Alaska News


State Rundown 5/18: Tax Debate Heat Wave Hitting States


| | Bookmark and Share

This week saw tax debates heat up in many states. Late-session discovered revenue shortfalls, for example, are creating friction in Delaware, New Jersey, and Oklahoma, while special sessions featuring tax debates continue in Louisiana, New Mexico, and West Virginia. Meanwhile the effort to revive Alaska's personal income tax has cooled off.

-- Meg Wiehe, ITEP State Policy Director, @megwiehe

  • With only a couple days left of regular session, Oklahoma lawmakers continue to search for ways to fill a nearly $900 million shortfall. A revenue package to increase the cigarette tax, gas tax, and production of oil and gas failed to pass the House.
  • Delaware could raise its income tax rates and increase the corporate franchise tax for the largest businesses operating in the state as lawmakers and Gov. John Carney work to close a $400 million budget gap.
  • New Jersey got unpleasant "April surprise" this week, learning that underperforming April revenues have created a $527 million budget shortfall that must be addressed before the end of June. To do so, Gov. Chris Christie's administration will delay paying out money owed to local jurisdictions for homestead property tax credits and raid the state's Clean Energy Fund. The administration has not proposed reversing the harmful tax cuts passed last year, which will cost the state more than $1 billion annually.
  • Meanwhile, some New Jersey lawmakers are looking for ways to modernize Garden State's revenue system. The state could become the latest to legalize and tax recreational marijuana, via a bill that would legalize sales and possession of small amounts and add a tax on those sales that grows from 7 percent to 25 percent over five years. Another bill that has been approved by the Assembly Budget Committee would subject Airbnb stays to the same taxes that apply to hotel visits.
  • West Virginia’s special session continues to highlight a disconnect between the goals of the Senate and the House. Paring back the state income tax remains a sticking point.
  • New Mexico will go into special session starting May 24th where Gov. Martinez wants to resurrect a major tax reform package from this past legislative session. HB 412 proposed significantly expanding the Gross Receipts Tax by eliminating existing exemptions (including taxing food) while also changing the personal income tax rates to a flat 5 percent.
  • Prospects of significant tax reform this legislative session are dimming as lawmakers on the House Ways and Mean Committee have rejected all major tax reform proposals recommended by Louisiana's Task Force on Structural Changes in Budget & Tax Policy. However, a proposal to raise the gas tax has passed out of committee and will go to the full House for consideration.
  • A Nevada bill to exempt feminine hygiene products from sales tax appears poised to pass, having cleared the Senate with unanimous approval. Businesses in the state could also see a payroll tax cut due to an automatic trigger put in place in 2015.
  • Over the weekend, the Alaska Senate took up the House's proposal to bring back a state personal income tax. The bill was defeated largely along party lines, leaving the state to deal with a multi-billion revenue deficit.
  • Minnesota Gov. Mark Dayton vetoed multiple budget bills this week—sending lawmakers back to the drawing board with only six days left in the session. Key sticking points include disagreements over allocation of the state surplus, with Republican legislatures wanting significant tax cuts and the governor preferring increased spending investments.
  • Arizona lawmakers passed a $9.8 billion budget which included deep service cuts and a handful of tax breaks. In other news, former Gov. Jan Brewer admitted that the size of previous tax cuts to corporations were a mistake, leaving Arizonans short for services.
  • Maryland has become the first state to allow a tax credit for residential and commercial energy storage systems.
  • Having already declined to raise Alabama's state gas tax earlier in the session, lawmakers this week also killed a bill that would have allowed counties to raise their own gas taxes if approved by a local vote. Until elections are behind them or unless a federal infrastructure plan requires state matching funds, lawmakers say, a gas tax update in Alabama is unlikely.

What We're Reading...  

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email. 


Income Tax Offers Best Bang for the Buck in Alaska


| | Bookmark and Share

Earlier this month the Alaska House of Representatives voted 22-17 in favor of implementing a personal income tax for the first time in over 35 years. Gov. Bill Walker praised the bill shortly after passage, citing its ability to “provide a steady source of funding for essential services like public education and state troopers,” and the need to “stop the draw on our precious savings” that the state accumulated during times of high oil prices.

But leaders in the Alaska Senate have taken a decidedly different position. Senate President Pete Kelly has pledged to “stonewall” the reinstatement of an income tax and recently wrote that “the only thing standing between you and an income tax is the Senate.”

But is this stonewalling doing Alaskans any favors? A new ITEP report shows that for most Alaskans, an income tax would be less costly than other revenue-raising alternatives such as cutting the state’s Permanent Fund Dividend (PFD) payout or implementing a statewide sales tax or payroll tax. Because an income tax would collect significant revenue from Alaskans with very high incomes, middle- and low-income Alaska families would not have to pay quite as much for the state to raise any target amount of revenue.

ITEP’s report examines five hypothetical policy options designed to raise equal amounts of revenue: $500 million per year to put toward closing the state’s budget gap. The report finds that for Alaskans across the bottom 80 percent of the income distribution, an income tax modeled after the one that recently passed the Alaska House of Representatives would have a smaller impact than either a cut to the PFD or a new payroll tax designed to raise the same amount of revenue. When comparing an income tax to a potential statewide sales tax, ITEP finds that the income tax option would be cheaper for Alaskans across at least the bottom 60 percent of the income distribution.

As things currently stand, the most relevant comparison is between an income tax paired with cuts to the PFD payout (the House’s preferred solution), or deeper cuts to the PFD with no income tax at all (the Senate’s preferred approach).

As the chart accompanying this post shows, PFD cuts fall hardest on Alaskans with very low incomes, for whom the PFD is critical in helping to make ends meet. High-income families, by contrast, would have trouble even noticing a reduction in their PFD. A PFD cut designed to raise $500 million for public services, for instance, would cost the top 1 percent of Alaska earners just 0.2 percent of their overall income.

An income tax, by contrast, could be designed to require relatively low payments from families in or near poverty, and higher payments from wealthier Alaskans most able to afford a higher tax bill.

While a true solution to Alaska’s fiscal problems is sure to include a mix of various policy changes, this report should help to illuminate what different mixes would mean for different Alaskans. In particular, middle- and low-income Alaskans should know that under a fiscal package of any given size, balancing that plan to rely more on income taxes and less on PFD cuts is likely to be in their own financial best interest.

Read ITEP’s new report: Comparing the Distributional Impact of Revenue Options in Alaska


State Rundown 4/19: Alaska's Long Income Tax Freeze May Be Thawing


| | Bookmark and Share

This week Alaska's House advanced a historic bill to reinstate an income tax in the state, Oklahoma's House voted to cancel a misguided tax cut "trigger," West Virginia's governor colorfully vetoed his state's budget, tax reform debate kicked off in Louisiana, and gas tax updates were considered in South Carolina and Tennessee, among other tax-related news from around the country. And in our "what we're reading" section you'll learn about a new book on American attitudes toward taxes and a new effort to make public finance data readily available online.

-- Meg Wiehe, ITEP State Policy Director, @megwiehe

  • The Alaska House voted 22-17 to reinstate a personal income tax for the first time since 1980. An ITEP analysis found that the income tax contained in House Bill 115 would be the fourth lowest in the nation when measured relative to overall personal income. But the progressive nature of the tax (with rates ranging from 0 to 7 percent) would play an important role in counterbalancing the regressive measures also being considered by Alaska lawmakers. The bill now moves to the Senate, where legislative leaders have expressed resistance to new revenues and would instead like to slash the state's Permanent Fund Dividend (PFD) payout and hold out hope for a rapid increase in oil prices. Gov. Bill Walker, by contrast, supports enacting a state personal income tax.
  • Oklahoma’s House passed a bill to repeal the arbitrary tax cut “trigger” created in 2014 that will worsen the state’s $878 million revenue shortfall if left in place.
  • Calling it a "bunch of political bull you-know-what," West Virginia Gov. Jim Justice vetoed the legislature's budget, which relied on spending cuts and a withdrawal from the state's Rainy Day Fund. All eyes are now on the "compromise plan" for tax reform that will play out in special session. It could potentially include the creation of a commercial activities tax, an increase and expansion of the sales tax, and lower reliance – and eventual elimination – of the state's personal income tax.
  • Lawmakers in Louisiana are beginning to chip away at tax reform, starting with examining various tax expenditures early this week. The state exempts almost as much as it collects in taxes, leaving significant holes in the tax structure. Closing these loopholes offers significant opportunities for filling the $1.3 billion revenue gap that the state faces upon the expiration of the temporary sales tax increases enacted in 2016.
  • As Minnesota policymakers return from recess to finalize a budget, there are many divergent ideas regarding the treatment of the state's surplus. In response to proposals for either large tax cuts or spending increases, the Star Tribune Editorial Board has a wise word of advice for lawmakers facing surpluses anywhere--"modest tax cuts and spending increases are affordable; big moves are not." Among their list of priorities: targeted tax relief for low-income workers and families through expanding the Working Family and Child Care Credits.
  • The Senate tax plan in North Carolina would worsen he state’s budget situation by $600 million and likely lead to dwindling reserves and funding cuts to education and other priorities.
  • South Carolina's gas tax debate heated up today, with House lawmakers urging their Senate counterparts to follow their lead and vote to update the gas tax. Some in the Senate continue to hold out for income tax cuts to be added to the package, and Gov. Henry McMaster remains opposed, preferring to fix the roads with borrowed money.
  • Tennessee Gov. Bill Haslam's gas tax bill still has a fighting chance as well and is also being debated, and possibly voted on, in the both houses before the end of the week.
  • Lawmakers in Rhode Island are considering a proposal to cut the state's sales tax rate – from the current 7 percent to 3 percent. The impacts will be studied in a special legislative commission.
  • Ohio lawmakers recently announced that they need to cut $800 million from the state budget over the biennium. Some legislators have pointed to recent tax cuts and tax shifts, that have taken place over the past five years, as key drivers of the state's budget woes.
  • Nebraska legislators debated a property tax and school funding bill Tuesday that would have redirected funding from an existing property tax credit to increase school aid in rural areas. The bill did not appear to have enough support to overcome a filibuster and will likely not advance.
  • Alabama's effort to update its gas tax was declared officially "dead" for the year after the bill failed to pass a procedural hurdle in the House, but proponents are still working to resuscitate it.

What We're Reading...  

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email.


Seeking the Right Balance in Alaska


| | Bookmark and Share

It’s been a little over a year since Alaska Gov. Bill Walker proposed implementing a state personal income tax for the first time in 35 years, and the idea is now receiving close attention in the Alaska House of Representatives.

Alaska is the only state to repeal a personal income tax, having done so after it struck oil at Prudhoe Bay in the 1970s. Since then, the state has funded its public services primarily with oil tax and royalty revenues. But this unusual setup has proven unsustainable now that oil prices and production levels have both dropped. Alaska is confronting a $3 billion shortfall—a massive amount in a budget of just $4.3 billion.

To end this fiscal calamity, the co-chairs of the Alaska House Finance Committee unveiled a plan (House Bill 115, Version L) that would, among other things, implement a personal income tax with graduated rates ranging up to 7 percent. In an analysis provided to the committee, ITEP found that this tax would collect less than 1.7 percent of Alaskans’ overall personal income, making it the fourth lowest among the 41 states with broad-based personal income taxes.

Despite its small size, the income tax would play at least two very important roles. First, it would generate roughly $680 million in revenue to put toward closing the state’s $3 billion budget shortfall. Second, the progressive nature of this income tax would add some much-needed balance to a plan that also includes a change heavily impacting the state’s low- and moderate-income residents: a significant reduction in the state’s Permanent Fund Dividend (PFD) payout.

Alaska’s PFD is unique among the states. The payment, which typically ranges from $1,000 to $2,000 per person, per year, is received by the vast majority of Alaska households as a way of allowing them to share in the state’s natural resource wealth. But while Alaskans of all stripes are eligible for the PFD, low-income families typically find the income that the PFD provides to be much more important to their ability to make ends meet. Researchers at the University of Alaska Anchorage estimated that the PFD lifts between 15,000 and 25,000 Alaskans out of poverty each year. Among Alaska’s children, the PFD is responsible for reducing the state’s poverty rate from 16.4 to 10.0 percent. For a family of four on the brink of poverty in Alaska (with a household income of $30,750 in 2017), the difference between a receiving a $1,000 PFD payout versus a $2,000 payout represents a sizeable 13 percent gain, or loss, in their household budget.

It appears that a consensus is forming that despite the PFD’s benefits, the payout will have to be scaled back as part of a plan to remedy the state’s dire fiscal situation. Gov. Walker cut the state’s 2016 PFD payout roughly in half, and the Alaska Senate is hoping to rely heavily on reductions in future PFD payouts to fund the state’s budget. But as the Governor and House leadership have recognized, leaning too heavily on PFD cuts would amount to balancing the state’s budget primarily on the backs of low- and middle-income families. A robust personal income tax is vital if lawmakers are to ensure that the state’s most affluent residents also chip in toward a solution to the state’s fiscal problems.

This fact is demonstrated in a new ITEP analysis showing that the House’s fiscal package “when fully implemented … achieves a relatively consistent impact across every income group in Alaska.” In other words, families at different income levels would be asked to contribute similar shares of their incomes toward putting the state’s budget back on a stronger footing. ITEP’s analysis finds that the long-run impact on Alaska families across the income distribution would vary between 1.8 and 2.8 percent of income, on average.

But the bill would take a heavier toll on low-income families in the short-run, when the cuts to the PFD would be the deepest. In a scenario where the PFD is cut by $950 per person, as this bill could do in its first year of implementation, the bottom 20 percent of Alaska families could expect to see their incomes drop by an average of 8.6 percent.

Nonetheless, this plan is more favorable to both low- and middle-income families than most of the alternatives. Unless Alaska adopts an income tax, deeper cuts in state spending or the PFD payout, or new sales or excise taxes, will be needed. Any of these options would have an even larger negative impact on families of modest means. Simply put, if legislators proceed with a fiscal fix that does not include an income tax, a lopsided outcome that asks far less of the wealthy and far more of everyone else is all but guaranteed.

Read ITEP’s analysis of House Bill 115 (Version L)


State Rundown 2/15: Tax Overhauls Debated Around the Country


| | Bookmark and Share

This week we are following a number of significant proposals being debated or introduced including reinstating the income tax in Alaska and eliminating the tax in West Virginia, establishing a regressive tax-cut trigger in Nebraska, restructuring the Illinois sales tax, moving New Mexico to a flat income tax and broader gross receipts tax, and updating gas taxes in Indiana and Tennessee.

-- Meg Wiehe, ITEP State Policy Director, @megwiehe 

  • Introduced last week, Alaska HB 115 would reinstate an income tax for the first time since 1980, setting the income tax rate at 15 percent of federal tax liability. It would also draw from the state’s Permanent Fund and change the structure of the yearly dividends provided to Alaskans.
  • West Virginia Gov. Jim Justice echoed the sentiment of the state’s Senate President, who is leading a select committee to examine taxes, to eliminate the state’s personal income tax. The governor said his goal is to “… be the eighth state in the country to have no income tax.” However, given the state has a revenue shortfall, the governor’s budget proposes to use spending cuts and tax increases to close the gap this year, potentially putting the income tax elimination plan on hold for now. Tax increases in his budget proposal include a sales tax increase and base broadening, a gasoline tax increase, and the creation of a commercial activities tax.
  • Nebraska lawmakers sent $137 million in budget cuts to the governor's desk in an effort to help close the state's $900 million budget gap. Also this week, the state's Revenue Committee will hear testimony on a trigger-based tax cut for wealthy Nebraskans that would worsen the budget gap in future years.
  • The latest tax plan out of the Illinois Senate would reduce the general sales tax rate from 6.25 percent to 5.75 percent while taxing food, drugs, and medical supplies at a higher rate and newly taxing services including repair and maintenance, laundry, landscaping, cable, and satellite.
  • Proposals to increase fuel taxes to better fund infrastructure improvement are dead in Idaho but still under consideration in Indiana and Tennessee. In Tennessee, variations on Gov. Haslam's attempt to combine the needed gas tax update with other tax cuts are proliferating, including one that would divert sales tax revenues from their intended purposes rather than update the gas tax, and a more responsible alternative that would update the gas tax and other fees without slashing other taxes.
  • Kansas revenue committees in both chambers are seeing their share of tax reform proposals. A House bill that increases income taxes, eliminates the LLC exemption, and restores itemized deductions for medical expenses advanced by a wide margin today, and could receive a final vote on Thursday. The latest in the Senate—eliminating the exemption for LLC income and restoring pre-Brownback standard and itemized deductions and a third income tax bracket at 6.45 percent--is expected to go to a vote to the full floor tomorrow.
  • A major tax bill has been introduced in the New Mexico House. House Bill 412 would restructure the state's gross receipts tax and proposes a flat personal income tax.
  • Despite higher energy prices, Wyoming’s economy remains flat while job and revenue growth continue to lag.
  • In Oklahoma, the House Appropriations and Budget Committee passed a bill that would increase the tax on a pack of cigarettes by $1.50/pack. The bill now heads to the full House for consideration.
  • Pennsylvania’s state supreme court refused to hear the Philadelphia soda tax appeal, arguing that the pending litigation is stopping the tax from funding programs it was created to fund.
  • An Arkansas bill to collect taxes from online retailers passed the Senate but stalled in House committee. However, Amazon will start collecting and remitting sales taxes in the state this March. A bill to require tax collections for online sales from large retailers is still under consideration in Idaho.
  • Another poll shows Iowa voters support paying more in sales taxes in exchange for investments in the state's water quality and parks system.
  • Efforts to help fill some of the state's $1.8 billion budget deficit with increased revenue contributions from corporations are underway in Oregon.
  • Nevada lawmakers heard a detailed presentation from an economic consultant explaining issues caused by the state's property tax cap that has held property taxes down but undermined funding for schools and other local services.

