently encouraged by nearly 100 economists, the proposal recognizes the state’s need for additional revenue and asks its highest-income households to pay a fairer share to meet that need through a millionaires tax. It also raises some funding through tobacco taxes and handgun fees. – DYLAN GRUNDMAN

State Roundup

  • Sales tax revenues in the four largest cities in Northwest ARKANSAS rose by 3.4 percent from a year ago.
  • COLORADO Gov. Jared Polis praised the intent of a Republican-sponsored ballot measure (Initiative #306) that would lower the state’s flat income tax rate from 4.63 percent to 4.55 percent.
  • And Denver, COLORADO voters will have the chance to decide on a 0.25 percentage-point increase to the local sales tax rate to help support tools to combat homelessness.
  • CONNECTICUT’s latest forecast estimates a $2 billion revenue shortfall in the state’s upcoming budget.
  • Earlier this month, GEORGIA Gov. Brian Kemp signed House Bill 1037, which introduced new audit and certification requirements but largely maintained the generous film tax credit that cost the state 3.1 percent of its budget last year.
  • In order to cover the state’s surge in unemployment claims, KENTUCKY secured an $865 million loan from the federal government in June, but the fund was entirely depleted by July. Employers worry that they may have to eventually pay a surcharge per employee to support the unemployment insurance fund, as they did during the Great Recession.
  • LOUISIANA will start disbursing $300 unemployment checks this week to replace the $600 weekly benefits that expired in July. Like Kentucky, once the unemployment fund becomes insolvent, businesses may need to pay a “solvency tax” of up to 30 percent of their quarterly unemployment tax rate to replenish the fund. In other news, the New Orleans City Council unanimously voted to partially eliminate the “pink tax” on menstrual products and diapers.
  • MASSACHUSETTS is gearing up for its annual tax-free holiday, which typically costs the state $20 million in tax revenue.
  • MICHIGAN saw stronger-than-expected tax revenues in May, which has led to the projected budget shortfall for fiscal year 2021 to be revised down from $3.1 billion to $1 billion.
  • The MONTANA legislature’s Tax Study Committee decided not to recommend a bill that would create a statewide sales tax in its final meeting.
  • NEW HAMPSHIRE Gov. Chris Sununu threatened to take legal action if Massachusetts does not stop imposing a state income tax on New Hampshire residents working remotely for Massachusetts companies.
  • Proposals to tax the ultra-rich are making headlines in NEW YORK, where advocates are calling attention to the expanding fortunes of local billionaires during the pandemic, and legislators are again considering a pied-a-terre tax.
  • PENNSYLVANIA Gov. Tom Wolf urged state lawmakers to allow for recreational cannabis sales. He envisions that the tax revenue would go to support historically disadvantaged businesses and restorative justice programs.
  • Citing uncertainty of federal aid and a prolonged revenue shortfall, RHODE ISLAND department heads have been tasked with submitting budget proposals that reflect 15 percent cuts.
  • Tourism in TENNESSEE was at record levels prior to COVID-19; the US Travel Association now predicts that the state’s travel economy could see a 35-40 percent decline this year from 2019.
  • TEXAS Gov. Greg Abbott stated that he would freeze property tax revenue at the current level for any cities that vote to defund their police departments. The comments were in response to Austin’s vote last week to reallocate $150 million from the police budget to community resources, alternative community safety measures, and a transfer of some police services to civilian control.
  • This week, VERMONT lawmakers are back in session to complete the state’s budget process. Gov. Phil Scott’s budget proposal for fiscal year 2021 aims to avoid any major spending cuts or tax increases.
  • WYOMING lawmakers are considering increasing the state’s $1 per megawatt-hour wind generation tax. A study found that increasing the tax to $4 would raise almost $2 billion.

What We’re Reading

  • Governing breaks down how different tax sources are likely to fare over the coming months and years in response to the pandemic and its aftermath.
  • The Urban-Brookings Tax Policy Center analyzed state and local reliance on fines and forfeitures throughout the nation and how these practices are intertwined with structural racism.
  • Route Fifty reports on a survey of the trials and tribulations facing state and local government leaders in the Covid-19 era.
  • Jim Douglas, former governor of Vermont, argues in Governing that our nation’s education system needs federal help in the short and medium term, and a fundamental re-thinking in the longer term.
  • Sadaf Knight, CEO of the Florida Policy Institute, wrote an op-ed in the Miami Herald about how modernizing the state tax code would generate millions in revenue for key budget priorities.

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