Idaho News


State Rundown 3/8: Much Ado About Consumption Taxes


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This week brings more news of states considering reforms to their consumption taxes, on everything from gasoline in South Carolina and Tennessee, to marijuana in Pennsylvania, to groceries in Idaho and Utah, and to practically everything in West Virginia. Meanwhile, the fiscal fallout of Kansas's failed ‘tax experiment’ has new consequences as the state’s Supreme Court found the state is unconstitutionally underfunding public schools. Make sure to check out our "What We're Reading" section, which is chock full this week with recent research on Earned Income Tax Credits, state and local responses to budget woes and federal uncertainty, and more.

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

  • Legislative attempts in West Virginia to restructure the state’s tax system, replacing the state’s personal income, corporate income, and sales and use taxes with an 8 percent general consumption tax, are expected to cost at least $610 million a year as currently structured. The state’s fiscal note warns of potential unintended consequences of the tax shift, such as increased taxes on business inputs and consumers evading the higher tax rate on goods and services. That being said, the state is looking for ways to move forward with income tax repeal.
  • Kansas lawmakers return from recess with the added pressure to enact substantive tax reform due to a state Supreme Court ruling that the state is not adequately investing in public education. The state has until June 30 to present a satisfactory plan. As lawmakers continue to work on tax reform, the Senate has clearly indicated that Gov. Brownback's proposals will not be in the mix.
  • Tennessee Gov. Bill Haslam's "IMPROVE Act," which combined a needed gas tax update to generate revenue for roads with an unneeded package of tax cuts, may be falling apart. A subcommittee this week replaced the gas tax component of the bill with a sales tax redirection that essentially raids the state's general fund budget for the money needed for roads, while also cutting taxes that go into the general fund. Gov. Haslam is still pushing to get the gas tax provision of the bill restored. Polls show public opinion on the plan is mixed, though more informed respondents are more supportive.
  • South Carolina is setting a better example for what to do when a gas tax falls far behind the times and is no longer bringing in adequate revenue for the state's infrastructure costs, as the House voted this week to approve raising the rate by 10 cents over five years without tacking on other tax cuts or siphoning off funding from other priorities. The Senate may begin debate on the bill next week, though a filibuster attempt is expected.
  • Pennsylvania's auditor general suggests the state consider regulating and taxing marijuana to close its budget gap. By doing so, the state could bring in $200 million a year.
  • West Virginia's Gov. Jim Justice weighs a state tax on sugary sodas as companies in Pennsylvania (namely, Pepsi) fight against Philadelphia's recent tax increase.
  • Lawmakers in Idaho are hoping to get a hearing on a bill that would eliminate the sales tax on food along with the state's grocery tax credit. Efforts to do the reverse in Utahreinstate the sales tax on food and enact offsetting tax credits for low-income households—will have to wait for another legislative session.
  • It's potentially a big season for sales and excise tax policy in New Mexico. Amazon will start collecting sales taxes in April, the Senate passed a bill that would raise the gas tax for the first time in 20 years, and lawmakers are considering a $1.50 per pack increase on cigarettes to fund education.
  • More than three-fourths of Florida residents polled are against a proposed corporate tax cut, preferring to keep the tax and devote the revenue to education. Of course, that didn't stop Gov. Scott from proposing more tax cuts in his annual address.
  • Despite the state's $1.7 billion projected deficit, democratic lawmakers in Connecticut are lining up in support of a full exemption of social security income. The plan is expected to cost $45 million a year.

 Governors' State of the State Addresses

  • Governor Scott of Florida gave his address on Tuesday. Most governors have now given their addresses for the year. The next scheduled address is Gov. Kasich of Ohio on April 4, with Gov. Carney of Delaware and Gov. Cooper of North Carolina's speech dates still to be announced.

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.


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


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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.


State Rundown 2/8: Lessons of Kansas Tax-Cut Disaster Taking Hold in Kansas, Still Lost on Some in Other States


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This week we bring news of Kansas lawmakers attempting to fix ill-advised tax cuts that have wreaked havoc on the state's budget and schools, while their counterparts in Nebraska and Idaho debate bills that would create similar problems for their own states, as well as tax cuts in Arkansas that were proven unaffordable within one day of being signed into law. Meanwhile, debates over online sales taxes, Earned Income Tax Credits, and gas tax updates to fund transportation needs continue around the country.

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

  • Kansas lawmakers in both chambers are considering bills this week to roll back Gov. Sam Brownback’s tax cuts primarily via reforming the personal income tax, including repealing the exemption for business pass-through income and raising personal income tax rates in the Senate and a more comprehensive tax reform plan in the House.
  • Nebraska's Revenue Committee will conduct a hearing on Gov. Rickett's proposal to use a trigger mechanism to cut income taxes for the state's wealthiest residents this week. Last week, the committee was presented with two alternatives to slashing taxes on the rich by instead increasing the state's Earned Income Tax Credit.
  • Idaho lawmakers in the House passed bills cutting the corporate and top personal income tax rates and raising the exemption levels for the business personal property tax. The bill faces an uncertain future in the Senate.
  • Alabama lawmakers joined the list of states looking to cut income taxes this year.   
  • Arkansas Gov. Asa Hutchinson signed his $50.5 million tax cut  into law last Wednesday. The following day, the governor told several agencies to prepare contingency plans for budget cuts as the latest revenue reports came in $57 million behind forecast.
  • The Mississippi House has advanced a bill to enforce sales tax collection on online sales and divvy up the revenue with 70 percent going to state roads and other needs, 15 percent to counties, and 15 percent to cities. The need for such a fix is highlighted by the fact that even though Amazon is now collecting sales taxes on its own transactions in the state, many transactions hosted by the site are still not covered. Meanwhile, Tennessee's rule to require such collections has been challenged, adding to the pressure for a new court ruling on the matter.
  • Michigan lawmakers are considering bills to eliminate the sales tax on feminine hygiene products.
  • Wisconsin Gov. Scott Walker has proposed increasing the state's Earned Income Tax Credit for families with one child. Walker decreased the credit six years ago.
  • Wyoming lawmakers are faced with the need to diversify their tax base. Some have already begun considering revenue options: the House recently passed a cigarette tax increase that would increase a pack of cigarettes from $0.60/pack to $0.90/pack.
  • State legislators in both New York and Pennsylvania are pushing back against recent local tax initiatives: the New York City bag tax and the Philadelphia soda tax.
  • A proposal to update the South Carolina gas tax, raising $600 million per year for the state's transportation needs through a 10-cent per gallon increase and other fee changes, has advanced from the House Ways and Means Committee.
  • Tennessee Gov. Haslam's proposal to raise the state's gas tax while slashing other taxes has received criticism lately, as has an alternative plan to divert sales tax revenues away from general fund needs to plug the hole in the transportation fund.
  • Missouri private school advocates are pushing a bill to circumvent the state's prohibition on state money funding religious schools by creating a tax credit for donations to private schools. Read about how these programs are costly and frequently abused in our report here.

Governors’ Budget Watch

  • Faced with an $868 million shortfall, Oklahoma's Gov. Mary Fallin delivered her state of the state address this week. Proposed tax changes include replacing the state corporate income tax with increases in fuel, tobacco, and sales taxes. While details of the sales tax base broadening have not been released, Fallin has called for elimination of the state sales tax on groceries.
  • Pennsylvania Gov. Tom Wolf released his budget proposal this week. As he promised, it was void of any broad-based tax increases. Rather, state spending cuts and a proposal to tax natural-gas drilling are among the ways in which he plans to fill the state's $3 billion shortfall.
  • Today Connecticut Gov. Dannel Malloy is scheduled to unveil his two-year budget proposal. Faced with a $1.7 billion deficit, the plan will likely include a call to eliminate the state's $200 property tax credit and a requirement for cities and towns to pay a third of the annual cost for teacher pensions.
  • Alabama Gov. Bentley proposed studying and ultimately eliminating the state sales tax on groceries, increasing prison construction to deal with overcrowding, and increasing the state's investment in pre-K education in his address this week.

Governors' State of the State Addresses

  • In the past week, Governors Bentley of Alabama, LePage of Maine, Fallin of Oklahoma, and Wolf of Pennsylvania delivered their State of the State addresses.
  • States with addresses scheduled through the end of next week are: Kentucky and West Virginia, both scheduled for today.

What We're Reading...

  • As the Center on Budget and Policy Priorities (CBPP) details in two new reports, state lawmakers are increasingly turning to tax cut phase-ins and triggers as ways to take credit for cutting taxes without having to face the full consequences for years, decades, or in the case of term-limited lawmakers, maybe never.
  • A new report by Ohio Policy Matters uses ITEP research to dig into Gov. John Kasich's tax plan, finding that it would, once again, shift taxes and worsen inequality.
  • Pew Trusts explores the various reasons behind declining state populations in recent years.
  • The Kentucky Center for Economic Policy released a report that provides an overview on how refugees and immigrants are important to the state's economy.
  • The Georgia Budget and Policy Center released two reports showing the importance of immigrants to Georgia's state and local economies and budgets.

 

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.


State Rundown 2/1: 2017 State Tax Debates Getting Real


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This week's Rundown brings news of tax cuts passed in Arkansas and advanced in Idaho, proposals to exempt feminine hygiene products from sales taxes in Nevada and Michigan, revenue shortfalls forcing tough choices in Louisiana and Maine, and more governors' state of the state addresses and budget proposals setting the stage for yet more tax and budget debates to come.