Budget Watch 

  • Illinois Gov. Bruce Rauner will be delivering his third budget address today. The state has not had a regular budget since FY 2015 due to an ongoing impasse between the governor and a democratic majority legislature.
  • Wisconsin Gov. Scott Walker's budget proposal includes a proposed $600 million in additional tax cuts—including elimination of the state's property tax levy, reducing income tax rates, and restoring the EITC for families with one child. Senate leadership has suggested the more realistic target for tax cuts this session is $100 million.
  • Connecticut Gov. Dannel Malloy’s budget proposal, released last week, includes a mix of budget cuts, new revenue and shifts of state pension obligations onto municipalities. Elimination of the state’s property tax credit and a cut to the state EITC are among the new revenue sources.

Governors' State of the State Addresses 

  • In the past week, Governors Bevin of Kentucky, Sununu of New Hampshire, and Justice of West Virginia delivered their State of the State addresses.
  • There are no states with addresses scheduled through the end of next week.

What We're Reading...

  • A new paper out of the Wharton Business School looks at the relationship between "sin taxes" and consumer behavior, as well as ways to offset the more regressive impacts of these consumption taxes on low-income taxpayers.
  • A study on government pension funds shows combined costs for most jurisdictions appear manageable. Concern is for those outlier states with highest pension burdens—Illinois, New Jersey, Connecticut, Hawaii, Kentucky, Massachusetts, Rhode Island, and Delaware.
  • The West Virginia Center on Budget & Policy issued a brief showing that shifting from income taxes to sales taxes is a poor strategy for growing the state’s economy.

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email.


47 Years Later, Alaska Considers Playing Catch-Up with its Motor Fuel Tax


| | Bookmark and Share

Alaska Gov. Bill Walker recently proposed tripling the gasoline and diesel tax rates paid by Alaska motorists to generate funding for the state’s infrastructure. In a different state, tripling the motor fuel tax might be a radical policy change. But Alaska’s tax has not been updated since 1970 and because of those 47 years of procrastination, it now lags far behind the taxes levied in most other states. In fact, as ITEP explains in a new brief, Alaska’s motor fuel tax would remain below average even if Gov. Walker’s proposal to raise the base rate from 8 to 24 cents per gallon were enacted.

ITEP’s brief discusses four ways in which Alaska’s fuel tax is an outlier both compared to the taxes levied in other states, and compared to Alaska’s own history. Specifically, it finds that:

  • Alaska’s tax rate on highway fuel (gasoline and diesel) is the lowest in the nation.
  • Alaska has waited longer than any state since last updating its highway fuel tax rate.
  • Adjusted for inflation, Alaska’s tax rate on gasoline and diesel fuel has reached its lowest level in history.
  • Alaska households are spending a smaller share of their earnings on state highway fuel taxes than at almost any time since Alaska became a state.

Read the brief

 


Surveying State Tax Policy Changes Thus Far in 2016


| | Bookmark and Share

With the exception of New Jersey, the dust has now settled on most state legislatures' 2016 tax policy debates.  Many of the conversations that took place in 2016 were quite different than those that occurred over the last few years.  Specifically, the tax cutting craze sparked by the election of many anti-tax lawmakers in November 2010 has subsided somewhat—at least for now.  For every state that enacted a notable tax cut in 2016, there was another that took the opposite path and opted to raise taxes.  And contrary to what you may expect, the distinction between tax-cutting and tax-hiking states did not always break down along traditional partisan lines.

The most significant theme of 2016 was one we've written about before: the plight of energy-dependent states whose budgets have been battered by falling oil and gas prices as well as the growing cost of tax cuts enacted during the "boom" years. In conservative-leaning energy states such as Louisiana, Oklahoma, and West Virginia, lawmakers raised taxes to help deal with these issues in the short-term, but long-term solutions are still needed.

Tax increases elsewhere were enacted to fund health programs (California), raise teacher salaries (South Dakota), and expand tourism subsidies (Oregon).  In Pennsylvania, meanwhile, a significant but flawed tax package was enacted to cope with a large general fund revenue shortfall.

On the tax cutting side, the "tax shift" craze was less pronounced than usual this year. Again, however, New Jersey lawmakers may be the exception as they continue to debate a shift toward gas taxes and away from some combination of income, estate, and sales taxes.  Moreover, some of the tax cuts that were enacted this year may ultimately set the stage for future "tax shifts," as lawmakers in states such as Mississippi and Tennessee search for ways to fund tax cuts whose full cost won't be felt for many years.

Looking ahead, debates over tax increases in Alaska and Illinois are likely to resume once the November elections have passed.  On the other hand, lawmakers in Arkansas, Mississippi, Nebraska, and elsewhere are already positioning themselves for tax cut debates in 2017.  But before that happens, there are also a significant number of revenue raising ballot proposals to be voted on in California, Colorado, Maine, Massachusetts, Missouri, Oklahoma, and Oregon.

Below is our summary of 2016 state tax happenings, as well as a brief look ahead to 2017.

Tax Increases

Louisiana: Tax increases of varied sorts were among the strategies lawmakers employed this year to address billion dollar deficits for FY16 and FY17. The most significant was a one cent increase to the sales tax, a regressive hike that gives the state the highest combined state and local sales tax rate in the country. Given the severity of Louisiana's revenue shortfall, much of the appeal of this approach came from the fact that it could be implemented quickly. But while a higher sales tax will generate hundreds of million of dollars in needed revenue, it is also set to expire in July 2018 and is not a permanent solution to the state's fiscal stress. Over the course of two special sessions, lawmakers also: increased cigarette and alcohol excise taxes; extended, expanded, or reinstated taxes on telecommunications, hotel, and auto rentals; cut vendor discounts; limited deductions and credits that benefit businesses; and increased a tax on the health insurance premiums of managed care organizations. All of these incremental changes buy the state some time in the short-term, but the need for more substantive reform remains.

Oklahoma: To fill the state's $1.3 billion shortfall, Oklahoma lawmakers enacted a number of policy changes that will harm the state's poorest residents and set the state on an unsustainable fiscal path. Oklahoma's 2016-17 budget relied heavily on one-time funds. Lawmakers opted to change the state portion of the Earned Income Tax Credit (EITC) from refundable to non-refundable, meaning that poor families earning too little to owe state income taxes will now be ineligible for the credit. While this will have a noticeable impact on those families' abilities to make ends meet, the $29 million saved as a result of this policy change is a drop in the bucket compared to the $1 billion in revenue lost every year from repeated cuts to the state's income tax. Thankfully, though, cuts to the state’s sales tax relief credit and the child tax credit were prevented, and full elimination of the state EITC was avoided. Lawmakers also capped rebates for the state's "at-risk" oil wells, saving the state over $120 million. On another positive note, Oklahoma lawmakers eliminated a nonsensical law, the state's "double deduction," that allowed Oklahomans to deduct their state income taxes from their state income taxes. 

Pennsylvania: Pennsylvania lawmakers avoided broad-based tax changes, largely relying instead on regressive tax options, dubious revenue raisers, and one-time funds—most of which fall hardest on the average Pennsylvanian—to fill the state’s $1.3 billion revenue shortfall. The state’s revenue package draws primarily from expanded sales and excise taxes. In particular, it includes a $1 per pack cigarette tax increase and a tax on smokeless tobacco, electronic cigarettes, and other vaping devices along with changes to the state's sale of wine and liquor. State lawmakers also opted to include digital downloads in the sales tax base and put an end to the “vendor discount”—an unnecessary sales tax giveaway that allowed retailers to keep a portion of the tax they collected from their customers.

West Virginia: Lawmakers in West Virginia punted, for the most part, on solving their fiscal problems this year. Instead, they addressed the state’s $270 million shortfall with budget cuts, tobacco tax increases, and one-time funds. The state increased cigarette taxes by $0.65 per pack and will tax electronic cigarettes and vaping liquids. Even with this $98 million revenue gain, shortfalls are not last year’s news. Ill-advised tax cuts and low energy prices will again put pressure on the state’s budget in 2017.

South Dakota: South Dakota lawmakers enacted a half-penny sales tax increase, raising the rate from 4 to 4.5 percent. The increase will fund a pay raise for the state's teachers, who are currently the lowest-paid in the nation. Though they rejected a less regressive plan to raise the same amount of funding by raising the sales tax rate a whole cent and introducing an exemption for grocery purchases, progressive revenue options are very limited in states like South Dakota that lack an income tax, and lawmakers can be applauded for listening to public opinion that consistently favors raising revenues to fund needs like education.

California: This past session, California lawmakers were able to drum up the two-thirds majority support needed to extend and expand the state's health tax levy on managed care organizations. The prior tax expired on July 1, 2016 and was deemed too narrow to continue to comply with federal requirements. By extending the tax to all managed care organizations, California lawmakers were able to preserve access to over $1 billion in federal match money used to fund the state's Medicaid program.

Oregon: Lawmakers approved an increase to Oregon's tourist lodging tax from 1 to 1.8 percent in order to generate more revenue for state tourism funds, specifically to subsidize the World Track and Field Championships to be held in the state in 2021.

Vermont: Vermont’s 2016 revenue package included a few tax changes and a number of fee increases. Tax changes included a 3.3 percent tax on ambulance providers and the conversion of the tax on heating oil, kerosene, and propane to an excise tax of 2 cents per gallon of fuel. The move from a price-based tax to one based on consumption was meant to offset the effect of record low fuel prices.

Tax Cuts

Mississippi: Mississippi lawmakers made some of the most irresponsible fiscal policy decisions in the country this year. For one, they opted to plug their growing transportation funding shortfall with borrowed money rather than raising the necessary revenue. And at the same time, despite those funding needs and the fact that tax cuts enacted in recent years caused a revenue shortfall and painful funding cuts this very session, legislators enacted an extremely costly new round of regressive tax cuts and delayed the worst of the impacts for several years. By kicking these two cans down the road at once, lawmakers have avoided difficult decisions while putting future generations of Mississippians and their representatives in a major fiscal bind.

Tennessee: Tennessee legislators, who already oversee one of the most regressive tax structures in the nation, nonetheless opted to slash the state's Hall Tax on investment and interest income. The Hall Tax is one of the few progressive features of its tax system. After much debate over whether to reduce, eliminate, or slowly phase out the tax, an unusual compromise arose that will reduce the rate from 6 to 5 percent next year and repeal the tax entirely by 2022. While the stated "legislative intent" of the bill is to implement the phase-out gradually, no specific schedule has been set, essentially ensuring five more years of similar debates and/or a difficult showdown in 2021.

New York: New York lawmakers approved a personal income tax cut that will cost approximately $4 billion per year. The plan, which is geared toward couples earning between $40,000 and $300,000 a year, will drop tax rates ranging from 6.45 to 6.65 percent down to 5.5 percent. The tax cut will be phased-in between 2018 and 2025. Gov. Andrew Cuomo said that the plan “is not being paid for” since its delayed start date pushes its cost outside of the current budget window.

Florida: The legislative session in the Sunshine State began with two competing $1 billion tax-cut packages and ended with a much more modest result. In the end, the state made permanent a costly-but-sensible sales tax exemption for manufacturing equipment, reduced its sales tax holiday down to three days, and updated its corporate income tax to conform with federal law, along with several other minor changes. Ultimately, the plan is expected to reduce state revenues by about $129 million. The legislature also increased state aid to schools, which is expected to reduce local property taxes and bring the total size of the tax cuts to $550 million if those local reductions are included.

North Carolina:  Billed as a "middle-class" tax cut, North Carolina lawmakers enacted an increase in the state's standard deduction from $15,500 to $17,500 (married couples).  This new cut comes on top of four years of tax changes that are slowly but surely moving the state away from relying on its personal income tax and towards a heavier reliance on consumption taxes. 

Rhode Island: While an increase in the state's Earned Income Tax Credit (EITC) from 12.5 to 15 percent of the federal credit was a bright spot in Rhode Island this year, lawmakers also found less than ideal ways to cut taxes. Specifically, they pared back the corporate minimum tax to $400, down from $450 in 2016 and $500 the year before. The state will also now provide a tax break for pension/annuity income for retirees who have reached their full Social Security age. It exempts the first $15,000 of income for those earning up to $80,000 or $100,000, depending on filing status.

Hawaii: Hawaii legislators made changes to their state's Child and Dependent Care Tax Credit this year, slightly expanding the credit by altering the method for determining the percentage of qualifying child care expenses.

Oregon: Lawmakers increased the state's Earned Income Tax Credit from 8 to 11 percent for families with dependents under 3 years old. Qualifying families will be able to claim this larger credit starting in tax year 2017.

Arizona: There was much talk of tax reform in Arizona this year. Gov. Doug Ducey expressed interest in a tax shift that would phase out the income tax over time and replace it with a regressive hike in the state's sales tax. That plan, thankfully, did not come to fruition this year. Rather, state lawmakers enacted a grab bag of (mostly business) tax cuts, including an expansion of bonus depreciation and sales and use tax exemptions for manufacturing.

Stalled Tax Debates Likely to Resume in 2017

Alaska: Faced with a multi-billion revenue hole, state lawmakers weighed and ultimately punted on a range of revenue raising options—including, most notably, the reinstatement of a personal income tax for the first time in 35 years. Notably, however, Gov. Bill Walker did scale back the state's Permanent Fund dividend payout through the use of his veto pen.                                         

Georgia: Ambitious plans to flatten or even eliminate Georgia's income tax ultimately stalled as advocates showed (PDF) these measures would have amounted to enormous giveaways to the state's wealthiest residents, drained $2 billion in funding for state services over five years, and even threatened the state's AAA bond rating.

Idaho: Lawmakers in the House enthusiastically passed a bill that cut the top two income tax rates and gave the grocery credit a small bump, but the bill stalled in the Senate where lawmakers were more interested in addressing education funding than a tax break for the state's wealthiest residents.

Illinois: After a year of gridlock, Illinois lawmakers passed a stopgap budget. Unfortunately, this "budget" amounts to no more than a spending plan as it is untethered from actual revenue figures or projections. Its main purpose is to delay the work of much needed revenue reform until after the November election.

Indiana: An effort to address long-standing needs for infrastructure improvement in Indiana resulted in lawmakers abandoning all proposals to raise new revenue, relying instead on a short-term plan of shifting general revenue to the state highway fund. Over the next two years this change will generate some $230 million in "new money" for transportation projects at the expense of other critical public services.

Maryland: Maryland lawmakers rejected two tax packages that included more bad elements than good. While the plans included an innovative expansion of the state's Earned Income Tax Credit (EITC) for childless low- and middle-income working families, this valuable reform would have been paired with income tax cuts that would have unnecessarily benefitted the very wealthiest.

