September 27, 2023
September 27, 2023
When it comes to investments, state lawmakers across the country are positioning their states to be in the red as they pass or debate further tax cuts that will overwhelmingly benefit the wealthy – and some states are now adding an additional coat of red paint. Legislators in North Carolina landed on a budget agreement that will accelerate existing individual income tax cuts with the possibility of further reducing rates (and subsequently state revenues) despite plans to phase cuts in over time to ensure “fiscal responsibility.” Iowa’s corporate income tax rate is set to be further reduced after the state reached its revenue trigger threshold. Massachusetts lawmakers opted to reduce their rate on short-term capital gains and create a carveout for estates under $2 million. However, in contrast, lawmakers in the Bay State enhanced more targeted state tax credits such as their Earned Income Tax Credit, Child and Dependent Tax Credit, and senior circuit breaker tax credit, among other tax changes.
Major State Tax Proposals and Developments
- After weeks of negotiations, MASSACHUSETTS lawmakers from the House and Senate have unveiled a compromise tax bill that includes a $440 child and dependent tax credit; an increase to the state Earned Income Tax Credit from 30 to 40 percent; an increase to the senior circuit breaker tax credit from $1,200 to $2,400; an increase to the cap on the rental deduction from $3,000 to $4,000; a uniform estate tax credit of $99,600 (effectively eliminating tax on estates worth under $2 million); a cut to the short-term capital gains rate from 12 percent to 8.5 percent; and makes changes to a system that sends revenue back to residents if collections exceed an allowable amount for the year. – MARCO GUZMAN
- The Republican-controlled NORTH CAROLINA General Assembly passed budget legislation that accelerates individual income tax cuts. The legislation would lower the current rate of 4.75% to 3.99% in 2026, one year sooner than the previous law, and could further reduce the rate to 2.49% by 2029 if the state meets certain revenue thresholds. The legislation will also expand taxpayer support for private school vouchers. While Democratic Gov. Roy Cooper supported expanding Medicaid, he criticized the overall budget legislation. He has indicated that he will allow the bill to go into effect without his signature. – MILES TRINIDAD
- IOWA corporate income tax revenue exceeded the $700 million threshold to trigger a rate reduction, bringing the top corporate income tax rate from 8.4 to 7.1 percent. This trigger came about following nearly $2 billion in personal and corporate income tax cuts enacted by Iowa lawmakers in 2022.
- KANSAS Republicans plan to push for another flat tax in 2024 as well as a reduction in property taxes. Members failed to override Gov. Laura Kelly’s veto of a flat tax during the 2023 legislative session and Gov. Kelly continues to push back against flat tax legislation that would overwhelmingly benefit the state’s high-income earners at the expense of everyone else.
- The MONTANA Supreme Court upheld a decision blocking a proposed ballot measure that would have placed a cap on property tax collections for specific properties and limited how fast those valuations could grow. According to the governor’s budget office, the proposal would have reduced property tax collections by $1.5 billion a year.
- The OKLAHOMA legislature is preparing for their October 7th special session, which Governor Sitt called to discuss tax cuts. Despite broad bipartisan support, the focus appears to be on income tax cuts instead of the more regressive sales tax on groceries.
- The Republican-controlled Joint Finance Committee in WISCONSIN passed a $2.9 billion tax cut bill that would collapse their four-tax bracket system into three brackets and would eliminate income tax on the first $100,000 of single or $150,000 of joint income for retirees. Gov. Evers has committed to vetoing the bill if it makes it to his desk.
What We’re Reading
- As covered in multiple outlets including The New Yorker, Stateline, and our own Just Taxes Blog, child poverty more than doubled in 2022 when Congress allowed the expanded Child Tax Credit to lapse, but several states have stepped up to partially fill that gap with powerful state-level credits.
- An op-ed in The St. Louis Post Dispatch praises the St. Louis County Council for holding off on using the state’s new local option to freeze property taxes for all seniors regardless of income. The author emphasized the need for an income limit, comparing Missouri’s broad exemption to a similar Illinois credit limited to seniors earning below $65,000.
- An opinion piece in Indiana’s Journal Gazette questions the validity of claims that lower property taxes will increase the population. The author points out that counties with the lowest property taxes in Indiana have consistently lost population. Meanwhile, the highest property tax counties have experienced rapid growth.
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