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

  • Arkansas lawmakers passed Gov. Hutchinson's $50 million tax cut bill. While sold as a tax cut for workers earning less than $21,000 per year, ITEP analysis found that just under half of the value of the tax cut would benefit taxpayers in the top 40 percent (with the other half going to the bottom 60 percent as advertised). Lawmakers also passed a tax cut for military veterans, exempting retirement benefits—along with a tax break for the soda industry paid for by expanding the sales tax to manufactured housing, some digital goods, soft drinks, and candy.
  • Louisiana lawmakers will meet in special session Feb. 13 to 23 to address a midyear deficit of more than $314 million. With tax increases off the table, expect cuts, rainy day fund spending, shifting costs to next year, and possible fee increases to balance the budget. Lawmakers will debate tax measures, such as those recommended in the recently released final report of The Task Force on Structural Changes in Budget and Tax Policy, during the regular legislative session starting in April.
  • Nevada's ongoing debate over its property tax cap demonstrates how unhelpful and shortsighted such caps can be. To reduce property tax increases during the mid-2000s housing boom, the state installed property tax caps that now are now causing major problems for schools and other local governments, whose funding "won't reach pre-recession levels for a generation" if something isn't done.
  • Nevada lawmakers will also consider proposals to create sales tax exemptions for feminine hygiene products and diapers. Lawmakers in Michigan also have introduced similar legislation.
  • Idaho lawmakers are advancing two tax cut proposals—cutting the top personal income tax and corporate income tax rates, as well as increasing the exemption on the businesses personal property tax. An ITEP analysis of the bills found that the top 5 percent of taxpayers would receive two-thirds of the benefit.
  • Nebraska lawmakers have a proposal to require online retailers to collect sales taxes due on purchases in the state, though one legislator is hoping to co-opt the idea by using the revenue to fund a tax cut for the wealthy.
  • Efforts to enforce tax collection for online sales are also advancing in South Carolina, Minnesota, and Indiana. Utah lawmakers will take up the issue again this year, with the threat of competing tax initiatives to fund public education creating higher pressure for action.
  • Several legislators in Maryland are attempting to make it the next state to legalize and tax marijuana.
  • Oregon lawmakers face stark choices with a $1.8 billion deficit demanding drastic cuts or significant tax increases. The latter faces an uphill battle given supermajority legislative requirements, Republican demands for cutting public employee retirement benefits, and potential challenge via referendum.
  • Florida Gov. Scott's tax cut package this year includes an expansion of the state's back-to-school sales tax holiday, which, as we've written here, is a nice-sounding but not-very-effective way of helping working families.

Budget Watch

  • Ohio's Gov. John Kasich released his final two-year budget this week, which includes a proposal to shift a significant amount of tax revenue away from personal income taxes and onto consumption taxes.  His personal income tax plan would flatten the personal income tax (reducing the number of brackets), cut rates, and increase the personal exemption for low- and moderate-income taxpayers at a full cost of well more than $1 billion annually.  But, he would raise almost an equivalent amount in revenue from sales, cigarette, alcohol, and severance taxes. Ohio Policy Matters take is that the proposed budget focuses on a tax shift, shortchanging key programs. 
  • Tennessee Gov. Haslam released the final budget proposal of his term Monday. With revenues performing strongly but infrastructure needs growing, the budget includes funding increases for basic education, teacher and state employee pay increases, higher education building maintenance and construction, and a proposal to raise the state's outdated gas tax but offset the increase with tax cuts for wealthy Tennesseans.
  • Florida Gov. Scott unveiled details of his budget proposal Tuesday. His spending plan includes public-safety pay increases but budget cuts to public defenders, and relies on expected property value increases to improve school funding. It includes a tax-cut package, similar to a failed proposal last year, composed mostly of business tax cuts and sales tax holidays.

Governors' State of the State Addresses

  • In the past week, Governors Rauner of Illinois, Hogan of Maryland, Haslam of Tennessee, Abbott of Texas, and Herbert of Utah delivered their State of the State addresses.
  • States with addresses scheduled through the end of next week are: Oklahoma on Monday; Alabama, Maine, and Pennsylvania on Tuesday; and Kentucky on Wednesday.

What We're Reading...

  • Governing reviews the fiscal pros and cons of self-driving cars, which are expected to be a net benefit to state and local budgets once accounting for reduced spending on things like road maintenance and traffic stops, increased property tax revenue thanks to less need for parking garages, and reduced revenues from fuel taxes, registration and license fees, and parking and speeding fines -- not to mention reduced traffic injuries and deaths.
  • The troubled "Kansas experiment" goes to Washington.
  • Governors and legislatures are attempting to nullify voter-approved referenda on a host of issues from ethics reforms in South Dakota to minimum wage increases in Arizona and Maine.

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.


Surveying State Tax Policy Changes Thus Far in 2016


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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 3/28: All's Well That Ends Well


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Thanks for reading the State Rundown! Here's a sneak peek: Georgia and Idaho lawmakers say no to income tax cuts. The Vermont House passes a budget and tax package. Maryland's Senate fails to move on manufacturing tax cuts. Nebraska's legislature advances the governor's property tax proposal with amendments.

– Carl Davis, ITEP Research Director

Georgia lawmakers ended their legislative session last week without passing a regressive package of income tax cuts. The Senate had passed two bills that together would have cut the top state income tax rate by more than 10 percent, but the House never took the bills up after Gov. Nathan Deal refused to support them. Deal argued that the cutting the income tax, the state's largest revenue generator, would lead credit agencies to downgrade Georgia's AAA bond rating. An ITEP analysis also revealed (PDF) that over half the cuts would have gone to the top one-fifth of Georgia earners.

Idaho lawmakers rejected a lopsided income tax cut of their own last week. On Friday the state legislature adjourned without passing any reductions to the state's graduated income tax rates. Earlier this year an ITEP analysis of one such proposal revealed that while most Idahoans would have seen their taxes fall by $35 or less under the plan, high-income households would have received a benefit of over $800. Ultimately, the legislature prioritized enhanced funding for education over tax cuts.

The Vermont House passed a package of budget and tax bills for FY 2017 last week, sending the state budget to their colleagues in the Senate for consideration. The $5.77 billion budget includes investments in the state college system, access to child care, and community health services. Lawmakers passed a 3.3 percent provider tax on ambulance agencies to pay for an increase in reimbursement rates for ambulance services under Medicaid. An effort to impose a 92 percent tax on e-cigarettes passed out of committee but died on the floor.

Efforts to create tax incentives for manufacturers in Maryland failed this session despite backing from the governor and senior legislators. SB 181, sponsored by Sen. Roger Manno, and SB 386, championed by Gov. Larry Hogan, would have established Manufacturing Development Zones. Under the bills, new manufacturers who located in the zones would pay no corporate income tax and new employees earning less than $65,000 would pay no personal income tax for a designated period of time. New manufacturers could also apply to counties for a property tax waiver. Hogan's bill would have applied only to poorer jurisdictions, while Manno's measure would have been piloted in seven counties. Both bills failed to move out of the Senate Budget and Taxation Committee after established manufacturers complained the provisions would hurt their business.

Nebraska Gov. Pete Ricketts' plan to cut property taxes got a boost this week when an overhauled version passed the Revenue Committee on a unanimous vote. The proposal would increase property tax credits for farm and ranchland owners by $30 million next fiscal year. The bill has received criticism from both sides. Organizations representing farmers and rural interests said the bill doesn’t go far enough, while Renee Fry of the OpenSky Policy Institute (and ITEP's Board of Directors) warned that it would reduce state revenues and hamper education funding.

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. 


State Rundown 2/5: Three Revenue Raisers and A Tax Cut


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Today we are taking a look at revenue raising proposals in New York and Oregon, fast-moving tax cuts in Idaho (with some ITEP numbers), and highlighting the impact of state tax cuts on local governments in Ohio. Have a great weekend!


As always, thanks for reading.
-- Meg Wiehe, ITEP's State Tax Policy Director

A local official in Ohio says citizens have no choice but to raise local taxes in the wake of state budget cuts--the latest reminder that tax-cutting states such as Ohio are often just passing the buck to localities. Cleveland Mayor Frank Jackson said that city residents will have to approve a 0.5 percent local income tax rate increase (from 2 to 2.5 percent) to avoid cuts in services. The increase would generate $85 million in revenue that Jackson pledges will go to expanding services. Otherwise, the city faces a deficit next fiscal year thanks to cuts in state funding and declining property tax revenues.  If approved by the city council, the income tax increase would then be put before voters in November.

Oregon  Sen. Mark Hass introduced a revenue proposal this week that he sees as an alternative to a corporate income tax initiative that will likely be on the ballot in November.  The 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. Hass' proposal would eliminate the current system of corporate taxation and replace it with a Commercial Activity Tax of 0.39 percent on gross receipts. Hass would also cut taxes for households earning $58,000 or less and increase the state's Earned Income Tax Credit from 8 to 18 percent of the federal credit. Hass' measure would raise $1 billion in new revenue each biennium with half of the revenue going towards public education spending and the other half to pay for his targeted low- and middle-income tax cuts.

An Idaho House committee approved a tax cut bill from House Majority Leader Mike Moyle that would cut the corporate income tax rate, and top two personal income tax rates, by a tenth of a percentage point each. If passed, the top two personal income tax rates would fall to 7.3 and 7 percent, while the corporate rate would drop to 7.3 percent. The bill would also increase the grocery tax credit by $10 for some Idahoans of more modest incomes. On net, however, the proposal would primarily benefit the state's wealthiest taxpayers. ITEP estimates that while most families would receive tax cuts of $35 or less, the top 1 percent of earners would take home an additional $815 per year, on average.

The New York Assembly will consider 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 increases would raise $1.7 billion in revenue. Middle class earners who make $40,000 to $150,000 would get a modest tax rate reduction, from 6.45 to 6.25 percent. The state's Earned Income Tax Credit would also be increased, with the average recipient seeing a boost of $110.

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 in via email


State Rundown 10/8: Credits, Cuts and Britney Bill


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Plans to eliminate the state income tax in Arizona continue, with State Rep. Darin Mitchell telling officials that the push will come during the next legislative session. Mitchell, who chairs the Arizona House Ways and Means Committee, says the current strategy is to fight for a flat income tax that can be slowly eliminated over time: “We want to go to a flat tax next year, and then, maybe over the next five or six years we’ll ratchet down the collection until it no longer exists. We’ll just increase sales tax, on certain items.” Mitchell expects that Gov. Doug Ducey, who ran for election on a platform of eliminating the income tax, will support his plan. Were Mitchell’s plan to actually go forward, tax fairness in Arizona would become much worse. According to ITEP’s Who Pays? report, Arizona has the 8th most unfair tax system in the country, and the bottom 20 percent pay almost three times as much in taxes as a share of their income as do the top one percent.

New Jersey legislators are set to consider yet another tax cut for Atlantic City. The “Britney bill,” named after entertainer Britney Spears, would allow performers who play at least four nights in Atlantic City to avoid paying state income taxes on any income they make on any shows performed in New Jersey for the entire year. Proponents hope the measure will bring more high-profile stars to Atlantic City to do residencies, a popular practice in AC rival Las Vegas. Opponents, including New Jersey Policy Perspective, say the idea is a waste of money since performers follow audiences, not tax cuts. It’s worth noting that other tax breaks, including $400 million for failed casino project Revel, have not turned around Atlantic City’s economic prospects thus far.

The top budget official in Ohio said that legalizing marijuana could bring in $293 million in new tax revenue if a ballot initiative proposed for this November is approved by voters. Budget Director Tim Keene said that figure was based on the proposed new legal market capturing 70 percent of marijuana sales in the state. The backers of the ballot proposal say Keene’s estimate is too low, and that passage of the ballot measure could bring up to $500 million in new revenue to state coffers. 