What Lies Ahead?

Key Tax-Related Measures on the Ballot in November

California: State officials have announced that seventeen (and possibly more) initiatives will appear on California's ballot this November. Among them are several tax initiatives, including extending the current income tax rates on high-income earners, raising the cigarette tax by $2 per pack, and the implementation of state, and potentially local, taxation on the sale of marijuana if legalized.

Colorado: A campaign is underway to gather the signatures required to place a proposal to raise tobacco taxes on the ballot this November. The measure would raise the tax on cigarettes from $0.84 to $2.59 per pack and increase the tax on other tobacco products by 22 percent. If approved, the proposal would raise $315 million each year for disease prevention and treatment and other health initiatives.

Maine: The Stand up for Students campaign is behind a ballot measure in Maine that would enact a 3 percent income tax surcharge on taxable income above $200,000.  If approved, the additional tax would bring in well over $150 million annually to boost support for K-12 classroom instruction.

Missouri: Three tax-related questions will be posed to Missouri voters in November.  Two are competing tobacco tax increase measures of 23 and 60 cents per pack.  The third measure would prevent state lawmakers from reforming their sales tax by expanding its base to include services in addition to currently taxed tangible goods.

Oklahoma: Oklahoma state question 779, to increase Oklahoma's sales tax 1 cent to fund teacher pay increases and other educational expenses, will appear on the state's ballot this November.

Oregon: Voters in Oregon will have the final say on a proposal to increase taxes on corporations this fall. Measure 97 (previously known as IP-28) would increase the state's corporate minimum tax for businesses with annual Oregon sales over $25 million. Under current law, corporations pay the greater of a tax on income (6.6 percent on income up to $1 million and 7.6 percent on income above $1 million) or a minimum tax on sales ($150 to $100,000). Measure 97 would eliminate the $100,000 cap on the sales-based portion of corporate minimum tax and apply a 2.5 percent rate to sales above $25 million.  If passed the measure would generate $3 billion in new revenue earmarked specifically to education, health care, and services for senior citizens.

Laying the Groundwork for Significant Tax Cuts, Tax Shifts, and Tax Reform in 2017:

The saying "after the calm comes the storm" may prove true for state tax policy debates next year.  Lawmakers in more than 20 states have already begun to lay the groundwork for major tax changes in 2017, most with an eye towards cutting personal income taxes and possibly increasing reliance on consumption taxes.  Lawmakers in energy dependent states including Alaska, Louisiana, West Virginia and New Mexico will need to continue to find long-term revenue solutions to their growing revenue problems.  Illinois and Washington lawmakers will also be debating significant revenue raising options.  Governors in Nebraska, Arkansas, Kentucky, Ohio, Arizona and Maryland will take the lead on tax cutting (and possibly income tax elimination) proposals.   Mississippi lawmakers are currently meeting to discuss ways to shift the state's reliance on income taxes towards "user- based" taxes (i.e. regressive consumptions taxes).  And, Kansas lawmakers will likely revisit the disastrous tax changes under Governor Brownback.  


State Rundown 7/21: Tax and Budget News in Alaska, North Dakota, Massachusetts, Mississippi, and Cleveland, Ohio


| | Bookmark and Share

This week we bring you tax and budget news in Alaska, North Dakota, Massachusetts, Mississippi, and Cleveland, Ohio. Be sure to check out the What We’re Reading section for a grab bag of tax-related op-eds, new research and even a mention of Pokémon Go.  Thanks for reading the Rundown!

-- Meg Wiehe, ITEP State Policy Director, follow me @megwiehe

  • Alaska legislators officially ended the second special session called by Gov. Bill Walker this year with no solution to the state's multi-billion deficit. Three days after the House adjourned, the Senate followed their lead. Any movement on budget reform or revenue options will be put on hold until after the November elections. Gov. Bill Walker's administration released a report last week detailing the consequences Alaskans will face as a result of legislative inaction.
  • North Dakota's legislature will go into special session on August 2 to deal with a projected $310 million revenue shortfall that continues to widen due to the state's high reliance on tax revenues from a struggling energy industry. The focus is expected to be on budget cuts and use of reserve funds rather than revenue solutions, even after 4 percent across-the-board cuts were ordered in February to fill a similar gap in the last budget and 10 percent cuts have already been ordered for the upcoming biennium.
  • Massachusetts lawmakers have ruled out holding a back-to-school sales tax holiday this year due to an ongoing revenue shortfall. It is the first time they have chosen not to hold the holiday since 2009. Our recently updated policy brief explains why sales tax holidays are poorly targeted and ineffective tax policy.
  • Mississippi leaders have announced plans to study further overhauls to state's tax code this summer, with a focus on exploring shifting reliance on income to sales taxes. That's an ominous proposition considering the state entered the 2016 session with a revenue shortfall and a need for transportation funding, and passed massive income tax cuts anyway.
  • Residents of Cleveland, Ohio will be asked to approve an increase in the city's income tax at the ballot in November.  While some of the $80 million raised from the change would be used to enhance city services including police department reforms, the hike is also needed to plug a revenue gap brought about by the hands of state policymakers.  Under the leadership of Governor John Kasich, the Buckeye state has cut billions of dollars in state taxes paid for in part by also cutting state aid to local governments.  And, to make matters worse for local governments, state lawmakers recently eliminated local revenue sources including the estate tax.

 What We're Reading... 

  • New Jersey Policy Perspective's recent op-ed soberly reflects on the fiscal and political realities surrounding the urgent need for transportation funding in the Garden State.
  • Ohio Policy Matter's research director, Zach Schiller, makes the case against the state's continual attempt to gut the income tax in a recent op-ed.
  • The North Carolina Budget and Tax Center's director, Alexandra Sirota, explains the many problems with the state's new rigid budgeting practices in this op-ed.
  • A recent study shows that municipal debt is increasingly owned by wealthy households. This article from Financial Planning looks at potential implications of this shift for tax policy.
  • A new academic paper examines the relationship between sales taxes on groceries and food insecurity.
  • "The Fiscal Ship" is an online computer game that allows users to select from over 100 tax and spending options to achieve their policy goals and manage the federal debt. The Wall Street Journal reports that to date, players overwhelmingly have chosen tax increases over spending and tax cuts.
  • Did you take a break from Pokémon Go to read this? Take a look at the tax aspects of the game here.

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Kelly Davis at kelly@itep.org. Click here to sign up to receive the Rundown in via email


State Rundown 7/14: Pennsylvania Lawmakers Finally Agree to Raise Taxes Yet Many States Continue to Seek New Revenue


| | Bookmark and Share

This week we bring you tax and budget news in Alaska, Pennsylvania, New Jersey, and Massachusetts plus look at the growing trend in states turning to cigarette taxes. Check out the What We’re Reading section below for a piece on the impact tax cuts in Kansas have had on the Sunflower State’s budget. Thanks for reading the State Rundown! 

— Meg Wiehe, ITEP State Policy Director, @megwiehe  

  • Gov. Bill Walker called Alaska lawmakers back to Juneau this week for yet another special session to weigh options to fill the state's multi-billion dollar revenue gap. ITEP released a report "Income Tax Offers Alaska a Brighter Fiscal Future" to inform the debate over the merits of a personal income tax vs a general sales tax. Sneak preview: four out of every five Alaskans would pay less under an income tax. Read the report here. (PDF) 

  • Yesterday Gov. Tom Wolf signed a revenue package to fund Pennsylvania's $31.5 billion spending plan. It includes an increase to the cigarette tax ($1/pack) and other tobacco products, liquor modernization, expanded gambling, and an extension of the sales tax to digital downloads. The second half of the puzzle is now complete. Earlier this week, before the legislature reached agreement on how to fund the budget, the governor allowed the state's spending plan to become law without his veto or signature.
  • "Nonessential" road and bridge repair and construction continues to be shut down across New Jersey as lawmakers and Gov. Christie were unable to reach a gas tax deal before the end of June. They now project they can run the Department of Transportation on a shoe-string budget until the end of August, and negotiations could go that long. Lawmakers are back in session now and hoping to reach a compromise this week that restores the Transportation Trust Fund to solvency without blowing too large a tax-cut hole in the rest of the budget.  

  • More states are looking to the cigarette tax to provide fast cash while promoting public health objectives. West Virginia and Louisiana both raised their cigarette taxes during special sessions to plug budget holes. A $2 per pack increase has qualified for the ballot in California and a $1.75 per pack increase has just been proposed in Colorado. Signatures have been gathered to put a $1.76 per pack increase on the ballot in North Dakota and efforts are underway to get a 60-cent per pack increase on Missouri's ballot as well. 

  • The Massachusetts Senate Ways and Means Committee has proposed increasing the state's Earned Income Tax Credit from 23 to 28 percent of the federal benefit (the state increased the tax break for working families last year as well). They would partially pay for the improved credit by applying the state's 5.7 percent hotel tax to short-term rentals, most notably those via Airbnb. For more information, check out the Massachusetts Budget Project's brief. 

 What We're Reading...   

  • Bloomberg BNA reports on the increasing significance of capital gains income to high-income taxpayers based on 2015 IRS data. 

  • The Kansas Center for Economic Growth explains how state income tax cuts broke the budget. 

  • Arkansas Advocates for Children writes about the uncertain impact recent and potential new tax cuts could have on funding public investments.  

  • Villanova Professor Maule on potholes and the long-term financial costs to individual taxpayers when lawmakers cut, freeze, or avoid tax increases. 

In Alaska, Low Oil Revenue Sparks Income vs Sales Tax Debate


| | Bookmark and Share

The decline of oil tax and royalty revenues in Alaska, which once funded the state government with money to spare, has created a multi-billion-dollar revenue shortfall that the state’s lawmakers have struggled to address.

To shore up the state’s finances, lawmakers are weighing whether to institute a personal income tax for the first time in 35 years, enact a sales tax, which the state has never had before, or a combination of both.

Gov. Bill Walker called Alaska lawmakers back to the statehouse this week for yet another special session. Late last year, he put forth a New Sustainable Alaska Plan (PDF), including a proposal to reinstitute a personal income tax. He also recently broadened the scope (PDF) of the debate to include a proposal for a statewide sales tax, under HB 5004.

ITEP released a report today that weighs the pros and cons of a personal income tax versus a general sales tax as a means to address Alaska’s massive budget gap. The brief, “Income Tax Offers Alaska a Brighter Fiscal Future” lays out five key facts Alaskans and their elected officials should keep in mind as they weigh the merits of these two policy options:

1)      Most Alaskans would pay less under a personal income tax than a sales tax.

2)      Personal income taxes are more equitable than sales taxes.

3)      Personal income taxes generate a more sustainable revenue stream than sales taxes.

4)      Sales taxes ask far more of families living in rural Alaska.

5)      Personal income taxes lay the groundwork for economic growth.

Read the report to learn more about the benefits of a progressive income tax.

Alaska’s legislators have thus far shown little willingness to pursue sweeping tax changes. Rather than continue to delay action, Gov. Walker partially addressed the gap last month with cuts to state spending and a sharp reduction in tax breaks for the oil industry. He also capped the state’s Permanent Fund dividend–a flat dollar payment that most Alaskans receive each year–at $1,000 per person, a reduction of more than 50 percent relative to last year’s $2,072 dividend.

The governor’s hard choices will be painful for many Alaska families, but also will undoubtedly serve as a starting point to ease the state’s dire fiscal situation. Yet even with these deep cuts, the need for large-scale, comprehensive tax reform remains.

In a recent report, “Distributional Analyses of Revenue Options for Alaska,” ITEP warned that a dividend cut would be steeply regressive and disproportionately affect low- and middle-income families who rely on the income that payment provides. Now that Gov. Walker has moved forward with dividend cuts and is weighing a general sales tax that would fall more heavily on average Alaska families, the need to find revenue options that provide some balance is more important than ever.

Reinstating a personal income tax remains the single-most powerful counterbalance to all of the regressive options on the table. Rather than wait for a new oil boom, Alaska should  adopt a tax system that serves Alaskans in the short- and long-term, diversifies its revenue system, and shifts the state away from the boom-and-bust cycle of oil prices.

How the range of tax and spending changes under consideration will affect Alaskans of all income levels should be on the forefront of lawmakers’ minds as they resume work in Juneau this week. Unfortunately, the vast majority of available options would primarily impact low- and middle-income families. Given that reality, enacting a personal income tax alongside other policy changes will be essential if lawmakers are to have any hope of crafting an equitable, sustainable solution to Alaska’s budget woes.

Read the report here.

 


State Rundown 7/6: Most Legislative Sessions Come to a Close: Budget Problems Remain


| | Bookmark and Share

This week we bring you tax and budget news in Alaska, California, Illinois, New Jersey, North Carolina, and Pennsylvania. Check out the What We’re Reading section below for a good piece on Kevin Durant and the minor role tax rates played in his decision to take his talents to Golden State. Thanks for reading the State Rundown!

-- Meg Wiehe, ITEP State Policy Director, @megwiehe

  • In advance of bringing the Legislature back for yet another special session next week, Alaska Gov. Bill Walker capped the state's Permanent Fund dividend (a flat payment made to all Alaskans) at $1,000 next year, down from the 2015 payout of $2,072, and vetoed $1.29 billion in state spending. The dividend cap and service cuts will hit low-income Alaskans the hardest. However, an income tax, proposed in the governor's New Sustainable Alaska Plan could provide some balance.
  • Lawmakers in Pennsylvania agreed on a $31.5 billion spending plan in advance of the midnight June 30 deadline. SB 1073 increases funding to public schools and funds efforts to combat the state's opioid crisis. However, there is little agreement over how to find the $1 billion plus in new revenue needed to fund it. Gov. Tom Wolf said he will sign the bill "as soon as there is a sustainable revenue package to pay for it...", but lawmakers only have until Monday, July 11 to reach a compromise before the governor must start using his veto pen.
  • On the last day of the 2016 fiscal year, Illinois lawmakers approved stop-gap measures providing long-overdue funding to higher education and human services for FY '16, six months of FY '17 funding for the above mentioned and state agency operations, and a full year of FY '17 funding for K-12 education. While providing some relief for services that have been operating sans funding for the past year, these measures prolong uncertainty and instability by pushing the state's day of revenue reckoning past the November elections.

  • North Carolina lawmakers closed the state's short session on July 1 without giving final approval to a proposal to enshrine a cap on the state's income tax rate in the constitution via voter referendum.  However, the agreed upon budget for the new fiscal year includes a new, small income tax cut by increasing the standard deduction from $15,500 to $17,500 (married couples) continuing the state's march away from reliance on the progressive tax.   
  • In New Jersey, after rejecting a weird plan to pair a needed gas tax increase with a mish-mash of tax cuts that would have primarily benefited wealthy New Jerseyans, and then rejecting an even more destructive plan that would have slashed the state sales tax and blown a hole in the state general fund even bigger than the one they need to fill in the Transportation Trust Fund, lawmakers ultimately chose no plan at all and went on vacation. The state has been forced to declare a state of emergency and shut down most roads maintenance and construction. The bizarre saga will continue when the next scheduled Senate session begins on July 11.

 What We're Reading...

  •  The Washington Post's Wonkblog has a piece explaining that state tax rates were just one very small part of the calculation in Kevin Durant's decision to sign with the Golden State Warriors over the Miami Heat or Oklahoma Thunder.
  • Emmanuel Saez at the Washington Center for Equitable Growth has a new analysis on disproportionate income growth among the top 1 percent and the bottom 99 based on 2015 SOI data. Read the full analysis here.

State Rundown 6/23: Budget and Tax Happenings


| | Bookmark and Share

Thanks for reading the State Rundown! Here's a sneak peek: Alaska’s legislative session continues to drag on, sessions in Louisiana, New Jersey, Pennsylvania, and Rhode Island are potentially nearing their end and Philadelphia’s got a new soda tax. Don’t forget to check out What We’re Reading.

