September 13, 2023
September 13, 2023
The U.S. Census Bureau released its annual assessment of poverty in America this week. The stark findings and their cause provides states with an opportunity to use tax policy levers to make a big difference in the lives of their residents. Specifically, the data show that the child poverty rate in 2022 was over twice the level it was a year prior, before the temporary expansion of the federal Child Tax Credit (CTC) and Earned Income Tax Credit (EITC)—both included as a part of the American Rescue Plan—lapsed. The expanded credits boosted the economic security of millions of families and drove a steep decline in child poverty in 2021, but the gains were short-lived.
Fortunately, in 2023 alone, lawmakers in 10 states created or expanded CTCs and 12 states enhanced EITCs, which will provide greater economic security to low- and middle-income families. Strong antipoverty tools, like these state credits, are policy choices that state leaders can make to promote more equitable tax codes that will have long-lasting positive effects for generations to come.
Major State Tax Proposals and Developments
- The ARKANSAS legislature convened for a special session to consider cutting taxes for the third time in 13 months. The proposed tax cuts include slashing the top personal income tax rate from 4.7 to 4.4 percent and cutting the top corporate income tax rate from 5.1 to 4.8 percent. The bill also proposes a one-time nonrefundable tax credit of $150 per filer making under $90,000. This proposed tax cut would build on $1.6 billion of income tax cuts that have taken place since 2014; cuts that overwhelmingly benefited wealthy Arkansans. – NEVA BUTKUS
- VIRGINIA lawmakers passed a budget compromise that includes one-time tax rebates and an increase to the standard deduction. The non-refundable rebates provide $200 to single filers and $400 to joint filers, and a standard deduction increase from $8,000 to $8,500 for single filers and $16,000 to $17,000 for joint filers, but the increase only remains in effect for future tax years if the state meets a revenue target. The legislation comes after Gov. Glenn Youngkin’s original proposal, which included long-term income and corporate tax cuts, failed to advance in the divided state legislature. Despite not including Youngkin’s original proposal, he issued a statement in support of the legislation’s passage as it heads to his desk for his signature or to be returned to the legislature if he seeks further changes. – MILES TRINIDAD
- The CALIFORNIA legislature passed an 11 percent sales tax on firearms and ammunition. The CA Department of Tax and Fee Administration estimates the tax could raise about $160 million annually, but acknowledged uncertainty about behavioral changes, firearm parts, and the cost of an exemption for law enforcement. The funds will be spent on school safety.
- DELAWARE Gov. John Carney signed legislation allowing taxpayers who are members of active labor organizations to deduct up to $500 of their annual membership costs for individual income tax purposes.
- GEORGIA Gov. Brian Kemp is suspending the state 31.2 cent tax on gasoline and 35 cent tax on diesel fuel through October 12.
- Lawmakers in ILLINOIS are considering increasing the threshold of the estate tax value from $4 million to $12 million.
- A task force in INDIANA is exploring the possibility of eliminating the state’s income tax—a tax that makes up 36 percent of the state’s overall general fund revenue.
- A fertilizer company seeking to open a plant in LOUISIANA has asked for a $47 million tax exemption, initially claiming it would create 100 new full-time jobs with an average salary of $120,000. However, the company’s tax exemption application is now claiming to create 13 new positions at the plant with an average salary of $56,000.
- Education advocates in NEVADA have created an effort called Schools Over Stadiums to try to block public tax dollars from going into a new Major League Baseball stadium in Las Vegas.
- OKLAHOMA Gov. Kevin Sitt has called the legislature into special session beginning October 7 to consider several tax proposals. The state is waiting for a supreme court decision on a major tribal tax exemption. Gov. Sitt proposes passing a trigger eliminating the entire tax if courts limit their applicability.
- The WISCONSIN Assembly passed a $2.9 billion income tax cut bill which would slash the state’s third income tax bracket from 5.3 to 4.4 percent. The bill would also exclude retirement income from taxes for those 67 years or older ($100,000 for single filers and $150,000 for married filers). Gov. Evers has already announced an impending veto of the bill.
What We’re Reading
- Currently in the midst of special session, Arkansas Advocates for Children & Families writes about the need for state lawmakers to reject the costly tax cuts for the wealthy that are under consideration.
- Empower Missouri lays out the need for a refundable state EITC.
- Pew’s State Fiscal Health initiative notes that federal aid as a share of state budgets hit an all-time high in Fiscal Year 2020-21, which may be an ominous sign considering pandemic-era federal aid will be winding down just as recent ill-advised tax cuts take effect in many states.
- Route Fifty reports on a new analysis showing state and local public sector employment falling far behind needs in many states.
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