Michigan Democrats recently unveiled a new plan to deliver tax cuts to middle-income families. Under the plan, a new $400-per-child income tax credit would be established for children under 13 living in households making up to $100,000. A new dependent care income tax credit would apply to these same households to offset some of the cost of childcare and eldercare. The Homestead Property Tax Credit would be expanded to cover families with income up to $100,000, increasing the threshold from $50,000. Seniors 65 and older would get an income tax exemption of $2,300 while all Michigan residents would get an income tax credit of up to 50% of the amount paid on state and federal student loans. House Minority Leader Tim Greimel said the $1 billion tax cut plan could be paid for by increasing the corporate income tax and renegotiating unredeemed refundable tax credits given to corporations.

Idaho State Commerce Director Jeff Sayer cautioned lawmakers that the state needed to demonstrate a commitment to public investments rather than cutting taxes to attract new residents and businesses. “In all of those conversations we’ve had with industry leaders, not one of them has brought up tax rates,” he noted, arguing that investments in education, infrastructure and broadband internet would bring more residents and higher-paying jobs. The Idaho Department of Labor projects that 109,000 new jobs will come to the state over the next decade, but only 14,000 working-age adults will become new residents in the same time period.


Fiscal Year Finish Line Part III: Transportation Funding


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This is the final installment of our three part series on 2015 state tax trends.  The first article focused on tax shifts and tax cuts.  The second article discussed tax credits for working families and revenue raising initiatives.

Thumbnail image for Thumbnail image for finishline.jpgJuly 1st marked the end of most states’ fiscal years, the traditional deadline for states to enact new spending plans and revenue changes. The 2015 legislative sessions delivered lots of tax policy changes, both big and small. Some states finished early or on time, while others straggled across the finish line after knockdown budget battles. Still others are not yet done racing, operating on continuing resolutions until an agreement is reached. As of now, four states still do not have spending plans in place for the fiscal year that started July 1st (Illinois, New Hampshire, North Carolina, and Pennsylvania.  Alabama has until October to reach a budget agreement). 

Perhaps the most active area of state tax policy this year was the debate over how to fund the nation’s deteriorating infrastructure.  As Congress continues to drag its feet on a solution to our current revenue shortfall, lawmakers in many states took action by enacting gas tax changes that will fund meaningful improvements to their transportation networks. A total of 17 states have enacted gas tax increases since 2013—including 9 this year alone.

Check out the detailed list after the jump to see which states increased their gas tax to support transportation funding.

 

Transportation Funding

Georgia: A 6.7 cent gas tax increase took effect July 1, 2015 as a result of a law signed earlier this year.  That law also positions Georgia for the long-term by allowing future increases to occur alongside growth in inflation and vehicle fuel-efficiency.

Idaho: A 7 cent gas tax increase took effect July 1, 2015—the state’s first gas tax increase in over 19 years.

Iowa: A 10 cent increase finally took effect on March 1, 2015 after years of debate.

Kentucky: Falling gas prices nearly resulted in a 5.1 cent gas tax cut this year, but lawmakers scaled that cut down to just 1.6 cents.  The net result was a 3.5 cent increase relative to previous law.

Nebraska: A 6 cent increase was enacted over Gov. Pete Ricketts’ veto.  The gas tax rate will rise in 1.5 cent increments over four years, starting on January 1, 2016.

North Carolina: Falling gas prices were scheduled to result in a 7.9 cent gas tax cut in the years ahead, but lawmakers scaled that cut down to just 3.5 cents.  The eventual net result will be a 4.4 cent increase relative to previous law (though now there is talk of allowing further cuts to take place and hiking drivers’ license fees to make up some of the lost gas tax revenue).  Additionally, a reformed gas tax formula that takes population and energy prices into account will result in further gas tax increases in the years ahead.

South Dakota: A 6 cent increase took effect April 1, 2015.

Utah: A 4.9 cent increase will take effect January 1, 2016, and future increases will occur as a result of a new formula that considers both fuel prices and inflation.  This reform makes Utah the nineteenth state to adopt a variable-rate gas tax.

Washington: Gov. Inslee signed a recent compromise package approved by the legislature. Washington State’s gas tax will rise by 11.9 cents in two increments: 7 cents on August 1 and an additional 4.9 cents on July 1, 2016. 

 


Fiscal Year Finish Line Part I: Tax Cuts and Tax Shifts


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This is the first installment of our three part series on 2015 state tax trends.  The next article will focus on more positive developments: working family tax credits and revenue raising.  And the final article will discuss one of the most active areas of state tax policy in 2015: transportation funding initiatives.

Thumbnail image for finishline.jpgJuly 1st marked the end of most states’ fiscal years, the traditional deadline for states to enact new spending plans and revenue changes. The 2015 legislative sessions delivered lots of tax policy changes, both big and small. Some states finished early or on time, while others straggled across the finish line after knockdown budget battles. Still others are not yet done racing, operating on continuing resolutions until an agreement is reached. As of now, four states still do not have spending plans in place for the fiscal year that started July 1st (Illinois, New Hampshire, North Carolina, and Pennsylvania.  Alabama has until October to reach a budget agreement). 

A number of states continued the troubling trend of cutting taxes for the wealthy while asking working families to pick up the tab. These tax shift proposals make state tax systems less fair and can contribute to budget shortfalls down the road. Tax shifts come in many forms, though a shift from income taxes to consumption taxes is the most common and most regressive example. Sadly, tax shifts are here to stay; Arizona, New Mexico, Georgia and West Virginia could all see new proposals surface in next year’s legislative sessions.

Several states enacted or considered tax cuts without balancing lost revenue with other tax increases. Instead, these states cut spending or used one-time surpluses to justify long-term changes. The overwhelming majority of these proposals reduce taxes for the best off while doing nothing or little for everyone else, making a regressive tax landscape even worse.

Check out the detailed lists after the jump to see which states enacted or attempted to enact new tax shifts and tax cuts this legislative session:

 

Tax Shifts

Kansas (Enacted): The tax debate in Kansas was watched more closely than in any other state this year. After promising that massive tax cuts would pay for themselves back in 2012 and 2013, Gov. Brownback and anti-taxers were forced to admit the “experiment” went too far. After high melodrama – Gov. Brownback tearfully urging lawmakers to vote for a sales tax hike, staunch anti-tax legislators breaking their anti-tax pledges, and lawmakers accusing Brownback of blackmail – state leaders passed a bill that increased taxes. Governor Brownback claimed that despite the increase, Kansans were still better off because of his earlier tax cuts. But an ITEP analysis revealed that talking point as fiction when it showed that lower-income taxpayers will be paying more than they did prior to Brownback taking office.

Ohio (Partially Enacted): Earlier in the year, Gov. Kasich proposed a large-scale tax shift which would have paid for significant personal income tax cuts with much higher sales taxes.  Legislators agreed to a budget with a net tax cut of $1.85 billion over two years focused just on cutting personal income taxes. The move is sure to make the revenue outlook worse in Ohio and will undermine investments in priority areas like education, infrastructure and healthcare. ITEP’s analysis of the compromise plan found that the top one percent of Ohio taxpayers will get half of the income tax cuts – an average annual tax break of $10,236 for those making $388,000 or more. Meanwhile, the bottom 20 percent of taxpayers will see their taxes increase by an average of $20.

Maine (Partially Enacted): Gov. Paul LePage proposed a costly, sweeping tax shift package back in January that would have resulted in a significant shift away from progressive personal income taxes and toward a heavier reliance on regressive sales taxes.  While almost every Mainer would have received a tax cut under this plan, the benefits were heavily tilted in favor of the state’s wealthiest taxpayers. Thankfully, despite its flaws the final tax reform package passed by the legislature over the governor’s veto will actually improve the state’s tax code.  Among the major tax changes it includes are: lower income tax rates, a broader income tax base, new and enhanced refundable tax credits, a doubling of the homestead property tax exemption, an estate tax cut, and permanently higher sales tax rates. Maine will slightly shift its reliance away from its progressive personal income tax onto a narrow and regressive sales tax.  However, this plan is vastly different from other proposed and enacted tax shifts, as it reduces taxes for most low and moderate-income families and somewhat lessens the regressivity of the state’s tax code.

Mississippi (Failed): Legislators defeated efforts to pass significant tax shifts this legislative session. Lt. Gov. Tate Reeves’s proposal to cut income and corporate franchise taxes by $555 million over 15 years died in the House, while House Speaker Philip Gunn’s plan to phase out the state income tax died in the Senate. Opponents of the cuts noted that they would sap K-12 and higher education budgets while shifting the burden of funding crucial services to the local level.

Idaho (Failed): Thanks in part to ITEP’s analyses, legislators ended the session without enacting a regressive flattening of the state’s income tax. Had that proposal passed, it would have provided an average tax cut of nearly $5,000 per year to the state’s wealthiest taxpayers while raising taxes on most middle-income families. 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 without a corresponding tax cut.

Michigan (Still Active): In May, voters rejected a ballot proposal that would have raised sales taxes, gasoline taxes, and vehicle registration fees to pay for improvements to the state’s deteriorating infrastructure.  Since then, the Michigan House agreed to an alternative plan that would fund roads by repealing the state’s Earned Income Tax Credit (EITC), raising diesel taxes, indexing gas and diesel taxes to inflation, and transferring money away from other public services.  Fortunately, the most regressive component of this plan—repealing the EITC—was not included in the package passed by the state Senate.  But unlike the House, the Senate would implement a tax shift whereby a regressive gasoline tax hike is paired with a cut in the state’s income tax rate that would primarily benefit high-income taxpayers.  As of this writing, it is still unclear what, if any, compromise will be reached between the House and Senate.

North Carolina (Still Active): Lawmakers have reached a budget impasse (which seems to be a yearly ritual in the Tarheel state) and had to pass a stop gap spending measure to keep government functioning while they sort out their differences.  Several spending priorities are at the center of the House and Senate standoff as well as proposed tax changes included in the Senate budget: deeper cuts to the personal income tax, adding more services to the sales tax base, slashing the business franchise tax by a third, and additional corporate income tax cuts.  It will likely take North Carolina lawmakers months to sort out their differences.

Pennsylvania (Still Active): The budget showdown between Gov. Tom Wolf and the state legislature will continue through the summer. Stating that “the math doesn’t work”, Governor Wolf vetoed the entire budget lawmakers delivered to him in the final days before the start of the fiscal year.  Governor Wolf’s preferred budget included a property tax reform measure and additional spending for education (both paid for with higher personal income and sales taxes) and a new tax on natural gas extraction.  While Republican lawmakers also favor reducing (or even eliminating) school property taxes, there is no common ground on how to achieve that goal and most are adamantly opposed to a severance tax.  Lawmakers will begin to hammer out a compromise early next week and the government will operate in a partial shutdown mode until the state has a budget in place for the new fiscal year.