-- Meg Wiehe, ITEP State Policy Director, @megwiehe

  • There is no immediate end in sight for Alaska’s legislative session, originally set to end in mid-April. This week Gov. Bill Walker called the Legislature back for yet another special session to consider tax and Permanent Fund legislation. Scheduled to reconvene in July, the Legislature will continue to grapple with ways to close the state’s $4 billion budget deficit. ITEP's analysis of revenue options finds that an equitable solution cannot be reached without a personal income tax.
  • Louisiana’s special session to address a FY17 $600 million budget gap ends tonight at midnight. The House has approved $284 million in new revenue, the majority from an increased tax on HMOs and revised business tax credits. All significant income tax reform measures failed in the House, and the Senate has given up on reviving the proposal to eliminate the personal income tax deduction for state taxes. With $200 million less than expected corporate income and a $27 million accounting error, new revenues fall significantly short of what is needed to fill the hole—the TOPS scholarship program and safety net hospitals will likely feel the most significant cuts.
  • New Jersey’s tax debate and fiscal crunch are coming down to the wire this week and next, as the state’s Transportation Trust Fund (TTF) is set to run out of money for repairing and maintaining roads and bridges in the Garden State on June 30th. Raising the state’s gas tax, which has not been adjusted for inflation or changing needs since 1988, is the obvious way of shoring up the TTF. Yet in what the New Jersey Star-Ledger is calling “an astonishing capitulation,” the debate continues to focus largely on using the TTF crisis as an opportunity to pass tax cuts that primarily benefit the most well-to-do New Jersey residents.
  • Pennsylvania's Gov. Tom Wolf abandoned calls to raise revenue through the state sales or income tax this year. This is an unfortunate turn of events for the Keystone State. ITEP analysis found that the Governor's proposal to increase the state's flat personal income tax rate from 3.07 to 3.4 percent, coupled with increases to the state's tax forgiveness credit to mitigate the impact on low-income families, would be an equitable solution to help address the state's revenue shortfall.
  • The Philadelphia City Council approved a new tax on soda and sweetened beverages last week making it the first major US city to impose this additional levy. The estimated $91 million raised from the 1.5 cent per ounce tax will primarily be used to fund an expansion of the city's early childhood education program.
  • The Rhode Island House and Senate approved an $8.9 billion budget that has already received praise from Gov. Gina Raimondo. The budget, in brief, provides a tax break for retirees, reduces the corporate minimum tax down to $400 from $450, cuts beach parking fees, increases education aid and expands the state's Earned Income Tax Credit from 12.5 to 15 percent of the federal credit. 

What We're Reading...

  • This Washington Post Wonkblog piece examines the impact of opposite approaches to tax policy in Kansas and California (bonus- it also features ITEP data).
  • The Kansas City Star takes down false claims from some lawmakers who are peddling misleading”'facts” to constituents about the state's fiscal and economic health.
  • A new report from the Economic Policy Institute documents growing income inequality across the states.

State Rundown 6/2: Austerity Budgets By Choice


| | Bookmark and Share

Click Here to sign up to receive the 
State Rundown in your inbox.

SRLogo.jpg

Thanks for reading the State Rundown! Here's a sneak peek: West Virginia lawmakers reject cigarette tax increase but still negotiating. Alaska legislature passes compromise budget, punts on oil and gas credits. Louisiana legislature will enter second special session to discuss tax reform. Oklahoma lawmakers gut EITC, use budget cuts, and one-time gimmicks to close budget gap. Progressive policy advocates win expansion of working family tax credit in Minnesota.

-- Meg Wiehe, ITEP State Policy Director, @megwiehe


 

West Virginia lawmakers resumed budget talks this week after a failure to reach a deal before Memorial Day weekend. Previous efforts to pass a budget stalled when House lawmakers rejected Gov. Earl Ray Tomblin's proposed increase of the cigarette tax. The 45-cent-per-pack increase, along with similar percentage increases on other tobacco products, would have raised $76 million in new revenue. The House instead passed a budget bill with no new tax increases but $143 million taken from the state's rainy day fund, an amount that Gov. Tomblin is unlikely to approve. The Senate will now take up the House measure in addition to a proposal to increase the sales tax. Lawmakers need to close a $270 million budget gap, the result of ill-advised tax cuts and low energy prices. If they do not pass a budget by July 1, the state government will shut down. Some political observers believe the cigarette tax hike is not yet dead, and business groups lent their support in a letter to lawmakers.

Oklahoma lawmakers finalized a budget last week, closing a $1.3 billion gap also caused by plummeting energy prices and big tax cuts enacted in better times. The legislature managed to pass a budget with limited tax increases by slashing spending on core programs and instituting a number of one-time revenue-raising gimmicks. Lawmakers made up a small portion of the budget deficit by eliminating the refundabability of the state's EITC, saving just $29 million but reducing aid to 200,000 working families. This move has rightly been described as an “empathy gap” and a move that “makes the poor poorer.” Efforts to increase the gas tax for transportation spending, the sales tax for teacher salaries, and the cigarette tax for healthcare expansion all failed. Legislative leaders acknowledged that the state's structural budget gap will remain next year. One positive outcome was the state's elimination of its nonsensical “double deduction,” a law that primarily benefits wealthy taxpayers who itemize their deductions. For more details on tax and budget policy in Oklahoma, check out Aidan's recent blog post.

The Alaska Legislature passed a compromise budget this week in an attempt to prevent layoffs for state government workers. Lawmakers broke an impasse by postponing decisions to cut tax credits for oil and gas producers and a range of revenue raising options. Instead, they agreed to restore budget cuts to senior benefits and K-12 and higher education, and to draw $3 billion (more than 40 percent of the fund) from the state's Constitutional Budget Reserve to cover FY 2017 expenditures. The $8.8 billion compromise budget is still significantly below last year's spending levels of $9.3 billion, largely due to overhauls of criminal justice and Medicaid spending. It is unclear how Gov. Bill Walker will respond to the spending plan. The legislature will remain in session to continue to address the state's structural deficit.

Legislators in Louisiana will begin a second special session next week to address tax reform and the remaining budget deficit. Gov. John Bel Edwards issued the call for an extraordinary session from June 6th to June 23rd  to close a $600 million shortfall for FY 2017 and to resolve the state's structural deficit. The governor also issued a plan for the session that includes possible changes in corporate and personal income tax rates, taxes on healthcare entities and reforming tax credits.

Progressive advocates in Minnesota won a big victory last week when legislators passed a significant expansion of the Working Family Credit, Minnesota’s version of the EITC. Under the changes, the size of the credit will grow for most eligible families and individuals, and the income cutoff for eligibility will be raised for some families and individuals. Moreover, the age requirement for childless workers to qualify for the credit will be lowered from 25 years old to 21 years old. Minnesota is the first state (after Washington, DC) to expand the portion of the state EITC granted to childless workers. About 386,000 Minnesota families and individuals will benefit from the credit expansion, which will reduce taxes by $49 million. The Minnesota Budget Project, which led the effort to expand the Working Family Credit, notes that the credit promotes work, helps kids succeed, and reduces racial income disparities.

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email.


Energy States Continue to Pay the Price for "Boom Time" Tax Cuts


| | Bookmark and Share

Alaska, North Dakota, Oklahoma, West Virginia, and Wyoming.

What do these states have in common?

These are the five states that are most reliant on the energy sector (mining, quarrying, and oil and gas extraction) for their economic output, according to data from the Bureau of Economic Analysis. All of them are also facing budget shortfalls brought on in part by the falling price of energy, and in part by short-sighted tax cuts made by lawmakers that failed to prepare for this decline.

Alaska, Oklahoma, and West Virginia are currently grappling with these issues in contentious legislative sessions. In Alaska, the magnitude of the state’s budget shortfall forced lawmakers to extend their session beyond its scheduled date of completion, while West Virginia lawmakers just returned to their state capital this week for a special session. Lawmakers in North Dakota and Wyoming are not currently in session, but are gearing up to deal with the shortfalls that await them when they return to session in 2017.

In order to close their budget gaps, these states are contemplating whether previous tax cuts should be rolled back, whether new types of tax increases should be enacted, or whether the shortfalls should be closed primarily through deep cuts in public services. On the revenue side, there is also significant variation in the types of tax changes being explored—ranging from progressive income tax reforms to sharply regressive increases in consumption and excise taxes. Each of these five states’ tax and budget debates are discussed below.

In Alaska, lawmakers are facing a budget gap exceeding $4 billion and are currently focused on deep budget cuts and scaling back oil and gas tax credits as part of their extended legislative session. However, those changes alone will not solve the state’s budget problem. Gov. Bill Walker has proposed a broader package of tax policy options, including reinstating a personal income tax for the first time in 35 years and increasing existing taxes on various items and industries. Also on the table are proposals to scale back and restructure the state’s Permanent Fund dividend—an annual cash payment received by the vast majority of Alaskans each year. ITEP analyzed the Governor’s plan in a recent report and found that an equitable solution to the state’s revenue shortfall will require lawmakers to enact a personal income tax.

While Alaska’s tax cutting history is somewhat more distant than in other energy-dependent states, it is also the most dramatic. Following the discovery of oil, Alaska became the only state to ever eliminate a broad-based personal income tax and also started paying out dividends to Alaskans each year from the state’s Permanent Fund. Because Alaska also does not levy a sales tax at the state level, it is forced to rely heavily on oil tax revenues and royalties. For decades, oil revenues filled roughly 90 percent of the state’s general fund, but lower prices and declining production have dramatically reduced the level, and reliability, of those revenues.

West Virginia lawmakers are dealing with a $270 million budget hole this week as part of a special legislative session. During the regular session Gov. Earl Ray Tomblin proposed increasing the state’s tobacco tax and applying the sales tax to telecommunications services. These proposals will be revisited this month, along with a possible increase to the state’s general sales tax rate on either a temporary or permanent basis. Budget cuts and fund sweeps will also be debated, though the West Virginia Center on Budget & Policy notes that the state also has plenty of progressive revenue options worthy of consideration. The decision by previous West Virginia lawmakers to slash business taxes is a major contributing factor to the state’s shortfall. Elimination of West Virginia’s business franchise tax took full effect last year, and over the last several years the state’s corporate income tax was reduced as well.

Lawmakers in Oklahoma, facing a $1.3 billion budget hole with only a few weeks remaining in their legislative session, are weighing changes to income, sales, and excise taxes in addition to reductions in public services. Among the most damaging proposals on the table is an effort to eliminate or pare back tax credits for low-income families such as the state’s Earned Income Tax Credit (EITC) and sales tax relief credit. Oklahoma lawmakers have repeatedly cut the state’s income tax over the past decade, with the most recent reduction triggered this January despite an official “revenue failure.” Today this series of cuts comes with an annual price tag exceeding $1 billion in lost revenue. More sensible options under consideration include rolling back the state’s recent personal income tax cuts or repealing the state’s deduction for state income taxes paid.

North Dakota lawmakers, gearing up for their biennial session in 2017, have seen the state’s revised revenue forecast fall short once again. In response to that shortfall Gov. Jack Dalrymple issued budget guidelines requiring state agency heads to hold budget requests to 90 percent of current spending, signaling that most agencies will face budget cuts of up to 10 percent. This request follows a $245 million reduction this February done in an effort to help balance a mid-biennium revenue shortfall exceeding $1 billion. This is the first time since 2002 a North Dakota Governor has taken such measures. But unlike in other energy-dependent states, Gov. Dalrymple is refusing to consider tax increases and many legislators are promising not to raise taxes. Instead they intend to slash state services and withdraw money from their Budget Stabilization Fund. This painful budget tightening follows multiple cuts to the state’s income taxes over the past decade. In 2015, the most recent cuts led to reductions in both the individual and corporate rates costing the state $108 million over the biennium.

Lawmakers in Wyoming, expecting to be short at least $300 million over the coming biennium, last week weighed whether local governments should be able to impose an optional 2-percent tax on groceries. This tax was rolled back in 2006 in the face of criticism that it disproportionately fell on the state’s poorest residents. Lawmakers also considered raising the state property tax and increasing the tax on wind and energy production. However, only draft bills on the wind tax moved out of committee. In addition to these tax proposals, Gov. Matt Mead recently announced that state agencies must cut their budgets by 8 percent for the biennium. Wyoming has not enacted the same level of tax cuts over the years as in other energy-reliant states, largely because it already relies on such a narrow tax system. Wyoming levies no individual or corporate income tax, relying primarily on taxes on minerals, sales and use, and property.

If lawmakers in any of these states are looking for inspiration to take action, Louisiana and Nevada (ranked #7 and #9, respectively, in terms of their economic reliance on energy) stand out for their willingness to at least begin addressing their shortfalls by increasing tax revenue. Louisiana lawmakers this year, after much negotiation, approved a temporary increase in the state’s sales tax rate, removed sales tax exemptions, raised taxes on cigarettes and alcohol, and extended or reinstated taxes on vehicle rentals, cellphones, and landlines. Louisiana’s Gov. John Bel Edwards plans to call a second special session to continue pursuing revenue solutions. Nevada, in 2015, approved tax measures expected to raise up to $1.1 billion through a cigarette tax increase and the continuation of formerly temporary business taxes. These revenue increases have played a vital role in helping to avoid painful cuts in the face of low energy prices and weakened tax receipts.

States’ heavy reliance on their energy sectors has certainly contributed to their recent budget shortfalls. As energy prices plummeted, tax and royalty revenues fell and lawmakers have been forced to make tough decisions to fill the gaps. But not all of the blame for these states’ bleak fiscal outlooks can be assigned to the volatility of the energy sector. Narrow tax structures and repeated tax cuts, often enacted when energy-related revenues were abundant, have also played major roles in these states’ financial debacles.

Looking ahead, the experience of these states should serve as a cautionary tale for lawmakers prioritizing tax cuts over the long-run sustainability of state budgets.


Equitable Solution to Alaska Fiscal Gap Must Include Personal Income Tax


| | Bookmark and Share

Alaska is grappling with one of the most serious budget shortfalls in the nation. The state currently faces a budget gap exceeding $4 billion and current revenues are expected to cover just 25 percent of the state’s costs, despite major spending cuts enacted in recent years.

With a revenue system highly dependent on oil tax and royalty revenue, Alaska has been forced to reevaluate its revenue structure in the face of plummeting oil production and prices. For years Alaska was able to use oil revenue proceeds to fund state government, and even repeal their income tax and cut sizable annual checks to Alaskans. Faced now with a new fiscal reality, the state is considering ways in which to diversify its revenue stream.

In a new report, “Distributional Analyses of Revenue Options for Alaska,” ITEP analyzes Gov. Walker’s New Sustainable Alaska Plan and other revenue strategies to fill the gap. The report presents information on how a range of policy options would impact Alaskans at different income levels.

The New Sustainable Alaska Plan, the most ambitious proposal on the table, would institute a personal income tax in the state for the first time in 35 years, reduce the Permanent Fund dividend (a cash payment that most Alaskans receive each year) and increase taxes on a variety of industries and on purchases of alcohol, tobacco and motor fuel.

The personal income tax in the plan was specifically proposed to offset the disproportionate impact that many of these changes would have on moderate-income families. Alaska is one of just nine states that lack a broad-based personal income tax – the most equitable revenue option available to states.

According to ITEP’s research director, Carl Davis:

“The governor’s decision to include an income tax in his fiscal plan was a step forward for Alaska’s budget debate. It is simply not possible to craft an equitable solution to Alaska’s budget shortfall that does not include some level of income tax.”

While a step in the right direction, the report finds that the modest income tax structure proposed in the New Sustainable Alaska Plan is not enough to fully offset the regressive nature of other components included in the package. Low-income families could expect to see their incomes reduced by between 5.5 and 9.6 percent, while higher-income families would face declines equal to just 1.2 to 2.0 percent of their incomes. Middle income families would see declines in the range of 2.4 to 3.9 percent.

The distributional impact of the New Sustainable Alaska Plan and other proposals currently being discussed by the legislature could be improved if they were rebalanced to derive more revenue from the personal income tax and less from reductions in the dividend. ITEP’s findings show that it is not possible to close Alaska’s budget gap in an equitable way unless a robust personal income tax is enacted as part of the package.

Read the report


State Rundown 2/26: Tax Changes on the Horizon


| | Bookmark and Share

Click Here to sign up to receive the 
State Rundown in your inbox.

SRLogo.jpg

Thanks for reading the Rundown! Here's a sneak peek: Alaska legislators consider moving money from their oil tax fund to shore up the budget. Maine lawmakers consider tax changes that would benefit the top 5 percent of earners while Oklahoma lawmakers consider delaying a tax cut that would also primarily benefit the wealthy. Hawaii's legislature will mull a new state Earned Income Tax Credit. And the South Dakota House passes a sales tax increase by a one-vote margin.

