This week we see West Virginia, Georgia, Minnesota, and Nebraska continue to deliberate regressive tax cut proposals, as the District of Columbia considers cancelling tax cut triggers it put in place in prior years, and lawmakers in Hawaii, Washington, Kansas, and Delaware ponder raising revenues to shore up their budgets. Meanwhile, gas tax debates continue in Oklahoma, West Virginia, and South Carolina, among other news.
-- Meg Wiehe, ITEP State Policy Director, @megwiehe
- It's been another whirlwind week for tax policy in West Virginia. Down to the wire on "crossover" day, the West Virginia Senate voted down the party line to overhaul the state tax system. SB 409 would raise the state sales and use tax to 7 percent (increasing the food tax to 3.5 percent) and step-down the state income tax, phasing it out over time. Ultimately this would shift the state's reliance on the personal income tax to the sales tax, benefiting those most well-off.
- Georgia lawmakers will end their session Thursday and may pass a major income tax cut then. The plan, which was initially a very regressive flat tax proposal, has morphed into a more fair but also more costly package that eliminates the state deduction for state income taxes, lowers the top personal income tax rate to 5.65 percent, and indexes tax brackets and other provisions for inflation. It is projected to reduce state funding for services by $292 million in 2019, growing to $526 million annually by 2022.
- Minnesota lawmakers have no shortage of plans for the state's surplus—with House Republicans proposing $1.35 billion in cuts and Senate Republicans aiming for $900 million. Both plans include exempting portions of Social Security income, tax breaks for student debt, and reducing the statewide property tax on business. The Senate plan also includes a provision to cut the lowest marginal tax rate—a policy change that is sold as providing tax relief to low income families but that disproportionately benefits the wealthy while undermining the progressivity of the income tax.
- The current situation in the District of Columbia highlights two major trends in tax policy this year: tax-cut triggers and federal uncertainty. A trigger has been tripped that will cut DC taxes to the tune of $100 million unless the city council and mayor's office cancel those cuts, and at the same time, the city estimates it will lose at least $100 million under federal budget cuts outlined by President Trump. Such arbitrary automatic cuts undermine states' ability to respond to changing circumstances such as federal policy changes.
- Nebraska legislators may be inching closer to a destructive tax-cut package that would use triggers like those in DC to ratchet down the state's income tax rates.
- Advocates for low-income families in Hawaii are hopeful as bills that would boost taxes on the wealthy to pay for tax breaks for low-income people continue to move through the Legislature.
- The Washington House released a budget that requires $3 billion in new revenues over the next two years from new taxes on capital gains and increases in business taxes. New revenues are necessary for the state to be in compliance with court mandates to adequately fund public education in the state.
- In other state budget news, the Kansas House budget similarly requires $800 million in new revenues over the next two years in order to remain in the black and Gov. Walker's proposed budget in Wisconsin would increase the state's structural deficit to over $1 billion by 2021. While agitation for tax reform continues in Kansas, there is no similar activity in the Badger state.
- Delaware Gov. Carney presented his budget-balancing proposal last week after holding "budget reset" listening sessions throughout the state and settling on an approach based on a mix of funding cuts and revenue increases. The tax proposal includes small rate increases of 0.2 to 0.4 percentage points, elimination of itemized deductions, and an increase in the standard deduction, while also raising the cigarette tax and a cap on corporate franchise taxes.
- Oklahoma's Senate passed a measure that would increase teacher pay through a fuel tax increase (from $0.17 to $0.23 for unleaded gas and $0.14 to $0.21 for diesel). Similarly, West Virginia's Senate approved a gas tax increase of 4.5 cents, coupled with vehicle fees, to fund the state's Road Fund. Both bills now head to their respective Houses for consideration.
- Chances diminished this week of South Carolina passing a needed gas tax update without tacking on harmful tax cuts that will shift taxes to low-income residents and undermine funding for schools, public safety, and other needs, as advocates for such cuts voted against giving the gas tax update priority status.
- Idaho lawmakers in both chambers have approved legislation that would eliminate the sales tax on groceries along with a $100 grocery credit. The bill now goes to the governor who is opposed to eliminating the tax on food but who has not said he will veto the bill.
- The Minnesota Revenue Department released its 2017 Tax Incidence Study, showing that while the overall state and local tax system remains regressive, there was a significant decrease in overall regressivity from 2012 to 2014, thanks in large part to refundable income tax credits and property tax refunds for homeowners and renters.
- Iowa legislators have settled on $118 million in budget cuts to balance the current year budget.
- Maryland, Virginia, and the District of Columbia are considering a regional sales tax to improve public transit in the area, an idea that people surveyed in Maryland narrowly support.
Governors' State of the State Addresses
- Most governors have now given their addresses for the year. The next scheduled address is Gov. Kasich of Ohio on April 4.
What We're Reading...
- A new brief from the Corporation for Enterprise Development (CFED) outlines steps legislators can take to make the federal EITC even more successful at reducing poverty and encouraging work.
- Tulsa World's editorial board asks Oklahomans to "eliminate the false idea that prosperity comes from whittling away at state income tax rates."
- Ted Boettner, executive director of the West Virginia Center on Budget and Policy explains how the state's tax proposals result in a tax shift from the wealthy to low-income families.
- A new paper to be published in the N.Y.U. Law Review explores the political popularity and danger of marginal rate cuts at low levels of income and how these policy changes actually disproportionately benefit the wealthy and undermine progressivity while being perniciously sold as "low income tax cuts."
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