South Carolina (Failed): South Carolina lawmakers spent the majority of the session exploring ways to improve the state’s crumbling infrastructure while also cutting taxes. Needless to say, this effort sparked enormous debate across the state.  Three proposals were heavily debated: the Governor’s shift away from income taxes in favor of a higher gas tax, a House-passed plan that would have combined some tax increases with a much more modest income tax cut and a Senate Finance plan which would have increased revenues without an income tax cut.  Ultimately, however, the session ended with no income tax cuts, no gas tax hikes, and no progress toward a more adequately funded transportation network. 

 

Tax Cuts 

Arkansas (Enacted): Gov. Asa Hutchinson fulfilled his campaign promise of passing a middle class tax cut. The governor’s plan introduces a new income tax rate structure for middle income Arkansans.

Florida (Enacted): The legislature approved a $400 million package of tax cuts after the resolution of a deadlock over healthcare spending; Florida is expected to lose federal aid to state hospitals, and many lawmakers were reluctant to accept Medicaid dollars offered under the Affordable Care Act. In the end, the size of the tax cuts relative to those initially proposed by Gov. Rick Scott was reduced by almost half in order to cover healthcare costs. The package of cuts includes tax cuts for cell phone and cable bills, college textbooks, and sailboat repairs that cost more than $60,000.

Montana (Failed): The legislature failed to override Gov. Steve Bullock’s vetoes of multiple bills that would have cut personal income tax rates. Opponents argued that the state already faced a $47 million deficit and that the majority of the tax cuts would have flowed to the state’s highest-income taxpayers (a fact confirmed by multiple ITEP analyses). In explaining his veto, Gov. Bullock also made clear that “the experience of other states shows that decimating your revenue base to benefit large corporations and the wealthiest individuals does not work to stimulate the economy.”

Nebraska (Failed): Despite the large number and diversity of tax cut bills circulating in Nebraska this session, no significant cut was enacted.  However, that does not mean that the proposals are off the table.  Rather, expect the tax cutting debates to carry over into next session.

North Dakota (Enacted): For the ninth straight year, North Dakota lawmakers approved cuts to the state’s personal and corporate income taxes.  Starting next year, the corporate income tax rate will drop by 5 percent, and personal income tax rates will be reduced by 10 percent across the board. 

Rhode Island (Enacted): Middle- and upper-middle income older adults will now be fully exempt from paying taxes on Social Security income.  The exemption applies to Rhode Islanders age 65 and over with income below $80,000 (single) or $100,000 (married).  This tax break will largely benefit middle- and upper-middle income older adults since low-income seniors are already exempt from paying taxes on Social Security income in the state.

Tennessee (Failed): Efforts to repeal the Hall Income Tax failed again after the legislature did not act on two repeal measures before the close of session. The Hall Tax is a 6 percent tax on income from stocks, bonds and dividends that is the state’s only tax on personal income. A significant portion of the revenues raised by the tax supports county and municipal governments. Opponents of the Hall tax won a small victory, however, as they succeeded in increasing the exemption allowed for citizens over the age of 55.

Texas (Enacted): Lawmakers passed a number of new tax cuts this year. The first change, a $10,000 increase in the homestead exemption for property taxes, has been described as “the least-worst way to under-invest” since the homestead exemption is spread evenly across taxpayers and the bill will replace local property tax revenue with more state aid to schools. The second change, a cut in the business franchise tax rate of 25 percent, will cost the state $2.6 billion in revenue in a way that decidedly favors the wealthy and corporations.

 


Gas Tax Changes Take Effect July 1


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On Wednesday July 1, six states will raise their gasoline tax rates.  While some drivers may view this as an unwelcome development during the busy summer travel season, the reality is that most of these “increases” are simply playing catch-up with inflation after years (or even decades) without an update to the gas tax rate.  Moreover, these increases will fund infrastructure improvements that directly benefit drivers and other travelers—an especially important step at a time when Congress’ commitment to adequately funding infrastructure remains highly uncertain.

The largest gas tax increases are taking place in Idaho (7 cents per gallon) and Georgia (6.7 cents for gas and 7.7 cents for diesel).  Each of these increases is occurring due to legislation enacted earlier this year.  Maryland’s increase of 1.8 cents is a result of legislation signed by former governor (and current presidential candidate) Martin O’Malley in 2013.  Rhode Island’s 1 cent increase is the first automatic update for inflation to take place under a law signed by former Gov. Lincoln Chafee in 2014 (Chafee is now a presidential candidate as well).  Finally, Nebraska’s 0.5 cent hike and Vermont’s 0.35 cent increase are automatic changes resulting from these states’ variable-rate gas tax structures.

By contrast, the gasoline tax rate will fall by 6 cents in California and the diesel tax rate will drop by 4.2 cents in Connecticut as a result of laws linking those states’ gas tax rates to gas prices (a unique quirk in California’s law will cause the diesel tax to rise by 2 cents).  These cuts will reduce the level of funding available for transportation at a time when basic infrastructure maintenance is already lagging far behind.  Earlier this year, similar automatic cuts had been scheduled to take place in Kentucky and North Carolina, but lawmakers in both of these states wisely intervened by placing a “floor” on their gas tax rates that minimized the loss of infrastructure revenue. 

View chart of states raising gasoline taxes 

View chart of states raising diesel taxes

 

 

 


State Rundown 4/15: New Cuts and New Revenue


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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 4/7: Bad Ideas Die Hard


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Kansas Gov. Sam Brownback doubled down on defending his disastrous tax cuts, insisting that the state would benefit from a shift away from income taxes to consumption taxes. The governor claimed that such taxes, which fall more heavily on middle and working-class citizens, are more “growth oriented” than the income tax, despite the problems with this claim. Brownback has proposed increases in taxes on cigarette and alcohol consumption this session to make up for freefalling revenues, and has indicated willingness to increase the sales tax. Meanwhile, the deep budget cuts enacted in the wake of Brownback’s tax cuts means Kansas schools will close early this year. 

It seems as if New Jersey Gov. Chris Christie’s lottery privatization plan is a bust. The Associated Press reports that the New Jersey lottery, once among the most profitable in the nation, has failed to meet state revenue targets for the second year in a row. Legislators have already lowered income expectations for the struggling lottery, but Gtech, the private firm in charge of operations is trailing even the revised number by $64 million. Gtech is the same company responsible for the abysmal performance of the Illinois State Lottery after it was privatized in 2011. Former Gov. Pat Quinn fired the firm last summer.

Nevada Gov. Brian Sandoval hit back at critics of his proposed increase in business license fees, singling out a report by the Tax Foundation as irresponsible and “intellectually dishonest.” Sandoval wants to replace Nevada’s flat fee of $200 for a business license with a tiered system that takes into account gross receipts and the type of business. The new fees would range from $400 to $4 million a year and would raise $430 million. The governor would use the new revenue to help increase education funding by nearly $782 million. He has gained the support of business and interfaith groups, as well as the majority of Nevada voters.

 

Following Up:
North Carolina: An editorial in The News and Observer blasted the income tax cut proposal offered by state Senate leaders, noting that “while they’ve been cutting taxes for the wealthy and businesses, which have gotten most of the breaks, they’ve bashed the public schools, cut the university system and put the state in such a tight revenue margin that further tax cuts could be catastrophic.”

Idaho: The state Senate killed the tax plan offered by House leaders that would have removed the sales tax on groceries, increased the gas excise tax and lowered income taxes for the wealthy. ITEP found that the overall impact (PDF) of these changes would be higher taxes for low- and middle-income taxpayers, and dramatically lower taxes for the affluent (the top 1 percent of earners would receive an average benefit of $5,000 per year).  While an alternative plan has yet to be formulated, the Senate appears to be interested in refocusing efforts on the original objective of this legislation: raising money for transportation.

Nebraska: The proposed gas tax increase continued its progress through the state’s unicameral legislature, when senators voted 26-10 to advance the measure. Two more votes are required before the bill reaches Gov. Pete Ricketts, who does not support increasing the gas tax.

 

Things We Missed:
The Georgia legislature approved a sweeping transportation deal last Tuesday that will raise $1 billion for infrastructure maintenance and improvements through a mix of new revenue sources. The final version of House Bill 170 raises the existing state gas tax by 6.7 cents and reforms the tax so that it will grow alongside fuel-efficiency gains and general inflation, rather than being tied to gas prices. The bill also introduced a new $5-per-night hotel and motel tax and a new fee of $50 to $100 on heavy commercial trucks. The measure eliminated tax breaks for commercial airlines and electric cars to raise revenue as well. Gov. Nathan Deal has indicated that he will sign the measure into law.

 

States Ending Session This Week:
Mississippi (Sunday) (note: the end of the session means no new tax cut proposals can be considered in Mississippi this year)



State Rundown 3/31: Tax Cut Throwbacks


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North Carolina lawmakers proposed another round of personal income tax cuts last week that cost more than  $1 billion when fully enacted and would slash millions of dollars in corporate income taxes. The Job Creation and Tax Relief Act of 2015 (a sure misnomer) would reduce the personal income tax rate to 5.5 percent by 2017 and replace the current standard deductions with  a zero percent tax bracket on the first $10,000 in income for single filers by the same year (married couples could apply the zero percent bracket to the first $20,000 in income). The bill would also reduce the corporate income tax rate to 3 percent by 2017 even if the state fails to meet the required revenue targets included in the 2013 tax cut bill along with several other changes. Revenues are $300 million below projections this fiscal year. Opponents of the cuts note that they would do little to stimulate the state’s economy while reducing public investments and providing a windfall for already-profitable corporations.

An elaborate tax proposal from Idaho House Majority Leader Rep. Mike Moyle would cut taxes for the top one percent of Idaho taxpayers by $5,000 according to an analysis by ITEP and the Idaho Center for Fiscal Policy. Moyle’s plan would increase the state’s excise tax on gasoline by 7 cents, remove the sales tax on groceries and eliminate the food tax credit. Combined, the elements of the bill will increase taxes paid by the bottom 20 percent by $68 and taxes on middle-income earners by $192.

Alabama Gov. Robert Bentley embarked on a statewide tour to drum up support for his proposed tax increases. The plan, which received a lukewarm reception from many state legislators, would increase the cigarette excise tax by 82 cent a pack, increase the sales tax rate on automobile purchases from 2 to 4 percent, and would end some tax credits for insurance companies, banks and corporations. The combined measures would raise $541 million in new revenue. The governor argues that his plan is necessary to end the dysfunctional nature of state budgeting.

The Nebraska Legislature will consider a bill that would increase the excise tax on gasoline by 6 cents. The increase would be phased in over four years (1.5 cents per year). Gov. Pete Ricketts opposes the increase in the gas tax, arguing that the state should look to other options for road construction that do not entail tax increases.