 – Meg Wiehe, ITEP State Policy Director


 

Efforts to raise taxes in Alaska to close a yawning budget gap caused by declining oil revenues may be pushed to next session. Legislators are instead considering plans to use the Permanent Fund to plug the state's revenue hole. The Permanent Fund is a constitutionally-mandated sovereign wealth fund, financed with oil tax revenue that pays Alaska residents a dividend each year. Dividends have ranged from $878 to $2,072 per person over the last decade. Under Gov. Bill Walker's plan, that payout would be reduced as the state would transfer $3.3 billion from the Permanent Fund to the state budget each year. Rep. Mike Hawker's plan would go even farther, putting dividends on hold until the state's deficit is eliminated. A large reduction in the dividend is likely to impact lower- and moderate-income families much more heavily than the wealthy, though a progressive income tax (as has also been proposed by the Governor) could help offset some of that regressivity.

Under the cloud of a large budget deficit, the Oklahoma Senate Finance Committee has voted to reverse itself on a previously approved income tax cut. The committee surprised many by voting 10-2 to delay the 0.25 percent reduction in the state's top income tax rate that went into effect January 1. Gov. Mary Fallin and the leaders of the House and Senate all want the income tax cut to remain in effect. The author of the bill to postpone the tax cut, Sen. Mike Mazzei, rallied support to his cause last week, as we covered on The Tax Justice Blog. Expect additional fireworks in this developing story.

A column in the Portland Press Herald makes the case against a bill that would give upper-income Mainers a tax break. The column's author, Bill Creighton, is in the top 5 percent of Maine taxpayers and would see a tax cut if LD 1519 were passed. The proposal would eliminate the cap on itemized deductions adopted last year in a comprehensive tax reform package and would come at a cost to the state of roughly $52 million. ITEP crunched the numbers on behalf of the Maine Center for Economic Policy and found that over half the benefit of eliminating the cap on itemized deductions would go to the top 1 percent of taxpayers. That group would receive an average tax cut of $4,000 per year. No Mainer in the bottom 80 percent of the income distribution (those making less than $93,000) would see any benefit.

Hawaii lawmakers will consider creating a state Earned Income Tax Credit (EITC). SB 2299 would implement a state credit equal to 10 percent of the federal EITC—providing an average benefit of approximately $220 per eligible filer. In 2013 over 315,800 Hawaii residents, including 127,200 children (PDF), benefited from the federal version of the EITC. Enacting an EITC could go a long way toward lessening the unfairness of a tax system that ITEP ranks as levying the 2nd highest taxes in the country on low-income taxpayers.

The South Dakota House voted to raise the state sales tax rate by half a point, from 4 to 4.5 percent, in order to fund an increase in pay for teachers. The measure initially failed by one vote, but supporters were able to convince their colleagues to reconsider. The measure will now go to the Senate for consideration. The South Dakota Budget and Policy Institute, citing ITEP data, says the change will raise $107 million but will also make the state's tax structure more regressive. They suggest an alternative plan that would remove food purchases from the sales tax base but raise the rate an entire percentage point on all other goods. This alternative would raise $128 million while actually cutting taxes for the bottom 20 percent of earners.

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email

 


2016 State Tax Policy Trends: States Considering Raising Revenue in Both Big and Small Ways


| | Bookmark and Share

This is the third installment of our six part series on 2016 state tax trends.

Significant revenue shortfalls and the desire to increase funding for public education and other public investments are spurring lawmakers in more than 16 states to consider revenue raising measures both big and small this year.  The need to raise a significant amount of revenue, due either to dips in oil and gas tax revenue or ongoing budget impasses, will provide an opportunity to overhaul upside-down and inadequate tax systems with reform-minded solutions.

A new report from the Rockefeller Institute (PDF) quantified what we all instinctively already know--states with a heavy dependence on revenue from natural resources suffer when oil and gas tax prices tumble.  Revenues dropped by 3.2 percent between September 2014 and 2015 in Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia and Wyoming while the other 42 states experienced a combined growth in revenues of more than 6 percent. So, it should be no surprise that some of the biggest revenue challenges in the country are found in these energy dependent states, many of which shortsightedly reduced or even eliminated reliance on broad-based taxes during their "boom" years.  Of this group, Alaska and Louisiana are of particular interest as both states will explore transformative changes to their tax systems.

More than seven months into the current fiscal year, Illinois and Pennsylvania are still working without budgets, or much needed new revenue, in place. We will be watching both states closely this year for proposals that will finally help to break the stalemates.  And, many other states including Connecticut, and Vermont have lingering revenue problems leftover from the recession that will require lawmakers to take a hard look at their state tax systems to avoid yet more spending cuts. 

On a brighter note, not all of the anticipated revenue raising in the states this year will happen in response to revenue crises.  There are a number of efforts across the country to raise new revenue for much needed investments in public education, health care and transportation.  Voters in California, Maine, and Oregon will be asked to support higher taxes on the wealthy or corporations at the ballot in November and a similar effort could make it onto the ballot in Massachusetts in 2018.  Lawmakers in New York and Utah have filed bills to increase taxes on their states' wealthiest residents to allow for more revenue for public investments.  Even South Dakota is considering raising revenue--lawmakers from both parties want to increase the state's sales tax in order to pay for teacher salary increases (a regressive choice, but one of the few options available in a state that does not have a personal income tax). 

Here's a list of states we are watching in 2016:

Alaska

Alaska sticks out like a sore thumb compared to all of the other states with natural resource dependent economies experiencing revenue shortfalls.  The state has no personal income tax or sales tax to turn to in times of crisis and more than 90 percent of state investments are funded via taxes on the energy sector.  (Alaska is the only state to ever repeal a personal income tax and has been without one for 35 years.)  Thus, there are few options short of drastic measures to plug a growing budget gap of more than $3.5 billion.

Gov. Bill Walker proposed a plan in December that would, among other things, institute an income tax equal to 6 percent of the amount that Alaskans pay in federal income taxes and cut the annual dividend paid out to every Alaska resident.  Other lawmakers have discussed enacting a state sales tax.  No matter the outcome of the debate in the Last Frontier State this year, one things is for certain -- lawmakers in other states that are interested in cutting or eliminating their personal income taxes must now think twice before holding up Alaska as a model for what they would like to achieve.

California

Back in 2012, California voters soundly approved a ballot measure, Proposition 30, that raised more than $6 billion in temporary revenue via a small hike in the sales tax and higher taxes on the state's wealthiest residents.  The revenue raised from the measure helped get the Golden State back on its feet following the Great Recession and has allowed lawmakers to make much needed investments in education and health care.  Now there is an effort afoot to place a new question on the ballot this coming November to extend the income tax changes (higher brackets and rates on upper-income households) through 2030 with the revenue going largely towards expanding and sustaining investments in public education.

Illinois

More than seven months into the fiscal year, Illinois continues to operate without a budget in place because Gov. Bruce Rauner and state lawmakers are still battling over the best way to address the state's massive $6 billion revenue shortfall.  Revenues are short largely due to a 25% income tax cut that took effect the beginning of 2015, leaving the state on even rockier fiscal ground. Democrats have proposed some tax increases, but the governor says he will not consider revenue raising proposals until lawmakers agree to his so-called "pro-business" reforms. 

Louisiana

Louisiana faces a current year shortfall of $750 million as well as a $1.9 billion hole next year thanks to anemic oil and gas revenues and the nearsighted tax policies (all cuts and no investments) of former Gov. Bobby Jindal.  Lawmakers will get to work post- Mardi Gras celebrations on a plan to address the state's immediate and long-term revenue problems.

The state's new leader, Gov. Jon Bel Edwards has proposed a number of revenue raising options including much needed reforms to the state's personal and corporate income tax.  But, given that most reform options would take time to implement and that the state has an immediate need for cash to plug the current year gap, he is starting with a call for a one cent increase in the state sales tax (an approach the governor has conceded is less than ideal).  Gov. Edwards'  more long-term solutions to Louisiana's structural budget problems come with a focus on the income tax -- specifically calling for the elimination of the federal income tax deduction as a reform-minded idea that would raise much needed revenue and improve tax fairness. 

Maine voters will likely have the opportunity in November to approve a ballot measure that would raise more than $150 million in dedicated revenue for the state's public schools. Under the initiative, taxpayers with $200,000 or more in income would pay a 3 percent surcharge on income above that amount.  The campaign behind the measure, Stand Up for Students, has collected well above the threshold of needed signatures to qualify for the ballot, but the question along with others must still be certified by the state.

Massachusetts

The Raise Up Massachusetts coalition is behind an effort to create a millionaires tax, dubbed the "fair share amendment", in the Bay State.  Due to the lengthy ballot process involved, the question will not go before voters until 2018, but the campaign is already in high gear. They have collected the needed signatures to move forward and last month the initiative won overwhelming approval from the Legislature's Committee on Revenue.  If approved by voters in 2018, taxpayers with incomes over $1 million would pay an additional 4 percent on that income on top of the state's flat 5.1 percent income tax.

New Mexico

Gov. Susana Martinez continues to stand by her no-new-taxes pledge despite a growing revenue problem in her state, but that has not stopped other lawmakers from filing bills to increase taxes. Proposals have been introduced to delay the implementation of corporate income tax cuts enacted in 2013, raise gas taxes, and increase personal income tax rates.

New York

The New York Assembly unveiled  a proposal to raise taxes on millionaires and cut taxes for working families. Under the proposal, individuals earning between $1 million and $5 million would pay a tax rate of 8.82 percent on that income. Income between $5 million and $10 million would be taxed at 9.32 percent, and income over $10 million would be taxed at 9.82 percent. If enacted, the tax plan would raise $1.7 billion in revenue to increase spending on public education, and infrastructure projects . The plan also includes tax cuts for New Yorkers earning between $40,000 to $150,000 and an increase the state's Earned Income Tax Credit, a tax break targeted to low-income working families.

Oklahoma

Gov. Mary Fallin recently unveiled a revenue raising package relying heavily on regressive cigarette and sales tax increases to plug the state's more than $900 million shortfall.  The governor deserves some kudos for recognizing her state's revenue problem needs a revenue-backed solution.  However, it should be noted that the state has cut the personal income tax by more than $1 billion since 2004, including a more than $140 million cut that went into effect at the start of the year despite the state's revenue woes. Other than a proposal to eliminate a truly nonsensical income tax deduction, her plan mostly ignores income tax options.  Raising significant new revenue from sales and cigarette taxes will continue to shift more of the state's tax reliance onto low- and moderate-income Sooner taxpayers, especially if some lawmakers succeed in their wish to eliminate the state's 5 percent Earned Income Tax Credit.  Without this targeted tax break for low-income working families, the kinds of revenue raisers being discussed would certainly exacerbate tax inequality in the state.   

Oregon

An Oregon ballot initiative, sponsored by Our Oregon, would create an additional minimum tax on corporations with Oregon sales of at least $25 million (a 2.5 percent tax would apply to sales in excess of $25 million). If the initiative wins approval, it would raise close to $3 billion annually in new revenue for public education and senior health care programs. Currently, corporations doing business in Oregon pay the greater of a minimum tax based on relative Oregon sales or a corporate income tax rate of 6.6 percent on income up to $1 million and 7.6 percent on income thereafter.

Pennsylvania

Pennsylvania government continues to operate more than 7 months into this fiscal year without a budget (there is an emergency funding budget in place that is more than $5 billion less than the proposed budget).  Yet, Gov. Tom Wolf is expected to propose a budget for next fiscal year on February 9th.  An ongoing disagreement on revenue raising measures and spending priorities between the governor and House and Senate lawmakers explain the hold up and several compromise budget and tax plans last summer and fall failed to gather enough support to break the impasse.  The situation is reaching crisis stage as the state now faces a $2.6 billion structural revenue gap and cannot continue to operate much longer on emergency funding if there are no longer enough revenues coming in to fund core government services.  Gov. Wolf is likely to try yet again to solve the problem with a balanced revenue proposal including income and sales tax increases and a new severance tax. 

South Dakota

South Dakota lawmakers led by Gov. Dennis Daugaard are proposing a 0.5 cent increase in the state's sales tax that will raise more than $100 million annually.  Most of the revenue will be used to increase teachers' salaries, a long sought after policy goal in a state that ranks 51st in teacher pay.  Democrats are proposing a similar measure, but their plan would first remove food from the state's sales tax base and then raise the rate by a full cent.  While both measures fall more heavily on low-income households, the Democrats' proposal is slightly less unfair (although it raises more revenue) since taxes on food hit low-income households especially hard.  South Dakota is one of nine states without a broad-based personal income tax, so their options for a more progressive tax increase are limited.

Utah

Utah Sen. Jim Dabakis has proposed adding two new brackets with higher rates to his state's flat income tax to raise revenue for public education.  Taxpayers with income greater than $250,000 would pay more under his plan.  Dabakis argues that the state's flat tax is a "disaster" and is largely to blame for the underfunding of K-12 schools.

West Virginia

Just a few short months ago, we were watching West Virginia for a large-scale tax reform package that would have likely reduced reliance on the state's personal income tax.  But now that the state faces a revenue shortfall of more than $350 million this year (and more than $460 million next year), attention has turned to options for filling the gap.  As in Louisiana, past tax cuts are as much to blame for the state's revenue woes as the hit to the state's coal industry.

Gov. Earl Ray Tomblin's budget proposal included higher taxes on tobacco and adding cell phone plans to the state's 6 percent sales tax that together would raise around $140 million when fully implemented.

Other States to Watch: While governors in Vermont and Connecticut have said no to raising taxes to address budget gaps, lawmakers in those states are likely to challenge those sentiments and propose reform-minded tax increases that ask the wealthiest residents in their states to pay more. And Iowa lawmakers are considering a series of bills to increase the state's sales tax to pay for everything from school construction to water quality projects and transportation infrastructure. 


State Rundown 1/28: Taxes Up For Debate


| | Bookmark and Share

Click Here to sign up to receive the 
State Rundown in your inbox.

SRLogo.jpg

New Kentucky Gov. Matt Bevin delivered his first State of the Commonwealth address on Tuesday, forgoing tax cuts he promised during the campaign because in his words, the state "can't afford them right now." Instead, he called for deep reductions in state spending that would impair crucial services. Bevin would cut spending by $650 million across the board -- a 4.5 percent reduction for all agencies for the remainder of the fiscal year and a 9 percent reduction over the next biennium. The governor's plan would protect per-pupil K-12 funding, Medicaid, and social workers, and would increase some public safety spending. Bevin would also move $1.1 billion to the state's troubled pension funds for teachers and state employees. However, universities, regulatory agencies, parks, public television, workplace safety, public health, environmental quality and economic development would be affected by the cuts.  


The North Carolina Budget and Tax Center came to the aid of partners in West Virginia this week, pleading with legislators to take proposed tax cuts off the table. Gov. Earl Ray Tomblin's budget proposal would cut the state's severance tax on coal to help prop up the ailing industry, while raising taxes on tobacco products and telecommunications. Ted Boettner of the West Virginia Center on Budget and Policy warned lawmakers that more tax cuts wouldn't help the economy, and could make matters worse, pointing out that recent sales and corporate tax cuts had reduced state revenue that could have prevented the current deficit. Alexandra Sirota of the North Carolina Budget and Tax Center backed him up, noting that tax cuts in her state merely shifted taxes down the income scale and failed to produce new jobs.  


Georgia Senate Finance Chairman Judson Hill proposed two tax-cutting measures last week. The first would institute a flat income tax rate of 5.4 percenteliminate most itemized deductions (though would allow taxpayers to deduct all charitable contributions), and increase the personal and dependent exemptions by $2,000. Hill's second measure would amend the state's constitution to mandate a decrease in the flat rate (assuming the first proposal is enacted) to 5 percent if state revenues and reserves exceed certain levels. The finance chairman's proposals come against the backdrop of Gov. Nathan Deal's call for additional funding to make up for reduced spending in the wake of the Great Recession.  Look for an ITEP analysis of these proposals soon on the Tax Justice Blog.

  

Lawmakers in South Carolina continue to debate how to increase road funding while also cutting taxes in order to satisfy a demand by Gov. Nikki Haley to offset any gas tax increase with income tax cuts. The latest compromise would increase the state's gasoline excise tax by 12 cents per gallon over three years, along with a number of other vehicle related fees and taxes. The increases, expected to increase road funding by $665 million, would be paired with $400 million in  income tax cuts. One point of contention is a desire by some  lawmakers to include a refundable EITC for low-income South Carolinians in the package. The proposed EITC would cost $44 million and benefit 514,000 residents who would face higher costs at the pump. Some influential lawmakers were amenable to idea. Senate President Hugh Leatherman, who supports proposed tax breaks for manufacturers included in the plan, said "When we are giving everybody else something, why wouldn't we look to help them to pay the additional increase in the gas tax?" An ITEP analysis of this proposal will be coming soon to the Tax Justice Blog. 


The debate over the budget deficit in Alaska continues, with lawmakers mulling a gas tax increase and proposals to bring an income tax back to the state. The Senate and House transportation committees considered Gov. Bill Walker's plan to double the state's gasoline excise tax from 8 to 16 cents per gallon. The measure would raise $49 million annually, a far cry from the $4 billion needed to plug the state's budget hole. The governor has also suggested levying a state income tax equal to 6 percent of the federal income tax Alaskans owe, while State Rep. Paul Seaton has put forth a plan asking Alaskans to pay the state 15 percent of what they pay in federal taxes. Walker's income tax plan would raise $200 million, while Seaton's more ambitious plan would raise $655 million and includes a long-term capital gains tax of 10 percent. A recent poll of Alaskans shows that residents favor a mix of cuts and new revenue to address the crisis by almost a 2-1 margin. 


Got a juicy news story or new development in state tax policy that's too good to miss? Send your ideas and any comments to Sebastian at sdpjohnson@itep.org and we'll add it to the next State Rundown!  


What to Watch for in 2016 State Tax Policy: Part 1


| | Bookmark and Share

State legislative sessions are about to begin in earnest.We expect tax policies to get major playin statehouses across the nation this year with many states facing revenue surpluses for the first time in years and others having to grapple with closing significant deficits. Regardless, officials should focus on policies that create fairer, more sustainable state tax systems and avoid policies that undermine public investments.

ITEP this year once again will be taking a hard, analytic look at tax policy proposals and legislation in the states. This is the first in a six-part blog series providing analyses on the implications of policy proposals, as well as thoughtful commentary on best policy practices.

 Part 2: Revenue Surpluses May Prompt Tax Cut Proposals

In some states, economies have recovered well since the economic downturn, and lawmakers are considering spending surpluses on tax cuts instead of providing much-needed boosts to public investments that were scaled back during the recession. The economic recovery has been uneven, however, and some states that find their economies still struggling or newly sputtering may consider tax cuts on high-income residents under the misguided premise that tax cuts at the top trickle-down and stimulate economic growth.

One trend we expect to see is tax cuts that take effect in small increments over a very long period based on revenue performance or some other automatic "trigger." The effect of these incremental cuts is to push the brunt of revenue losses into the future. Another trend is to move toward single-rate income taxes, negating the chief advantage of the income tax: its ability to reduce tax unfairness by requiring people with higher incomes to pay higher rates and those with less income to pay lower rates. Keep an eye in 2016 on Georgia where there is a proposal to cut and flatten the income tax and then further reduce it in future years based on automatic triggers.

Part 3: Revenue Shortfalls Create Opportunities for Meaningful Tax Reform

A number of states including Alaska, Connecticut, Delaware, New Mexico, Vermont, West Virginia, and Wyoming are grappling with current and future year revenue shortfalls. Pressed for revenue, we anticipate that some states may turn largely to spending cuts or more regressive and less sustainable tax options (like a small hike in the cigarette tax) to close their budget gaps. The scale of the problem in many of these states could also present a real opportunity for lawmakers to debate and enact reform-minded tax proposals that could raise needed revenue, improve tax fairness, and craft more sustainable state tax systems for the future. 

The most significant revenue downturns and best opportunities for reform are in states dependent on oil and gas tax revenue, most notably Alaska and Louisiana. Alaska Governor Bill Walker unveiled a proposal in December that would among other things bring back a personal income tax. Louisiana's new governor, John Bel Edwards, will call a special session next month to pitch short- and long-term revenue raising ideas, including much-needed reforms to the state's income tax. We are also watching Illinois and Pennsylvania where lawmakers are now more than seven months overdue on putting together a budget for the current fiscal year, largely over disagreements on how to find needed revenue to pay for public investments.

Part 4: Tax Shifts in All Shapes and Sizes

Tax shifts, which reduce or eliminate reliance on one tax and replace it with another source, are one bad policy idea we expect to continue to rear its ugly head. The most common tax shifts in recent years have sought to eliminate personal and corporate income taxes and make up the lost revenue with an expanded sales tax. Such proposals result in a dramatic reduction in taxes for the wealthy while hiking them on low- and middle-income households, increasing the unfairness of state tax systems and exacerbating already growing income inequality.

Lawmakers in Mississippi  and Arizona  have expressed support for lowering and eliminating income taxes. Changing political and revenue pictures in both of these states could lead to lawmakers finally making good on their promises in 2016. Also watch for smaller scale shifts like a plan in New Jersey where lawmakers want to pair a much needed increase in the state’s gas tax with an elimination of the estate tax to “offset” the tax hike.

 Part 5: Addressing Poverty and Inequality Through Tax Breaks for Working Families

In 2016, we expect states to focus on a range of policies to support working families, building off the momentum of their 2015 reforms and national dialogue on poverty and income inequality. In particular, developments to enact or improve state Earned Income Tax Credits (EITCs) are likely in a dozen states across the country. For instance, Louisiana’s new governor John Bel Edwards called for doubling the state EITC as part of his commitment to reduce poverty. Maryland’s governor, Larry Hogan, called to accelerate the planned EITC increase. Delaware lawmakers are looking to take a step forward by making the state’s EITC refundable, but unfortunately are also considering a drop in the percentage of the credit.

Tax breaks for working families may also appear as proposals to provide targeted cuts to offset regressive tax increases in states where lawmakers plan to raise revenue. We suggest also keeping an eye on working family tax break proposals in the following states: California, Georgia, Illinois, Minnesota, Mississippi, Missouri, Oregon, Rhode Island, Utah, Virginia, and West Virginia.

Part 6: Overdue Increases in Transportation Funding

The recent momentum toward improvements in funding for transportation infrastructure is likely to continue in 2016. Governors in states such as Alabama, California, and Missouri have voiced support for gasoline tax increases, and gas taxes seem to be on the table in Indiana and Louisiana as well. These discussions on a vital source of funding for infrastructure improvements are long-overdue, as many of these states haven’t updated their gas taxes for decades

But not all transportation funding ideas being discussed are worth celebrating. Arkansas Gov. Asa Hutchinson, for example, has proposed that additional infrastructure funding come from diverting significant revenues away from education, health care, and other services. Meanwhile, lawmakers in other states (Mississippi, New Jersey, and South Carolina) would like to leverage a gas tax increase to slash income or estate taxes for high-income households. While these plans would result in more funding for transportation, their overall effect would be to worsen the unfairness and unsustainability of these states' tax codes.


State Rundown 12/22: Looking Ahead to 2016


| | Bookmark and Share

As the year comes to a close, several tax bills are already being debated in states across the country. ITEP is closely following those proposals because they will likely dominate state headlines in 2016. In the new year we will write more about state tax policy trends for 2016, but in the meantime, here are some of the big state tax policy developments happening now:

Click Here to sign up to receive the 
State Rundown in your inbox.

SRLogo.jpg

There are bright signs on the horizon in Alaska. Gov. Bill Walker recently proposed a progressive income tax to address the state’s budget implosion, brought on by declining oil and gas revenues. Alaska has not had a personal income tax since 1980, when massive oil deposits were discovered on state land. Walker’s proposal would set the state income tax at six percent of what Alaskans pay in federal income taxes. The governor would also raise the state’s gasoline tax, which has not increased in 45 years. To learn more, check out this post on the Tax Justice Blog.

Florida Gov. Rick Scott will continue to push his $1 billion hodge-podge of tax cuts, though even legislators from his side of the aisle balk at the price. The package includes sales tax holidays for back-to-school shopping and hurricane preparedness and a tax break for college students’ textbooks. But those measures are mere leaves for the massive corporate tax cuts at the core of the proposal: corporate income tax cuts worth $770 million annually and a sales tax break on commercial rents that will cost $339 million over the biennium. House Speaker Steve Crisafulli says the governor’s plan may not be possible in its entirety. The state will post a one-time surplus of $635 million next year, but much of that money will go to support public education. Furthermore, a one-time cash infusion won’t pay for tax cuts that recur year after year.

Louisiana Gov.-elect John Bel Edwards will push to double the state’s EITC as part of his plan to reduce poverty in the state. As we outlined in a previous blog post, the move by Edwards is one of a number of encouraging signs for tax justice advocates. The governor-elect also appointed a moderate Republican, former Lt. Gov. Jay Dardenne, to be the state’s budget chief. Dardenne could have the skills to get a revenue-raising tax reform through the legislature since he was able to do so in the early 2000s. Louisiana faces a $1 billion deficit next fiscal year.

Mississippi lawmakers are set to push for tax cuts again next year after a failed attempt to pare back and even eliminate the personal income and corporate franchise taxes in 2015. While the Mississippi Economic Council for Transportation is calling on lawmakers to raise close to $400 million through the gas tax to pay for a long list of transportation infrastructure projects, Gov. Phil Bryant has said “any tax increase must be offset by corresponding tax cuts."  Given the nature of the tax cuts proposed last year, such a plan would likely result in a significant tax reduction for the state’s wealthiest residents and a hike on low- and moderate-income working families.

Virginia Gov. Terry McAuliffe’s budget proposal unveiled this month includes corporate and personal income tax cuts.  The governor wants to cut the state’s corporate income tax rate from 6 percent to 5.75 percent. The proposal would cost $64 million in state revenues. McAuliffe claims that these changes are necessary to compete with neighboring North Carolina, which has repeatedly slashed its corporate tax rate in recent years. But an analysis by The Commonwealth Institute says these claims are false. They point out that two-thirds of Virginia corporations pay no income tax despite record profits, and that the governor’s proposed tax break would help a few large companies while providing no benefits for small businesses and families. They also note that recent history does not provide much reason to be optimistic about the Governor’s plan: a 2009 tax break for manufacturers, for example, failed to spur job growth in that sector. The governor also wants to cut the personal income tax through slightly increasing the size of the personal and dependent exemptions.  Such a proposal will only cut taxes by a little more than $20 million a year and ITEP found that more than a quarter of taxpayers, primarily low- and moderate-income working families, will see no benefit from the proposal. 

 


Back to Reality: Alaska Governor Proposes Progressive Income Tax


| | Bookmark and Share

For years, lawmakers interested in cutting or eliminating personal income taxes have held up Alaska as aAlaska Progressive Income Tax model for what they would like to achieve.  Alaska is the only state to ever repeal a personal income tax and has been without one for 35 years.  But Alaska’s status as an anti-tax role model may not last.  Yesterday, Gov. Bill Walker proposed a plan to remedy the state’s massive revenue shortfall by, among other things, instituting an income tax equal to 6 percent of the amount that Alaskans pay in federal income taxes.

As background, Alaska’s decision to repeal its income tax always came with something of an asterisk attached.  The state’s 1980 repeal only occurred after drillers discovered North America’s largest oil field on land that happened to be owned by the state government.  During times of high oil prices, the billions of dollars in tax revenue collected from the energy sector were enough to fund 90 percent of the state’s general operations and to pay an annual dividend to Alaska residents (totaling $2,072 per person this year).

But as anybody who has driven by a gas station this year knows, these are not times of high oil prices.  Crude oil prices recently fell to just $37 per barrel and Alaska’s oil-dependent revenue streams are now raising enough to fund just 40 percent of the state’s budget, even with significant spending cuts enacted last year.  As Gov. Walker explains, “we cannot continue with business as usual and live solely off of our natural resource revenues.”

The Governor proposed revenue changes that include raising the state’s comically outdated motor fuel tax rate, boosting taxes on alcohol and tobacco, reforming the tax treatment of oil and gas producers, and paring back residents’ annual dividend.  Of course, many of these changes would impact lower- and moderate-income Alaskans more heavily, which is part of the reason why (PDF) the package also includes an income tax piggybacked on the progressive federal income tax system.  Notably, Gov. Walker’s income tax design is similar to one proposed by lawmakers from both parties during this year’s legislative session, and also resembles the structures previously in place in states such as North Dakota, Rhode Island, and Vermont.

Ultimately, the plan put forth by Gov. Walker appears to be a serious attempt to address the state’s yawning, $3.5 billion deficit.  And as Alaska Public Media explains, it would also “shift the state away from a direct reliance on oil revenue and the boom-and-bust cycle of oil prices.”

Now that the Governor has spoken out about an income tax, wild, erroneous claims about the economy-destroying nature of personal income taxes are surely on the way.  But the reality is that if Alaska can’t count on oil revenues to fund its schools and infrastructure, an income tax is the most equitable and sustainable option available. 


State Rundown 4/15: New Cuts and New Revenue


| | Bookmark and Share

Click Here to sign up to receive the 
State Rundown in your inbox.

SRLogo.jpg

Idaho legislators ended their session very early on Saturday morning without enacting a regressive flattening of the state’s income tax.  Instead, lawmakers agreed to simply raise the state’s gas tax by 7 cents (the first increase in 19 years) and boost vehicle registration fees by $21.  Unfortunately, the bill also redirects some general fund dollars away from other core public services to spend on roads and bridges instead—but that feature of the law will lapse after two years.  Assuming Governor Butch Otter signs this legislation, Idaho will become the 7th state to raise or reform its gas tax in 2015.

The Florida House passed a $690 million package of tax cuts last week that now awaits approval by the Senate. The package of cuts closely resembles the proposal floated by Gov. Rick Scott in January and includes a cut in the communications services tax as well as tax cuts targeted at “small businesses, college students, military veterans, farmers, gun clubs, school volunteers, high-tech research, widowed and disabled homeowners.” Dissenting legislators argued that the impact of the revenue losses from the tax cuts would outweigh the benefit for most Floridians.

Following Up:
Alaska: While proposals to institute an income tax face an uphill climb, Alaska’s revenue problems continue to worsen. The state’s oil production tax is set to produce the least amount of revenue in its four decade existence, and state senators voted to repeal the state’s film tax credit program to save money.  

States Starting Session This Week:
Louisiana (Monday)

States Ending Session This Week:
Maryland (Monday)

 


State Rundown 4/10: Positive Developments


| | Bookmark and Share

Click Here to sign up to receive the 
State Rundown in your inbox.

SRLogo.jpg

Momentum is building in California for the passage of a state Earned Income Tax Credit (EITC) for low-income workers. Two bills, Assembly Bill 43 and Senate Bill 38, would create a new, refundable state EITC. AB43 would provide a state credit equal to 15 percent of the federal credit for working families with children, and 60 percent of the federal credit for workers without children (the federal EITC for childless workers is significantly less generous than the credit for workers with children). AB43 would also provide a more generous EITC for working families with children under age 5, at 35 percent of the federal credit, in order to support children in their early development. SB38 does not include the provision for families with young children, but is more generous to childless workers; under this bill, families with children would receive 30 percent of the federal credit, while childless workers would receive 100 percent of the federal credit. An ITEP analysis finds that both bills would benefit a significant portion of working families and would improve outcomes for childless workers, who receive little support from other public benefit programs.

A bill in Alaska could impose a state income tax for the first time in 35 years. HB 182, sponsored by Rep. Paul Seaton, would introduce a state income tax equal to 15 percent of an individual’s federal income tax and would apply to some capital gains earnings as well. Seasonal workers would not be exempt from the tax, which Seaton projects would bring in $600 million annually. Revenues are an increasing concern in Alaska, which relies heavily on the volatile oil and gas industry to fund government services and has no state-level income, sales or property taxes. While the bill’s reception has been lukewarm, Rep. Seaton argued that the people should have a stake in funding government. He also argued that an income tax would be easier to collect than a sales tax. Another proposal from Rep. Click Bishop would institute an “education tax” of $100 on those making at least $10,000 a year, $200 for those making between $50,000 and $100,000 a year, and $500 for those making $500,000 or more.