 

Things We Missed:
The Mississippi House defeated efforts to pass significant tax cuts this legislative session after Lt. Gov. Tate Reeves’s proposal to cut income and corporate franchise taxes by $555 million over 15 years died on the floor. Opponents of the cuts noted that they would sap K-12 and higher education budgets while shifting the burden of funding crucial services to the local level.

Utah Gov. Gary Herbert signed a package of gas and property tax increases that rank as the Utah’s largest revenue increase in 20 years. Proponents of the tax increases say they are necessary to fund important transportation projects and improvements in public education. The excise tax on gasoline will increase by 5 cents per gallon beginning in July, and will be indexed to inflation. It is expected to bring in $100 million for road and bridge repairs over the next two years. The property tax increase will add about $50 in taxes to the bill for a $250,000 house, and the revenues raised are earmarked for education.

 

States Ending Session This Week:
Kentucky (Monday)
South Dakota (Monday)
Idaho (Friday)

 


State Tax Policy Trends in 2015: Not All That "Trickles Down" Is Rain


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The theory that tax cuts for the affluent will eventually trickle down to everyone else is shopworn, yet supply-side adherents keep promising the public that the rich can have their tax cuts and the rest of us will eat cake too.

Despite 35 years of data showing this to be false, the notion has seduced enough policymakers to keep the lights on at Art Laffer’s house.

At least 10 states have tax cut proposals in motion that, unlike the tax shifts we reviewed previously, will not offset cuts by raising other taxes but by raiding surpluses or reducing spending. The overwhelming majority of these proposals will reduce taxes for the best off while doing nothing or little for everyone else, making a regressive tax landscape worse.  Gov. Asa Hutchinson’s overhaul of his state’s income tax and Mississippi Gov. Phil Bryant’s proposal to introduce a state Earned Income Tax Credit (EITC) would actually benefit low- and moderate-income families, but most of the other proposals would lead mainly to benefits for the wealthy.

Over time such tax cuts exacerbate income inequality and stymie opportunity for the masses. Taxes and spending are on a balance scale. Top-heavy tax cuts and their purported economic benefits do not trickle down a rolling hill; they tip the scale in favor of the rich while depriving states of necessary revenue to adequately fund basic services, including education, public safety, infrastructure health and other priorities. Below are some pending proposals:

Arkansas: Gov. Asa Hutchinson fulfilled his campaign promise of passing a middle class tax cut. The governor’s plan introduces a new income tax rate structure for middle income Arkansans. To help pay for the measure the capital gains exemption was reduced from 40 to 50 percent. Using data from ITEP, Arkansas Advocates for Children and Families explains that the taxpayers who benefit from capital gains exemptions are wealthier families.

Florida: Once again, Florida Gov. Rick Scott is pushing lawmakers to enact an unusual hodgepodge of tax cuts.  Under his proposal, taxes on cable TV and cell phone usage would drop by 3.6 percentage points, manufacturing machinery and textbooks would both be exempted from the sales tax, the corporate income tax exemption would be raised from $50,000 to $75,000, and yet another back-to-school sales tax holiday would be held this summer.  The overall cost of this package would be roughly $700 million, and while it’s too early in the session to gauge the chances of passage, there is apparently some skepticism toward the plan in the state legislature.

Idaho: The big tax shift sought by some Idaho lawmakers is off the table for now, but Gov. Butch Otter made clear all along that he prefers a straight-up cut to the state’s corporate income tax rate, and its top personal income tax rate, from 7.4 to 6.9 percent.  Our analysts recently found that such a tax cut would make Idaho’s decidedly regressive tax system even more unfair.  More than three out of every four dollars in personal income tax cuts would flow to the wealthiest 20 percent of households, and members of the top 1 percent would see an average tax cut of over $3,500 each year.  These cuts would come on top of a very similar package of regressive income tax reductions enacted in 2012.

Mississippi: Lawmakers in the Magnolia State can’t seem to get enough of tax cut proposals. In addition to the tax shift proposal passed by the House recently (and written about here), lawmakers are debating a variety of tax cutting measures, which include decreasing personal and corporate income tax rates, introducing a nonrefundable EITC, and eliminating the corporate franchise tax.

Montana: The Montana legislature has approved a bill that would cut personal income tax rates across the board and reduce state revenues by roughly $42 million per year.  ITEP analyzed similar, earlier versions of the cut and found that high-income households would be the largest beneficiaries and that low-income and middle-income taxpayers, who currently face the highest overall state and local tax rates, would receive little or no benefit.  Governor Steve Bullock is likely to veto the plan because of its impact on the state’s ability to fund vital public services.

Nebraska: With the sheer number and diversity of tax cut bills circulating in Nebraska this winter, it seems certain some cut will be enacted.  Much of the focus so far has been on reducing property taxes, a stated priority of newly elected Gov. Pete Ricketts.  Property tax proposals include creating a new refundable, targeted property tax circuit breaker credit for homeowners and renters, introducing a local income tax to reduce reliance on property taxes for school funding, hiking the sales tax rate to pay for a bump in a statewide property tax credit, and increasing personal and corporate income tax rates to pay for property tax cuts. State business leaders, however, have made it clear that income tax cuts are their main concern, and Governor Ricketts has not ruled out the possibility.  One plan being floated would reduce personal and corporate income tax rates over eight years, giving the biggest benefits by far to the richest Nebraskans.

North Carolina (updated 4/6/2015): Two years after North Carolina enacted a sweeping tax cut package, state lawmakers have returned this year with more tax cutting plans that will bust the budget to benefit wealthy residents and profitable corporations.  Senate Republicans have unveiled another round of personal income tax cuts that cost more than  $1 billion when fully enacted and would slash millions of dollars in corporate income taxes. There has also been talk of reducing taxes on capital gains income, restoring items eliminated in 2013 including a deduction for medical expenses and historic preservation tax credit.  What makes these proposals even more egregious is the state’s anticipated revenue shortfall of almost $300 million this year. Lawmakers were forced to close a $500 million revenue gap last year with deep spending cuts after underestimating the steep cost of the tax cuts passed in 2013.  

North Dakota: Just a few short months ago, North Dakota lawmakers were giddy about the idea of using booming oil and gas tax revenue to pay for an elimination or significant reduction of the state’s personal income tax.  But as gas prices plummeted, reality set in and the House approved a scaled back proposal – a 10 percent across-the-board reduction in personal and corporate income tax rates (Gov. Dalrymple also proposed a 10 percent personal income tax cut).  North Dakota lawmakers enacted similar plans in 2011 and 2013, slowly chipping away at the two taxes.

Tennessee: In what’s becoming an annual tradition, multiple Tennessee lawmakers have proposed (subscription required) repealing the state’s “Hall Tax”—a modest 6 percent income tax on interest, dividends, and capital gains income.  As we showed in our recent Who Pays? report, the Hall Tax is a rare progressive bright spot in a tax system that tilts overwhelmingly in favor of affluent households.  Fortunately, leaders in the state’s House and Senate are reportedly unenthused by the idea since Tennessee’s wealthiest households recently benefited from cuts in estate, inheritance, and gift taxes.  And while it’s discouraging that the governor isn’t making principled tax fairness arguments against these proposals, he is very skeptical that the state can afford to get rid of the Hall Tax right now.

Texas: Lawmakers in the Lone Star State hope to enact a tax cut package that would cost about $4 billion over a two year period.  Governor Greg Abbott’s top priority is cutting the business franchise tax, and he has said that he will veto any budget that does not include such a cut.  So far, the main options for reducing business franchise taxes include cutting the rate from 1 to 0.85 percent or raising the exemption from $1 million to $4 million.  The governor would also like to see school property taxes cut, and the Senate seems happy to go along with that idea.  Options currently under discussion include raising the $15,000 homestead exemption to $33,625, or converting it to equal 25 percent of home value.  As we explain in this policy brief, the percentage-based option is less fair than a flat-dollar exemption.  But it’s also important to keep in mind the context provided by Dick Lavine of the Center for Public Policy Priorities: “There’s better uses of this money … than tax cuts.”

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Shell games have been with us since ancient times, and the tax shift proposals of today indicate that the basic concept has a long shelf life. A “conjurer” who makes fantastic claims that are later found too good to be true? Kansas Gov. Sam Brownback and many other governors fit the bill. A “shill” who enthusiastically vouches for the legitimacy of the game and who stands to make a hidden profit? Any number of supply-siders who claim that tax cuts will promote prosperity or that tax increases will lead to a mass exodus. A “mark” who plays the game in hopes of winning, never realizing that it’s been rigged from the start? Unless you sit in the uppermost tax bracket, the mark is likely you.

Tax shifts lower one tax and increase another in a way that is purportedly revenue neutral. All too often, such proposals reduce taxes for top earners and stick low- and middle-income people with the bill by increasing regressive, consumption taxes. As ITEP’s Who Pays report shows, every state tax system asks more of the poorest residents than they do of the rich. Tax shifts allow elected officials to serve political goals, posing as fiscal stewards acting in the public interest even though their tax policies are detrimental to state budgets and critical programs such as education, infrastructure and public safety.  

There is a right way to do a tax shift. Last year, the District of Columbia broadened its sales tax base to include more services used by businesses and well-off residents. At the same time, it lowered taxes for middle-income earners and strengthened the Earned Income Tax Credit to put more money in the pockets of working people. Unfortunately, states currently considering tax shifts are focused on cutting taxes for the highest-income households.

Below are the top tax shift trends that ITEP is following in legislatures across the country:

1) Hiking Taxes on Low Income Families to Pay for Tax Cuts for Wealthy Families
Ohio: Gov. John Kasich’s budget includes yet another massive tax shift away from well-off taxpayers to the middle-class and working poor. He wants to slash income taxes for the second time since he’s been in office, cutting rates by 23 percent over two years, with an immediate 15 percent cut in 2015. The cuts would cost an estimated $4.6 billion in revenue over the biennium. Kasich also wants to eliminate the income tax for business owners with $2 million or less in annual receipts at a two-year cost of $700 million dollars, and increase the personal exemption allowed for those with $80,000 or less in annual income. He would pay for these massive income tax cuts through regressive tax hikes. The governor wants to increase the sales tax rate from 5.75 to 6.25 percent and broaden the sales tax base to include a number of additional services. He also wants to increase excise taxes on cigarettes and other tobacco products, two measures that hit low-income households the hardest. ITEP ran an analysis of the tax shift plan and found that the top one percent of Ohio taxpayers would receive an average tax break of $12,010, while the bottom 40 percent of taxpayers would actually see their taxes go up by about $50. For more on the ITEP analysis read this report from Policy Matters Ohio.

Maine: Gov. Paul LePage has proposed a sweeping tax shift package that would hike sales taxes to help pay for significant personal and corporate income tax cuts and would also eliminate the estate tax. All together, the governor’s tax changes would cost $260 million when fully phased in. LePage wants to increase the sales tax rate and broaden the tax base to include some services. His plan would also eliminate cost-sharing with local governments, which could force them to hike property taxes. The governor described his plan as a way to move the state from an income-based tax system to a “pay-as-you-go” consumption-based tax system – a dangerous and ill-advised shift in the way Maine funds its crucial public investments.  But, wait; there’s more!  In his State of the State address, LePage announced his intention to fully eliminate Maine’s income tax in three steps (we saw how that worked out for Kansas). Eliminating the state income tax would result in the loss of half of the state’s $3 billion in annual revenue, necessitating deep cuts and major tax shifts to more recessive revenue sources. 

Idaho (updated 4/6/2015): Idaho lawmakers have given serious thought to a number of tax shifting ideas, almost all of which would make the state’s regressive tax system even more unfair.  The House recently decided to move forward with some of these ideas, passing a bill that would have flattened the income tax for many taxpayers, raised the gasoline tax, eliminated the Grocery Credit Refund, and exempted groceries from the sales tax.  ITEP found that the overall impact (PDF) of these changes would be higher taxes for low- and middle-income taxpayers, and dramatically lower taxes for the affluent (the top 1 percent of earners would receive an average benefit of $5,000 per year).  Fortunately, the Senate killed the bill and seems to be interested in refocusing on the original objective that inspired it: raising money for transportation.

Michigan: This May, Michigan voters will be asked to approve a major tax package that would boost funding for transportation and education by some $1.7 billion per year.  The package relies entirely on regressive tax changes to raise revenue, notably through a 1 percent sales tax increase and a gasoline tax restructuring that would raise the tax rate by roughly 12 cents per gallon.  However, the package also includes a valuable progressive offset for low-income families in the form of a significant expansion to the state’s Earned Income Tax Credit (EITC), from 6 to 20 percent of the federal credit.  Unfortunately, lawmakers are now sending signals that if voters approve this package, they may squander some of the revenues on a personal income tax cut that would be no good for the state’s economy and would make the state’s regressive tax system even more unfair.  According to an ITEP analysis provided to the Michigan League for Public Policy, the income tax rate cut under consideration would give low-income taxpayers an average reduction of $12 per year, while handing over $2,600 per year to each of Michigan’s top 1 percent of earners.

2) Using Tax Shifts as Political Cover to Raise Revenue to for Infrastructure
South Carolina: Gov. Nikki Haley has said that she won’t support a gas tax increase without an across the board income tax cut. Raising gas taxes while cutting income tax rates would result in a tax shift from well-off South Carolinians to middle income and working families. Her proposal would phase in income tax rate reductions over 10 years, resulting in a top income tax rate cut from 7 to 5 percent, and increase the gas tax from 16 to 26 cents. This shift away from progressive income taxes coupled with a regressive gas tax hike would be problematic for state coffers over the long term, and low-income folks would undoubtedly feel the brunt of this tax shift.

New Jersey: Lawmakers in New Jersey seem to agree that the state is facing a transportation funding crisis and that an increase in the gas tax is needed.  However, it appears more and more likely that a gas tax increase will not be enacted without a tax cut elsewhere. The taxes lawmakers are considering reducing or even eliminating to get the much needed gas tax boost?  The estate and inheritance taxes, which only impact roughly 4 percent of New Jersey families each year and have zero connection to the need to boost transportation funding in the state.  As our friends at New Jersey Policy Perspectives have argued, the other problem with this proposal is that it does nothing to help low- and moderate- families who will actually be hit hardest by a gas tax increase.  Restoring the state’s Earned Income Tax Credit to 25 percent of the federal (cut to 20 percent in 2010) makes much more sense as the tax cut to propose alongside a gas tax hike, rather than eliminating taxes which benefit only the wealthiest families in the state.

3) Other States to Watch
Arizona: Online shoppers In Arizona (and every other state) often fail to pay sales taxes because e-retailers shirk their tax collection responsibilities.  In 2013 the U.S. Senate passed legislation that would have closed this gap in sales tax enforcement, but the House failed to act on it.  Now, some Arizona lawmakers say that if the federal government ever does act on this important issue that any additional revenue collected through improved enforcement should be immediately sent back out the door in the form of a regressive income tax cut.  Fortunately, legislation aimed at accomplishing this end was recently voted down by a narrow margin in the Arizona House, though the sponsor is still trying to find a way to resurrect the proposal.

Mississippi (updated 4/6/2015): Mississippi lawmakers showed zeal this session for changing the state’s tax code.  Gov. Phil Bryant recommended a nonrefundable Earned Income Tax Credit and Lt. Governor Tate Reeve’s proposal would have cut personal and corporate income tax rates and eliminated the state’s franchise tax.  But, the most extreme plan emerged from the House where members passed a bill that would have phased out the state’s personal income tax over several years with more than two-thirds of the cut flowing to the richest 20 percent of taxpayers in the state at a cost of nearly $2 billion. Thanks in part to ITEP’s number crunching on all of the plans, which advocates in Mississippi shared with the media and lawmakers and put to use in publications, the House and Lt. Governor’s tax cutting proposals failed to muster enough support to move forward this session.

New Mexico: We are closely following a bill in the New Mexico legislature that would eliminate most of the taxes currently levied in the Land of Enchantment and replace the revenues with a 1 percent tax on gross receipts.  Similar tax-shifting legislation was introduced in 2013 and gained little traction.

4) The Cautionary Tale: Kansas
Kansas: The most notorious case of tax shifting continues to unfold in Kansas. In 2012 and 2013 Gov. Brownback pushed through two rounds of very regressive income tax cuts that lowered taxes on wealthy Kansans while hiking taxes on low-income Kansans, and he’s now proposing more regressive tax hikes to help balance the state’s budget. The income tax cuts already passed will cost Kansas $5 billion in lost revenue over the next seven years. Given the state’s budget situation, Brownback has been forced to delay further income tax cuts planned for this year. He also has been forced to raise taxes, though not the ones you would think: his budget proposal would increase the excise tax on cigarettes by nearly 300 percent, from $0.79 to $2.29 per pack, and taxes on liquor would rise from 8 percent to 12 percent. The governor’s regressive tax hikes would fall  on the same Kansans hurt the most by his failed economic stewardship. They also drive home some of the consequences that could arise from other officials’ rosy tax shift plans. Aggressive tax shifts that favor businesses and the wealthy at the expense of low- and middle-income families can result in states having difficulty adequately funding basic public obligations over the short and long-term.

 


New Analysis: Don't Scrap Idaho's Grocery Tax Credit


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Some lawmakers and advocates in Idaho have been pushing a tax swap under which Idaho’s $100 per person Grocery Credit Refund would be eliminated in favor of exempting all grocery purchases from the sales tax. But a new ITEP report shows that the biggest winners under such a plan would be high-income households.

Members of Idaho’s top 1 percent would receive an average tax cut of $234 per year under such a swap.  Low-income families, by contrast, would typically see a cut of $15 or less, and some would actually see their taxes increase.

The impact of this change is so lopsided in part because the state’s existing Grocery Credit Refund can cover most, or sometimes all, of the grocery taxes paid by a low- or moderate-income household.  For a high-income household purchasing premium brands and other high-end foods, however, a blanket exemption for all grocery purchases can be much more lucrative than the current flat credit of $100 per person.

If cutting grocery taxes is on lawmakers’ minds, ITEP’s report suggests expanding the existing Grocery Credit Refund—a move that could provide larger benefits to most households than the alternative plan to create a grocery tax exemption.

For more on sales tax exemptions and credits, check out ITEP’s policy brief on the subject.


State Rundown 1/12: When Your Mouth Writes a Check Your State Can't Cash


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Welcome to the State Rundown, your source for the latest in state tax policy! This week, 21 states begin their legislative sessions, including a number of states where newly-elected conservative governors will have to grapple with big budget deficits. Presidential contenders Scott Walker and Chris Christie will deliver highly-anticipated State of the State addresses as well. Here are the top stories we’ll be following this week:

 

Arizona Gov. Doug Ducey, who campaigned on a pledge to cut income taxes, will likely shift his focus from tax cuts to spending cuts in his State of the State address today. His pledge last week not to raise taxes in his inaugural address was widely seen as a concession that promised tax cuts were untenable given the state’s $500 million deficit this fiscal year and projected $1 billion shortfall in FY 2016. Ducey will instead announce a statewide hiring freeze and his intention to push for a resolution to a long-standing school funding dispute.

New Jersey Gov. Chris Christie will attempt to use his State of the State address to stop his recent slide in the polls and seize the initiative on two issues that threaten his legacy – public employee pension reform and transportation funding. So far the governor has been mum about the contents of his speech, but New Jersey political watchers anticipate Christie will defend his decision to cut back on promised payments to state pension plans. A bipartisan commission appointed by the governor has yet to release recommendations on how to deal with tens of billions of dollars in unfunded health benefits and pension liabilities. Christie must also contend with a nearly insolvent transportation fund that will go broke in July without additional funding. Some observers speculate that the governor will call for a state gas tax increase, which, after adjusting for inflation, is currently at its lowest level in history.

Gov. Pete Ricketts of Nebraska, who identified property tax cuts as his first priority in his inaugural address last week, may also welcom efforts in the legislature to push for income tax cuts as well. Business leaders in the state have made it clear that income tax cuts are their main concern, and the state’s projected budget shortfall makes it unlikely Nebraska could afford both property tax cuts and income tax cuts. The release of the Governor’s budget this week will provide more details on his vision for tax cuts. Proposals already circulating in the legislature include reducing the taxable value of agricultural land, capping property taxes, taxing land based on profit generated instead of market value, or increasing the size of the state’s property tax credit fund.            

Tennessee Gov. Bill Haslam could be a victim of his party’s success in the last election, as conservative state lawmakers could push the governor farther to the right than he would like during the legislative session that starts this week. Republicans enjoy supermajorities in both houses of the state legislature, and some lawmakers plan to push to cut or eliminate the Hall Tax over the governor’s objections. The Hall Tax is a six percent tax on income from dividends, interest and capital gains – and a rare progressive feature in a tax system that leans overwhelmingly on the poor. Haslam has repeatedly rebuffed calls from conservative groups to push for repeal, arguing that the $300 million in revenue gained from the tax each year would be difficult to replace. His stance could be complicated, however, by his push to have Tennessee accept Medicaid expansion under his Insure Tennessee plan. Expansion could bring $1.14 billion in new spending and 15,000 jobs to Tennessee, but is a lightning rod among conservatives who oppose the Affordable Care Act. The governor could decide that he lacks the political capital to fight for Insure Tennessee and the Hall Tax at the same time.