 

Following Up:
Kansas: A new poll found that 69 percent of Kansans oppose using funds from the highway trust fund to close the state’s budget gap, and 95 percent said infrastructure investment should be a top priority. Gov. Brownback has proposed directing $2.1 billion from the transportation fund over 10 years to pay for his income tax cuts.

New Jersey: State newspapers have reported that Gov. Chris Christie’s privatization of the New Jersey lottery may have helped supporters of the governor. Gtech, the firm that operates the lottery, hired a law firm and a public relations company headed by men close to Christie to make the privatization deal happen. Gov. Christie privatized the state lottery over the objection of the state legislature and without a public bidding process.

Nevada: Legislators in the state Assembly advanced a plan out of committee that they say is an alternative to Gov. Brian Sandoval’s proposed expansion of the state’s business license fee. The Assembly plan would raise the rate of the Modified Business Tax (MBT) instead, from 1.17 percent to 1.56 percent. Proponents of this plan argue that it would be easier to calculate and a more predictable revenue stream, while opponents note that the MBT only covers 4 percent of state businesses and disproportionately falls on labor intensive companies.

 


The Best and Worst State Tax Policies of 2014


| | Bookmark and Share

2014. It was the best of times; it was the worst of times. Our position didn’t prevail in every state, but the cause of tax justice and fairness for working families made significant gains in a number of places. Below, the best and worst tax policies of the past year:

The Best

taxbusiness.jpg

Washington, DC takes the number one spot for enacting a progressive tax reform package this past summer. Unlike other jurisdictions that have used the guise of “reform” to cut taxes for the wealthy, the D.C. City Council cut the personal income tax rate for middle-class residents and expanded a number of provisions to assist working families, including the property tax circuit breaker and standard deduction. The council also expanded the city’s EITC for childless workers, one of the most effective strategies for lifting workers out of poverty and a longtime ITEP recommendation. The city partially paid for these reforms by broadening the sales tax base to include more services, limiting personal exemptions for better-off citizens, and making permanent its 8.95 percent income tax bracket on high-income earners.  Many additional changes are tied to revenue triggers, ensuring that the reform measures won’t wreck the city’s finances.

Washington Gov. Jay Inslee made sustainability and fairness the centerpiece of his 2015 budget proposal, announced this month. The proposal protects education spending and important services through a 7 percent capital gains tax on capital gains earnings above $25,000 per individual and $50,000 per couple. The governor also pledged to fund the state’s working families tax credit (the state’s Earned Income Tax Credit) through his proposed tax on carbon polluters, benefiting 450,000 Washington families. The proposal is the boldest by a Washington governor in some time.

Lawmakers in Minnesota and Maryland invested in provisions to give working families a lifeline. Minnesota expanded the property tax credit for homeowners and renters and increased the working family credit (the state’s EITC) and the dependent care credit. Maryland legislators expanded the refundable portion of the EITC, from 25 percent to 28 percent.

Alaska officials saw the light and decided to let their film tax credit expire five years early. The film tax credit has been notoriously ineffective in a number of states.

Vermont legislators increased homestead property taxes by 4 mills (cents per $100 of assessed value) and non-residential property taxes by 7.5 mills, while leaving rates unchanged for low and moderate-income taxpayers.

 

The Worst

Lawmakers in Wisconsin doubled down on their tax-cut fervor, reducing the bottom personal income tax rate from 4.4 percent to 4 percent and enacting another round of state-funded property tax cuts.

Voters in Tennessee permanently banned the state from enacting a broad-based personal income tax through a ballot measure that amends the state constitution, essentially tying the hands of future lawmakers and ensuring that the state’s tax system will remain among the most regressive in the nation.  Georgia voters approved an amendment to cap the state’s top personal income tax rate where it stands as of Jan. 1, 2015, which could lead to financial problems down the road and will prevent future Georgians from making needed investments.

Lawmakers in Missouri and Oklahoma enacted personal income tax cuts dependent on the state hitting revenue targets.  Oklahoma’s top personal income tax rate would drop from 5.25 to 4.85 percent while Missouri’s top income tax rate would drop from 6 to 5.5 percent; in Missouri, a new 25 percent exemption on pass-thru business income would be implemented.

Lawmakers in a number of jurisdictions – Washington, DC, Rhode Island, Maryland, Minnesota, and New York – increased the estate tax threshold, essentially giving the wealthiest residents in those states a huge, unnecessary tax break.

Florida lawmakers passed a hodgepodge of gimmicky sales tax holidays and exemptions for car seats, cement mixers, helmets, electricity bills, college meal plans and a host of legislator’s pet causes. The legislature also reduced the business franchise tax and cut motor vehicle fees, for a total of $500 million in lost revenue. 


State Rundown, Sept. 2: Big Oil Wins In Alaska, Hollywood Wins in California


| | Bookmark and Share

Palindrillcollage.jpgOil companies won big in Alaska with a narrow defeat of Ballot Measure 1, which would have repealed the generous regime of tax breaks the legislature gave to oil companies last year. The measure’s defeat was narrow even though those who oppose the measure outspent its proponents by 25 to 1, with BP alone contributing more than $3.5 million to defeat the measure. While the effort to repeal the tax was largely spearheaded by state Democrats, Ballot Measure 1 earned the strong endorsement of former Alaska Gov. Sarah Palin (R), who advocated returning to the oil tax regime that was set in place while she was governor.

Lawmakers in California have brokered a deal that would more than triple the state's film tax credits from $100 million to $330 million annually, thus providing a massive windfall to the state film industry. The move comes in spite of warnings from the state's non-partisan Legislative Analyst Office that it would only further aggravate the race to bottom among states vying for film production and recent studies showing that the economic and fiscal benefit of film production credits have been substantially overstated.  Rather than expanding the state's film tax credit, California should follow the lead of states such as North Carolina, Florida, New Mexico and others that have been backing off their credits. 

Policy Matters Ohio released a report last week that calls the state’s recent expansion of the EITC inadequate and “out of step with nearly all other state EITCs.” Only 3 percent of Ohio’s poorest workers will benefit from the expansion, which raises the state’s capped EITC from 5 percent to 10 percent of the federal EITC, and average additional saving is just $5. Ohio’s EITC credit is also non-refundable, meaning that it can only reduce tax liability, not be put toward a tax refund. Meanwhile, Ohio Governor John Kasich (R) has pledged to use the state’s budget surplus to enact more income tax cuts, rather than increasing support for working families.

In Iowa, gubernatorial candidate Jack Hatch continues to push for an increase in the gas tax to address funding shortfalls for improvements and repairs on the state’s roads and bridges. Under Hatch’s plan, the state gas tax would increase by 2 cents a year for five years. According to an ITEP report, the purchasing power of Iowa’s gas tax (adjusted for inflation) hit an all-time low this year. 

Finally, a new report from 12billion.org reveals that “airlines get state tax breaks on more than 12 billion gallons of jet fuel through obscure tax codes,” costing states over $1 billion in revenues every year. Thanks to the tax breaks, airlines pay effective fuel tax rates that are far lower than those paid by motorists; in California, car drivers pay an average of 50 cents in taxes per gallon of fuel, while airlines pay about 27 cents. 


States Can Make Tax Systems Fairer By Expanding or Enacting EITC


| | Bookmark and Share

On the heels of state Earned Income Tax Credit (EITC) expansions in Iowa, Maryland, and Minnesota and heated debates in Illinois and Ohio about their own credit expansions,  the Institute on Taxation and Economic Policy released a new report today, Improving Tax Fairness with a State Earned Income Tax Credit, which shows that expanding or enacting a refundable state EITC is one of the most effective and targeted ways for states to improve tax fairness.

It comes as no surprise to working families that most state’s tax systems are fundamentally unfair.  In fact, most low- and middle-income workers pay more of their income in state and local taxes than the highest income earners. Across the country, the lowest 20 percent of taxpayers pay an average effective state and local tax rate of 11.1 percent, nearly double the 5.6 percent tax rate paid by the top 1 percent of taxpayers.  But taxpayers don’t have to accept this fundamental unfairness and should look to the EITC.

Twenty-five states and the District of Columbia already have some version of a state EITC. Most state EITCs are based on some percentage of the federal EITC. The federal EITC was introduced in 1975 and provides targeted tax reductions to low-income workers to reward work and boost income. By all accounts, the federal EITC has been wildly successful, increasing workforce participation and helping 6.5 million Americans escape poverty in 2012, including 3.3 million children.

As discussed in the ITEP report, state lawmakers can take immediate steps to address the inherent unfairness of their tax code by introducing or expanding a refundable state EITC. For states without an EITC the first step should be to enact this important credit. The report recommends that if states currently have a non-refundable EITC, they should work to pass legislation to make the EITC refundable so that the EITC can work to offset all taxes paid by low income families. Advocates and lawmakers in states with EITCs should look to this report to understand how increasing the current percentage of their credit could help more families.

While it does cost revenue to expand or create a state EITC, such revenue could be raised by repealing tax breaks that benefit the wealthy which in turn would also improve the fairness of state tax systems.

Read the full report


Film Tax Credit Arms Race Continues


| | Bookmark and Share

Tax credits for the film industry are receiving serious attention in at least nine states right now. Alaska’s House Finance Committee cleared a bill this week that would repeal the state’s film tax credit, and Louisiana lawmakers are coming to grips with the significant amount of fraud that’s occurred as a result of their tax credit program. Unfortunately for taxpayers, however, the main trend at the moment is toward expanding film tax credits. North Carolina and Oklahoma are looking at whether to extend their film tax credits, both of which are scheduled to expire this year. And California, Florida, Maryland, Pennsylvania, and Virginia lawmakers are all discussing whether they should increase the number of tax credit dollars being given to filmmakers.

The best available evidence shows that film tax credits just aren’t producing enough economic benefits to justify their high cost. While some temporary, relatively low-wage jobs may be created as a result of these credits, the more highly compensated (and permanent) positions in the film industry are typically filled by out-of-state residents that work on productions all over the country, and the world. And with film tax credits having proliferated in recent years, lawmakers who want to lure filmmakers to their states with tax credits are having to offer increasingly generous incentives just to keep up.

Saying “no” to Hollywood can be a difficult thing for states, but here are a few examples of lawmakers and other stakeholders questioning the dubious merits of these credits within the last few weeks:

North Carolina State Rep. Mike Hager (R): “I think we can do a better job with that money somewhere else. We can do a better job putting in our infrastructure … We can do a better of job of giving it to our teachers or our Highway Patrol.”

Richmond Times Dispatch editorial board: [The alleged economic benefits of film tax credits] “did not hold up under scrutiny. Subsidy proponents inflated the gains from movie productions – for instance, by assuming every job at a catering company was created by the film, even if the caterer had been in business for years. The money from the subsidies often leaves the state in the pockets of out-of-state actors, crew, and investors. And they often subsidize productions that would have been filmed anyway.”

Oklahoma State Rep. James Lockhart (D): According to the Associated Press, Lockhart “said lawmakers were being asked to extend the rebate program when the state struggles to provide such basic services as park rangers for state parks.” “How else would you define pork-barrel spending?”

Alaska State Rep. Bill Stoltze (R): “Some good things have happened from this subsidy but the amount spent to create the ability for someone to be up here isn't justified. And it's a lot of money … Would they be here if the state wasn't propping them up?”

Sara Okos, Policy Director at the Commonwealth Institute: “How you spend your money reveals what your priorities are. By that measure, Virginia lawmakers would rather help Hollywood movie moguls make a profit than help low-wage working families make ends meet.”

Maryland Del. Eric G. Luedtke (D): Upon learning that Netflix’s “House of Cards” will cease filming in Maryland if lawmakers do not increase the state’s film tax credit: “This just keeps getting bigger and bigger … And my question is: When does it stop?”

Picture from Flickr Creative Commons


Quick Hits in State News: Cold Feet on Gas Tax Hikes, and More.


| | Bookmark and Share
  • Rising gas prices are making some politicians in Maryland, Michigan, and Iowa back away from courageous proposals to raise their states’ long stagnant gas tax rates.  Rather than lose momentum, lawmakers can enact legislation now that will implement a gas tax rate increase when prices begin to come down.
  • The Institute on Taxation and Economic Policy (ITEPtestified this week in front of Alaska’s Senate State Affairs Committee Regarding the Alaska Tax Break Transparency Act. The bill would mandate the state develop a tax expenditure report which would detail the tax breaks the state provides, along with the cost of each to taxpayers. Forty-five other states currently produce these reports which can ultimately help the public have a say in government spending.
  • Following up on our earlier post about New Mexico Governor Susana Martinez’s opportunity to sign legislation instituting combined reporting, the Governor vetoed SB9. Supporters of the bill designed it as a first step in reforming the state’s corporate tax laws and leveling the playing field for small, in-state business.
  • An Illinois Senate committee recently approved a new tax on strip clubs to help fund sexual assault prevention programs. This is the same state considering taxing ammunition to pay for medical trauma centers. Illinois has a history of bad budget gimmicks that are largely responsible for its current $9 billion deficit.

New Graphics: State Gas Taxes at Historic Lows, and Dropping


| | Bookmark and Share

There are few areas of policy where lawmakers’ shortsightedness is on display as fully as it is with the gasoline tax.  Now, with a series of twenty six new charts from the Institute on Taxation and Economic Policy (ITEP), you can see the impact of that shortsightedness in most states as shareable graphs.

Overall, state gas taxes are at historic lows, adjusted for inflation, and most states can expect further declines in the years ahead if lawmakers do not act.  Some states, including New Jersey, Iowa, Utah, Alabama, and Alaska, are levying their gas taxes at lower rates than at any time in their history.  Other states like Maryland, Oklahoma, Massachusetts, Missouri, Tennessee, Arkansas, and Wyoming will approach or surpass historic lows in the near future if their gas tax rates remain unchanged and inflation continues as expected.

These findings build on a 50-state report from ITEP released last month, called Building a Better Gas Tax.  ITEP found that 36 states levy a “fixed-rate” gas tax totally unprepared for the inevitable impact of inflation, and twenty two of those states have gone fifteen years or more without raising their gas taxes.  All told, the states are losing over $10 billion in transportation revenue each year that would have been collected if lawmakers had simply planned for inflation the last time they raised their state gas tax rates.

View the charts here, and read Building a Better Gas Tax here.

Note for policy wonks: Charts were only made in twenty six states because the other twenty four do not publish sufficient historical data on their gas tax rates.  It’s also worth noting that these charts aren’t perfectly apples-to-apples with the Building a Better Gas Tax report, because that report examined the effect of construction cost inflation, whereas these charts had to rely on the general inflation rate (CPI) because most construction cost data only goes back to the 1970’s.  Even with that caveat in mind, these charts provide an important long-term look at state gas taxes, and yet another way of analyzing the same glaring problem.

Example:


Mercatus Center Misses the Mark with "Simple" Tax Index


| | Bookmark and Share

The Mercatus Center, a think tank run by “America’s Hottest Economist,” has attempted to quantify the level of “freedom” enjoyed within each state.  If this sounds impossible, that’s because it is.  A quick look at the “taxes” component of each state’s “freedom score” should make this very clear.

According to the Center, freedom requires that “individuals should be allowed to dispose of their lives, liberties, and properties as they see fit, as long as they do not infringe on the rights of others.”  This, according to the study, requires “a deep distrust of taxation.”

In order to measure the impact of taxes on freedom, the Center does what it correctly describes as a “simple” calculation: it tallies up the size of all tax revenues (with a few exceptions) as a share of the state’s economy.  Basically, more tax revenue means less freedom under the authors’ assumptions — and taxes account for about 10 percent of each state’s overall “freedom score.”  But as everybody outside the Mercatus Center knows, taxes are never this simple.

For starters, states routinely use their tax codes to encourage (and discourage) a huge range of decisions that affect our day-to-day lives.  Most states, for example, offer strings-attached tax incentives designed to spur specific companies into building factories within their borders.  Under the Mercatus Center’s assumptions, a state that uses its tax code to subsidize private sector construction will actually score better on the “freedom” index than an otherwise identical state, simply because the subsidy cuts into its revenue collections.  In reality, however, a state without the subsidy offers a freer and more level playing field with “unhampered markets,” as the authors put it.