 

States Starting Session This Week:
Arkansas
Arizona
Colorado
Delaware
Georgia
Idaho
Illinois
Iowa
Kansas
Maryland
Minnesota
North Carolina
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wyoming

State of the State Addresses This Week:
Arizona Gov. Doug Ducey (watch here)
Idaho Gov. Butch Otter (watch here)
Indiana Gov. Mike Pence (Tuesday)
Iowa Gov. Terry Branstad (Tuesday)
New Jersey Gov. Chris Christie (Tuesday)
South Dakota Gov. Dennis Daugaard (Tuesday)
Washington Gov. Jay Inslee (Tuesday)
Wisconsin Gov. Scott Walker (Tuesday)
Georgia Gov. Nathan Deal (Wednesday)
West Virginia Gov. Earl Ray Tomblin (Wednesday)
Wyoming Gov. Matt Mead (Wednesday)
Colorado Gov. John Hickenlooper (Thursday)
Kansas Gov. Sam Brownback (Thursday)
Nevada Gov. Brian Sandoval (Thursday)
Vermont Gov. Peter Shumlin (Thursday) 

Governor’s Budgets Released This Week:
Idaho Gov. Butch Otter (Monday)
West Virginia Gov. Earl Ray Tomblin (Wednesday)
Nebraska Gov. Pete Ricketts (Thursday)
Nevada Gov. Brian Sandoval (Thursday)
Rhode Island Gov. Gina Raimondo (Thursday)
Vermont Gov. Peter Shumlin (Thursday)
Arizona Gov. Doug Ducey (Friday)


States Can Make Tax Systems Fairer By Expanding or Enacting EITC


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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


Tax Cuts Fall Flat in Idaho


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Tax cuts for corporations and wealthy individuals were on the table in Idaho this year, but lawmakers ultimately decided that adequately funding education is more important.  Governor Butch Otter started the year by trying to couple income and property tax cuts with an increase in education funding, but the legislature opted to drop the tax cuts entirely and double his education funding proposal.  Far from being upset at the development, Otter conceded that “I think that they found a better use for the money than tax relief this year.”

Idaho’s big business lobby reacted very differently, complaining that lawmakers didn’t “truly do what’s right for business.”  In their eyes, it’s more important to eliminate the property tax on large businesses’ equipment and machinery, despite the fact that the largest beneficiary of that plan (IDACorp) is already managing to avoid paying anything in state corporate income taxes.

The other major tax cut ideas under discussion were reducing the state’s corporate income tax rate, as well as its top personal income tax rate.  But in a report we issued last week, we showed that many companies are already paying very little in state corporate income tax thanks to “copious loopholes, lavish giveaways and crafty accounting.”  And when the Institute on Taxation and Economic Policy (ITEP) analyzed the impact of an earlier cut in the state’s top personal income tax rate, we found that most of the tax cuts flowed to the state’s top 1 percent of earners, and that the vast majority of Idahoans received no benefit.

Idahoans should feel relieved that none of these regressive ideas were enacted into law this year.


State News Quick Hits: State Policy Makers Need a Tax History Lesson


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The Cleveland Plain Dealer provided a helpful history lesson in its recent editorial on Governor John Kasich’s State of the State speech. In the speech, Kasich predictably called for yet another round of tax cuts to fix all that ails the state, but as the editorial board smartly points out, “if tax cuts were the key to rebirth, Ohio's troubles should have ended long ago.” The paper goes on to chronicle six substantial state income tax cuts implemented since 1985, none of which generated the economic boom promised by proponents. If state legislators unwisely go along with Kasich’s attempt to repeat history, they shouldn’t expect a different result.

The Idaho Trucking Association has come out in favor of a six-cent increase in the state’s 25-cent gas tax, adding Idaho to a list of states considering long-overdue gas tax hikes this year. If passed, the bill (PDF) would raise the state fuel tax two cents a year for the next three years, and would be the first such increase in 18 years. A gas tax increase is needed to close a $262 million hole in the state’s transportation budget, according to the Governor’s Task Force on Modernizing Transportation Funding. Republican Governor Butch Otter has been a vocal advocate of a gas tax increase, but was rebuked by the legislature on the issue in the past. AAA Idaho has come out against the bill in part because they don’t think it asks enough of the long-haul trucks that produce a disproportionate amount of wear and tear on the state’s roads. We will continue to monitor developments.

The Georgia Senate passed a constitutional amendment last week that would cap the state’s individual income tax rate at the current six percent level. As the Georgia Budget and Policy Institute has previously explained, this is an immensely silly idea, tying the hands of future policymakers by arbitrarily locking in current tax rules. The amendment’s key sponsor has described the effort as a “first step toward moving Georgia away from taxing income.” But personal income taxes are the fairest of the main revenue sources relied on by state governments. Senate Resolution 415 must now win a two-thirds vote in the House and then, if successful, approval by the voters in November.

In the 36 states where Governors are up for election, campaign season is well underway. This is especially true in Wisconsin. Governor Scott Walker isn’t likely to fulfill his 2010 campaign pledge of creating 250,000 jobs, but that isn’t stopping him from making a whole new promise. This time he is pledging that property taxes won’t be increased over his next term. Details about how he will keep property taxes at current levels aren’t available yet, but it’s likely he will recommend some kind of ill-advised property tax cap, as well as an increase in state aid to localities.


A New Wave of Tax Cut Proposals in the States


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Note to Readers: This is the third of a five-part series on tax policy prospects in the states in 2014.  Over the coming weeks, the Institute on Taxation and Economic Policy (ITEP) will highlight state tax proposals that are gaining momentum in states across the country. This post focuses on proposals to cut personal income, business, and property taxes.

Tax cut proposals are by no means a new trend.  But, the sheer scope, scale and variety of tax cutting plans coming out of state houses in recent years and expected in 2014 are unprecedented.  Whether it’s across the board personal income tax rate cuts or carving out new tax breaks for businesses, the vast majority of the dozen plus tax cut proposals under consideration this year would heavily tilt towards profitable corporations and wealthy households with very little or no benefit to low-income working families.  Equally troubling is that most of the proposals would use some or all of their new found revenue surpluses (thanks to a mostly recovering economy) as an excuse to enact permanent tax cuts rather than first undoing the harmful program cuts that were enacted in response to the Great Recession.  Here is a brief overview of some of the tax cut proposals we are following in 2014:

Arizona - Business tax cuts seem likely to be a major focus of Arizona lawmakers this session.  Governor Jan Brewer recently announced that she plans to push for a new tax exemption for energy purchased by manufacturers, and proposals to slash equipment and machinery taxes are getting serious attention as well.  But the proposals aren’t without their opponents.  The Children’s Action Alliance has doubts about whether tax cuts are the most pressing need in Arizona right now, and small business groups are concerned that the cuts will mainly benefit Apple, Intel, and other large companies.

District of Columbia - In addition to considering some real reforms (see article later this week), DC lawmakers are also talking about enacting an expensive property tax cap that will primarily benefit the city’s wealthiest residents.  They’re also looking at creating a poorly designed property tax exemption for senior citizens.  So far, the senior citizen exemption has gained more traction than the property tax cap.

Florida - Governor Rick Scott has made clear that he intends to propose $500 million in tax cuts when his budget is released later this month.  The details of that cut are not yet known, but the slew of tax cuts enacted in recent years have been overwhelmingly directed toward the state’s businesses.  The state legislature’s more recent push to cut automobile registration fees this year, shortly before a statewide election takes place, is the exception.

Idaho - Governor Butch Otter says that his top priority this year is boosting spending on education, but he also wants to enact even more cuts to the business personal property tax (on top of those enacted last year), as well as further reductions in personal and corporate income tax rates (on top of those enacted two years ago). Idaho’s Speaker of the House wants to pay for those cuts by dramatically scaling back the state’s grocery tax credit, but critics note that this would result in middle-income taxpayers having to foot the bill for a tax cut aimed overwhelmingly at the wealthy.

Indiana - Having just slashed taxes for wealthy Hoosiers during last year’s legislative session, Indiana lawmakers are shifting their focus toward big tax breaks for the state’s businesses.  Governor Mike Pence wants to eliminate localities’ ability to tax business equipment and machinery, while the Senate wants to scale back the tax and pair that change with a sizeable reduction in the corporate income tax rate. House leadership, by contrast, has a more modest plan to simply give localities the option of repealing their business equipment taxes.

Iowa - Leaders on both sides of the aisle are reportedly interested in income tax cuts this year. Governor Terry Branstad is taking a more radical approach and is interested in exploring offering an alternative flat income tax option. We’ve written about this complex and costly proposal here.

Maryland - Corporate income tax cuts and estate tax cuts are receiving a significant amount of attention in Maryland—both among current lawmakers and among the candidates to be the state’s next Governor.  Governor Martin O’Malley has doubts about whether either cut could be enacted without harming essential public services, but he has not said that he will necessarily oppose the cuts.  Non-partisan research out of Maryland indicates that a corporate rate cut is unlikely to do any good for the state’s economy, and there’s little reason to think that an estate tax cut would be any different.

Michigan - Michigan lawmakers are debating all kinds of personal income tax cuts now that an election is just a few months away and the state’s revenue picture is slightly better than it has been the last few years.  It’s yet to be seen whether that tax cut will take the form of a blanket reduction in the state’s personal income tax, or whether lawmakers will try to craft a package that includes more targeted enhancements to provisions like the Earned Income Tax Credit (EITC), which they slashed in 2011 to partially fund a large tax cut (PDF) for the state’s businesses. The Michigan League for Public Policy (MLPP) explains why an across-the-board tax cut won’t help the state’s economy.

Missouri - In an attempt to make good on their failed attempt to reduce personal income taxes for the state’s wealthiest residents last year, House Republicans are committed to passing tax cuts early in the legislative session. Bills are already getting hearings in Jefferson City that would slash both corporate and personal income tax rates, introduce a costly deduction for business income, or both.

Nebraska - Rather than following Nebraska Governor Dave Heineman into a massive, regressive overhaul of the Cornhusker’s state tax code last year, lawmakers instead decided to form a deliberative study committee to examine the state’s tax structure.  In December, rather than offering a set of reform recommendations, the Committee concluded that lawmakers needed more time for the study and did not want to rush into enacting large scale tax cuts.  However, several gubernatorial candidates as well as outgoing governor Heineman are still seeking significant income and property tax cuts this session.