Of course, factory construction isn’t the only area where the government tries to manipulate behavior with special breaks.  States offer special tax breaks for everything from competing in a livestock show to purchasing binoculars — each of which the Mercatus Center’s calculations would classify as “freedom enhancing.”

Taxes can also affect freedom in unintentional ways.  For example, a handful of states have placed caps on the rate at which a homeowner’s property tax bill can grow each year.  These tax caps result in huge tax cuts for many homeowners, especially those that have lived in their homes for many years.  Obviously, under the Mercatus Center’s assumptions, these caps are big freedom enhancers.  In reality, however, the opposite is true.

An article in the March 2011 edition of the National Tax Journal showed what anecdotes from homeowners have always suggested: these caps result in a “lock-in effect” where residents are either unable or unwilling to leave their homes, out of fear of losing the tax savings they’ve accumulated over many years.  “Locking” residents into their homes with convoluted property tax breaks is hardly the definition of a free society.  But don’t count on the Mercatus Center’s “freedom index” being able to capture these types of nuanced, but vitally important implications of state tax policies.

Finally, it’s worth noting that the Mercatus index also falls short in its failure to examine who pays taxes.   This is most obvious in the 48th and 49th place fiscal policy rankings received by Hawaii and Alaska, respectively. 

Hawaii’s sales and excise tax revenues are very robust, in large part because of the huge quantities of hotel rooms, car rentals, tours, and souvenirs that are sold to out-of-state tourists.  Similarly, a significant amount of Alaska’s tax revenue (even excluding severance taxes, which the study omits) comes from multinational oil companies. 

In each of these states, many tax dollars flow into state coffers from outside the state — and while every one of those dollars sinks the state lower in the Mercatus “freedom index,” it has little if any impact on the freedom of anybody living within those states’ borders.  For this reason alone, readers should hesitate before taking the authors’ advice that “individuals can use the data to plan a move or retirement.”

At the end of the day, how taxes are collected is equally if not more important than how much taxes are collected.  Economists recognized this a long time ago when they discovered the tax policy principle of “neutrality,”  which basically means that tax systems should interfere with our decisions as little as possible.  A tax system that doesn’t generate much revenue can still reduce our freedom in important ways if it’s applied in a narrow and discriminatory fashion.  Anybody interested in enhancing freedom through tax reform should be focused on the plethora of special breaks contained in state systems — not the overall revenue yield of those systems.


Conservatives Slam Sarah Palin for Taking Government Handout She Enacted


| | Bookmark and Share

A slew of conservative commentators took aim this week at Sarah Palin for her acceptance of a $1.2 million film tax credit that she herself signed into law in Alaska for the production of the TLC reality show “Sarah Palin’s Alaska.”

The Tax Foundation, for example, pointed out in a short blog post that accepting this substantial government subsidy (worth about a third of the production costs) may not square with Palin’s own small-government ideology.

Timothy Carney went further in the conservative Washington Examiner, saying that “Palin's views on the proper role of government becomes more flexible as it comes closer to her own interests.”

Jim Geraghty, a commentator for the conservative National Review added that there is little doubt that there is a contradiction between supporting government funding for reality shows while at the same time advocating against funding of PBS, NPR, and the National Endowment for the Arts.

For her part, Palin argued in a response posted in full on the conservative Daily Caller that there was no conflict of interest because she had no idea when signing the legislation that she would benefit from it years later. She added that the subsidy does not contradict her small government philosophy because she has apparently always argued that “government can play an appropriate role in incentivizing business,” instead of “bureaucrats burdening businesses and picking winners and losers.”

As the Tax Foundation, the Center on Budget and Policy Priorities, and others have pointed out, however, film tax credits are both a horrible way of "incentivizing business," and a perfect example of government picking the film industry as a winner, while making most other taxpayers losers by default.

Furthermore, Palin's decision to enact the film tax credit in the first place shows how out of whack her priorities were as the Governor of Alaska. Perhaps the $1.2 million dollars from the film tax credit she just received could have been better spent restoring the $1.1 million in cuts to emergency programs serving troubled youths that she also made in 2008, for example.


Mining and Oil Lobbyists Extracting Major Benefits from States


| | Bookmark and Share

We've noted before that lobbyists for extractive industries extract billions of dollars out of taxpayer pockets through special tax loopholes and subsidies at the federal level. Unfortunately, this is true at the state level as well. Even when states face unprecedented budget shortfalls and are considering harsh spending cuts, petroleum and mining lobbyists are working hard to preserve and expand their tax subsidies.

One particularly egregious example is Nevada's Barrick and Newmont mining companies, which produce 90 percent of the gold in Nevada, worth over $500 million dollars. Recently, neither company reported any taxable income from their mines.

Interestingly, a Nevada State Tax Director recently admitted that the state has not even audited the industry for at least two years — and then entered into an ‘abrupt’ retirement.

Some legislators are proposing to limit tax deductions for mines to raise hundreds of millions of dollars. But Governor Brian Sandoval opposes the measure and it looks like proponents will not be able to overcome his veto.

In Alaska, oil industry lobbyists have found a friend in Republican Governor Sean Parnell, who is seeking to cut oil taxes and increase subsidies by at least $1.8 billion a year.

Governor Parnell says this will spur "investment" in the state. But the whole point of the tax is to ensure that oil profits result in investment in the state. As Democratic State Senator Bill Wielechowski explains, without the oil taxes, companies would take the billions in profits produced in Alaska and invest them in places like Venezuela or Ecuador. 

The new oil tax cuts do not come as a surprise to Democratic State Representative Les Gara, who contends that petroleum company representatives played a direct role in crafting the Governor’s legislation.

North Dakota seemed to have resisted extraction lobbyists when the State House rejected a measure strongly promoted by the energy industry. The state's current oil extraction tax is automatically reduced when the price of oil falls below $50 a barrel. The proposed measure would scrap that rule and instead reduce the tax as production increases.

Republican Majority Leader Al Carlson tried to ressurect the measure by sneaking the language into another oil bill without a proper hearing.

The Grand Forks Herald editorialized that the legislature must study the effect of the measure through a “neutral source” rather than relying on the “self-interested arguments from the oil industry.” Fortunately, the measure is being held up in the Senate, which will likely guarantee that the public will get to review the changes the energy industry is proposing.


State Transparency Report Card and Other Resources Released


| | Bookmark and Share

Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.


New 50 State ITEP Report Released: State Tax Policies CAN Help Reduce Poverty


| | Bookmark and Share

ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.


Gubernatorial Candidates in Idaho, Minnesota, and Alaska Are Talking Taxes


| | Bookmark and Share

Candidates for governor in Idaho have been debating the appropriate scope of the state sales tax base, while the debate in Minnesota has focused more on issues of progressivity.  In Alaska, the bandwagon in favor of cutting taxes to “create jobs” continues to gain speed.

Idaho: Recent polling shows that 48 percent of Idahoans would support raising taxes to avoid cuts in education spending, while only 38 percent would oppose taking that route.  With this new information in hand, both Democratic gubernatorial candidate Keith Allred and Republican incumbent Butch Otter may want to rethink their positions on sales tax reform. 

Governor Otter insists that Idaho’s plethora of sales tax exemptions are vital to businesses in the state and should be left intact, while candidate Allred claims that a huge number of these breaks are politically motivated giveaways that should be eliminated to pay for a reduction in the sales tax rate.  While Allred’s opposition to sales tax exemptions is encouraging, his insistence that every dollar raised be used to lower the sales tax rate (as opposed to using some of it to boost education spending) is more than a little disappointing.

Minnesota: Minnesota’s legislature has known for some of the time that the state is in need of progressive tax changes.  Unfortunately, the veto pen of Governor Tim Pawlenty has so far been able to prevent any progress on this issue.  With Pawlenty finally on his way out of office, Democratic-Farmer-Labor (DFL) candidate Mark Dayton has made clear that he would take Minnesota in a different direction, if elected, by vigorously supporting progressive tax reform.  More specifically, in a debate last week Dayton reemphasized his support for a higher tax bracket on the state’s wealthiest residents. 

Republican candidate Tom Emmer, in contrast, repeated the same tired line about using tax cuts to boost economic growth.  But as Dayton pointed out during the debate, the League of Minnesota Cities actually found that candidate Emmer’s proposal to cut both taxes and spending would result in higher local property taxes.

Alaska: When it comes to taxes, there aren’t many choices on the Alaska ballot.  Democratic candidate Ethan Berkowitz recently proposed an almost $40 million cut in the state’s corporate income tax, which according to the Anchorage Daily News, Berkowitz claims he would pay for by doling out even more corporate welfare through tax credits that could allegedly boost the state’s economy.  Rather than criticize Berkowitz’s proposal or offer an alternative, Republican Sean Parnell’s campaign has taken the position that Berkowitz is lying, and that if elected Berkowitz would in fact do everything within his power to raise both taxes and spending.

And then there were seven.  With the enactment of a tax expenditure reporting requirement in Georgia late last week, only seven states in the entire country continue to refuse to publish a tax expenditure report — i.e. a report identifying the plethora of special breaks buried within these states’ tax codes.  For the record, the states that are continuing to drag their feet are: Alabama, Alaska, Indiana, Nevada, New Mexico, South Dakota, and Wyoming

But while the passage of this common sense reform in Georgia is truly exciting news, the version of the legislation that Governor Perdue ultimately signed was watered down significantly from the more robust requirement that had passed the Senate.  This chain of events mirrors recent developments in Virginia, where legislation that would have greatly enhanced that state’s existing tax expenditure report met a similar fate. 

In more encouraging news, however, legislation related to the disclosure of additional tax expenditure information in Massachusetts and Oklahoma seems to have a real chance of passage this year.

In Georgia, the major news is the Governor’s signing of SB 206 last Thursday.  While this would be great news in any state, it’s especially welcome in Georgia, where terrible tax policy has so far been the norm this year. 

SB 206 requires that the Governor’s budget include a tax expenditure report covering all taxes collected by the state’s Department of Revenue.  The report will include cost estimates for the previous, current, and future fiscal years, as well as information on where to find the tax expenditures in the state’s statutes, and the dates that each provision was enacted and implemented. 

Needless to say, this addition to the state’s budget document will greatly enhance lawmakers’ ability to make informed decisions about Georgia’s tax code. 

But as great as SB 206 is, the version that originally passed the Senate was even better.  Under that legislation, analyses of the purpose, effectiveness, distribution, and administrative issues surrounding each tax expenditure would have been required as well.  These requirements (which are, coincidentally, quite similar to those included in New Jersey’s recently enacted but poorly implemented legislation) would have bolstered the value of the report even further.

In Virginia, the story is fairly similar.  While Virginia does technically have a tax expenditure report, it focuses on only a small number of sales tax expenditures and leaves the vast majority of the state’s tax code completely unexamined.  Fortunately, the non-profit Commonwealth Institute has produced a report providing revenue estimates for many tax expenditures available in the state, but it’s long past time for the state to begin conducting such analyses itself.  HB355 — as originally introduced by Delegate David Englin — would have created an outstanding tax expenditure report that revealed not only each tax expenditure’s size, but also its effectiveness and distributional consequences. 

Unfortunately, the legislation was greatly watered down before arriving on the Governor’s desk.  While the legislation, which the Governor signed last month, will provide some additional information on corporate tax expenditures in the state, it lacks any requirement to disclose the names of companies receiving tax benefits, the number of jobs created as a result of the benefits, and other relevant performance information.  The details of HB355 can be found using the search bar on the Virginia General Assembly’s website.

The Massachusetts legislature, by contrast, recently passed legislation disclosing the names of corporate tax credit recipients.  While these names are already disclosed for many tax credits offered in the state, the Department of Revenue has resisted making such information public for those credits under its jurisdiction. 

While most business groups have predictably resisted the measure, the Medical Device Industry Council has basically shrugged its shoulders and admitted that it probably makes sense to disclose this information.  Unfortunately, a Senate provision that would have required the reporting of information regarding the jobs created by these credits was dropped before the legislation passed.

Finally, in Oklahoma, the House recently passed a measure requiring the identities of tax credit recipients to be posted on an existing website designed to disclose state spending information.  If ultimately enacted, the information will be made available in a useful, searchable format beginning in 2011.


New Jersey Finally Joins Majority of States Producing Tax Expenditure Reports


| | Bookmark and Share

Until this week, New Jersey was one of just nine states refusing to publish a tax expenditure report – i.e. a listing and measurement of the special tax breaks offered in the state.  Such reports greatly enhance the transparency of state budgets by allowing policymakers and the public to see how the tax system is being used to accomplish various policy objectives. 

Now, with Governor Jon Corzine’s signing of A. 2139 this past Tuesday, New Jersey will finally begin to make use of this extremely valuable tool.  Beginning with Governor-elect Chris Christie’s FY2011 budget, to be released in March, the New Jersey Governor’s budget proposal now must include a tax expenditure report.  The report must be updated each year, and is required to include quite a few very useful pieces of information.

The report must, among other things:

(1) List each state tax expenditure and its objective;
(2) Estimate the revenue lost as a result of the expenditure (for the previous, current, and upcoming fiscal years);
(3) Analyze the groups of persons, corporations, and other entities benefiting from the expenditure;
(4) Evaluate the effect of the expenditure on tax fairness;
(5) Discuss the associated administrative costs;
(6) Determine whether each tax expenditure has been effective in achieving its purpose.

The last criterion listed above is of particular importance.  Evaluations of tax expenditure effectiveness are extremely valuable since these programs so often escape scrutiny in the ordinary budgeting and policy processes.  Such evaluation can be quite daunting, however, and the Governor’s upcoming tax expenditure report should be carefully scrutinized in order to ensure that these evaluations are sufficiently rigorous.  One example of the types of criteria that could be used in a rigorous tax expenditure evaluation can be found in the study mandated by the “tax extenders” package that recently passed the U.S. House of Representatives.  For more on the importance of tax expenditure evaluations, and the components of a useful evaluation, see CTJ’s November 2009 report, Judging Tax Expenditures.

Ultimately, New Jersey’s addition to the list of states releasing tax expenditure reports means that only eight states now fail to produce such a report.  Those states are: Alabama, Alaska, Georgia, Indiana, Nevada, New Mexico, South Dakota, and Wyoming.  Each of these states should follow New Jersey’s lead.


ITEP's "Who Pays?" Report Renews Focus on Tax Fairness Across the Nation


| | Bookmark and Share

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.


CBPP Report on Tax Expenditure Reporting Encourages Smarter Thinking About Special Tax Breaks


| | Bookmark and Share

The Center on Budget and Policy Priorities recently released a very useful report summarizing tax expenditure reporting practices in the states, as well as methods for improving a typical state's tax expenditure report. For those unfamiliar with the term, a "tax expenditure" is essentially a special tax break designed to encourage a particular activity or reward a particular group of taxpayers. Although tax expenditures can in some cases be an effective means of accomplishing worthwhile goals, they are also frequently enacted only to satisfy a particular political constituency, or to allow policymakers to "take action" on an issue while simultaneously being able to reap the political benefits associated with cutting taxes.

Tax expenditure reports are the primary means by which states (and the federal government) keep track of these provisions. Unfortunately, most if not all of these reports are plagued by a variety of inadequacies, such as failing to consider entire groups of tax expenditures, or not providing frequent and accurate revenue estimates for these often costly provisions. Shockingly, the CBPP found that nine states publish no tax expenditure report at all. Those nine states Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, South Dakota, and Wyoming, undoubtedly have the most work to do on this issue. All states, however, have substantial room for improvement in their tax expenditure reporting practices.

For a brief overview of tax expenditure reports and the tax expenditure concept more generally, check out this ITEP Policy Brief.


Government Needs to be Paid for - Even on the Last Frontier


| | Bookmark and Share

Alaskan voters approved an initiative to increase tax revenues by charging a $50 "cruise tax". In the wake of Alaska's recent troubles with oil revenues, it's no surprise that voters decided to bolster public coffers and stabilize long-term revenue with an additional tax source. It appears that voters took a lesson from their recent oil revenue troubles: diversity is good.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog, http://www.justtaxesblog.org/

Sign Up for Email Digest

CTJ Social Media


ITEP Social Media


Categories