New Jersey - By all accounts, Governor Chris Christie will be proposing some sort of tax cut for the Garden State in his budget plan next month.  In November, a close Christie advisor suggested the governor may return to a failed attempt to enact an across the board 10 percent income tax cut.  In his State of the State address earlier this month, Christie suggested he would be pushing a property tax relief initiative.  

New York - Of all the governors across the United States supporting tax cutting proposals, New York Governor Andrew Cuomo has been one of the most aggressive in promoting his own efforts to cut taxes. Governor Cuomo unveiled a tax cutting plan in his budget address that will cost more than $2 billion a year when fully phased-in. His proposal includes huge tax cuts for the wealthy and Wall Street banks through raising the estate tax exemption and cutting bank and corporate taxes.  Cuomo also wants to cut property taxes, first by freezing those taxes for some owners for the first two years then through an an expanded property tax circuit breaker for homeowners with incomes up to $200,000, and a new tax credit for renters (singles under 65 are not included in the plan) with incomes under $100,000.  

North Dakota - North Dakota legislators have the year off from law-making, but many will be meeting alongside Governor Jack Dalrymple this year to discuss recommendations for property tax reform to introduce in early 2015.  

Oklahoma - Governor Mary Fallin says she’ll pursue a tax-cutting agenda once again in the wake of a state Supreme Court ruling throwing out unpopular tax cuts passed by the legislature last year.  Fallin wants to see the state’s income tax reduced despite Oklahoma’s messy budget situation, while House Speaker T.W. Shannon says that he intends to pursue both income tax cuts and tax cuts for oil and gas companies.

South Carolina - Governor Nikki Haley’s recently released budget includes a proposal to eliminate the state’s 6 percent income tax bracket. Most income tax payers would see a $29 tax cut as a result of her proposal. Some lawmakers are also proposing to go much farther and are proposing a tax shift that would eliminate the state’s income tax altogether.


State News Quick Hits: Transformers and Tax Breaks for the Rich in Disguise


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Editorial boards at the Milwaukee Journal Sentinel and the Wisconsin State Journal have both (rightly) responded to Governor Walker’s property and income tax cut proposals by encouraging lawmakers to instead curb the state’s growing structural deficit, or put any surplus revenue toward serious problems like poverty reduction and enhancing K-12 education. Perhaps the editorial boards were persuaded by Institute on Taxation and Economic Policy (ITEP) findings that wealthier folks benefit more from the tax cuts than low-and middle-income families. For more on ITEP’s analysis read this Milwaukee Journal Sentinel piece.

Idaho’s House Speaker has proposed dramatically scaling back the state’s grocery tax credit in exchange for a regressive $70-80 million cut to the individual and corporate income tax rates. But economist Mike Ferguson of the Idaho Center for Fiscal Policy points out that the Speaker’s plan would amount to a giveaway to the rich, while further squeezing the middle class.  An Idahoan making $50,000 per year, for example, could expect to see about $305 tacked on to their state tax bill under this change. Governor Butch Otter has been saying the right things about taking a break from tax cuts (kind of) and instead making education spending a priority this year. But the Governor recently said he was open to the Speaker’s idea, and the Idaho Statesman provided a partial endorsement. Idaho legislators should tread carefully: raising taxes on the middle class to pass another trickle-down tax cut is bad public policy and even worse politics.

A Wichita Eagle editorial, “Pressure on sales tax”, shares our concerns about one of the major consequences of the tax cuts and “reforms” enacted in Kansas over the past two years.  With the gradual elimination of the state’s personal income tax and pressure on local governments to raise revenue, it is inevitable that the state’s sales tax rate will continue to rise at the detriment of low- and moderate-income working families who are stuck footing the bill. And, in order to have sufficient revenue to fund services over the long-run, Kansas lawmakers will need to make the politically difficult decision to broaden the sales tax base, something they’ve shown little stomach for so far. The editorial states, “as Kansas strains to deal with declining tax collections and reserves according to Brownback’s plan to become a state without an income tax, the sales tax will be one of the only places to go for more revenue.”

Indiana lawmakers want to get a better handle on whether their tax incentives for economic development are actually doing any good.  Last week, the House unanimously passed legislation that will require every economic development tax break to be reviewed ov

er the course of the next five years.  Our partner organization, the Institute on Taxation and Economic Policy (ITEP), recommends that all states implement these kinds of ongoing evaluations.

Illinois Governor Pat Quinn is pushing back against a string of bad publicity regarding film tax credits. Quinn says that an entertainment boom is occurring in Illinois in part because of the Illinois Film Services Tax Credit, an uncapped, transferable credit that was extended in 2011. What Governor Quinn fails to mention, however, is how much taxpayers lost in the process. The credit costs roughly $20 million a year, requiring higher taxes or fewer public services than would otherwise be the case. Research from other states indicates that only a small fraction of that amount would be recouped via higher tax receipts. Moreover, film subsidies often waste money on productions that would have located in the state anyway and are unlikely to do much good in the long-term since the industry is so geographically mobile. Indeed, one of the producers of Transformers 3 admitted that he would have filmed in Chicago even without the credit, which cost taxpayers $6 million. Instead, the decision was based on “the skyline, the architecture and the skilled crews here, among other factors.”


State News Quick Hits: Return of the "Fair Tax", Business Tax Cuts and More


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Some Indiana legislators aren’t too excited about Governor Mike Pence’s plan to take a major revenue source away from local governments.  Instead of prohibiting localities from taxing businesses’ equipment and machinery, House Speaker Brian Bosma has a more modest plan that would give local governments the option of eliminating those taxes on new investments.  But the Indiana Association of Cities and Towns doesn’t think Bosma’s plan is likely to do much good, explaining that “the more we slice the revenue side the less opportunity we have to create those kind of things which are just as big an economic development tool as reducing taxes.”

After cutting taxes for businesses and wealthy individuals these last couple years, Idaho Governor Butch Otter has changed his tune--at least slightly.  While the Governor wants to continue the state’s tax cutting race to the bottom, he says that boosting funding for education is actually his top priority this year.  Otter’s realization that public services matter to Idaho’s economic success is certainly welcome.  But rather than setting aside $30 million for tax cuts in his current budget, he may want to address the fact that “he’s not proposing any raises for teachers … nor is he proposing funding raises for any of Idaho’s state employees, despite a new state report showing state employee pay has fallen to 19 percent below market rates.”

Jason Bailey, Director of the Kentucky Center for Economic Policy gets it right in this op-ed describing how desperately the state needs tax reform and what the goals of tax reform should be. He notes that first and foremost “tax reform should raise significant new revenue now to begin reinvesting in Kentucky's needs.” He goes on to make the case that the tax reform should also improve the state’s tax structure in terms of fairness. He cites an Institute on Taxation and Economic Policy (ITEP) analysis which found that  currently ”low- and middle-income people pay nine to 11 percent of their incomes in state and local taxes in Kentucky while the highest-earning one percent of people pay only six percent.” Thankfully it looks like Governor Steve Beshear is on board with at least some of the principles outlined in this piece. During last week’s State of the Commonwealth (PDF) address he called for “more resources” to help restore cuts to vital services. The Governor’s own tax reform plan is scheduled to be unveiled later this month.

This piece in the Marietta Daily Journal discusses the radical “fair tax” proposal in Georgia. Some lawmakers are interested in eliminating the state’s income tax and replacing the revenue with a higher sales tax. When the Institute on Taxation and Economic Policy (ITEP) analyzed this proposal we found that this tax shift, despite not raising a dime of new revenue for the state, would actually increase taxes on most families.

Economists agreed last week that Michigan is set to see a nearly $1 billion revenue surplus over the next three years.  But, deciding on what to do with the boost in revenue will not be quite so easy.  There is some agreement amongst lawmakers that at least a portion of the surplus should be spent on tax cuts, some even calling tax cuts “inevitable.” Proposals vary greatly from lowering the state’s flat income tax rate (a permanent change) to handing out one-time rebate checks to taxpayers (recognizing that most of the surplus is one-time money) to restoring cuts to the state’s Earned Income Tax Credit (targeting tax cuts to low- and moderate-income taxpayers).   


Congress Members' Home States Have Fiscal Stake in Immigration Reform


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We still don’t know what the U.S. House of Representatives is going to do about immigration reform. The Senate passed a bill with a solid majority, and that legislation enjoys support from the Chamber of Commerce and the labor movement, from George W. Bush and Barack Obama.  What we do know, though, is that members of the House leadership had a nice long talk about it this week because they know the pressure is on them to do something. 

Also this week, the Institute on Taxation and Economic Policy (ITEP) released a study with a bland title, Undocumented Immigrants’ State and Local Tax Contributions, that held some interesting numbers. What it shows is that once unauthorized immigrants are legalized and participating fully in the tax system, state tax revenues will go up, just as the CBO showed they would at the federal level. In fact, the report shows that state tax payments from this population are already at $10.6 billion a year, and that will rise by $2 billion under reform. The report (with a clickable map on the landing page!) shows how those tax dollars are distributed state by state.

According to reports, the following Representatives are now the key players on whatever immigration bill comes from the House. So, in hopes of informing the debate, we are sharing the total amount of estimated annual revenue each of their respective states would get in the form of tax payments from legalized immigrants following reform.

Rep. Mario Diaz-Balart, Florida: $747 million a year, up $41 million
Rep. Raul Labrador, Idaho: $32 million a year, up $5.5 million
Rep. John Boehner, Ohio:  $95 million, up $22 million
Reps Michael McCaul, John Carter and Sam Johnson, Texas: $1.7 billion, up $92 million
Rep. Jason Chaffetz, Utah: $133 million, up $31 million
Reps Eric Cantor and Bob Goodlatte, Virginia: $260 million, up $77 million
Rep. Paul Ryan, Wisconsin: $131 million, up $33 million

Idaho Senate leadership took a difficult stand on a high-profile issue in favor of good tax policy by refusing to give the Girl Scouts a special tax break on their famous cookies. Their counterparts in the Idaho House, however, weren’t nearly as principled, bowing to the pressure of some of the nation’s youngest tax policy lobbyists and voting 59-11 in favor of the special break. The Girl Scouts plan to return to the statehouse next year in hopes of convincing the Senate to support the new tax subsidy, which is like any other (PDF) subsidy.

Nevada lawmakers are debating whether they should join Maryland and Wyoming as the third state to raise its gasoline tax this year.  The Institute on Taxation and Economic Policy (ITEP) provides some important context with a new chart showing that even if the state’s gas tax were raised by 20 cents over the next 10 years (as the Senate is considering), the rate would still be below its historical average in value.

Texas business owners are pushing state lawmakers to repeal the state’s largest business tax, trotting out familiar arguments about the economic benefits of tax cuts. Fortunately, as the Austin American Statesman reports, “a $1.2 billion annual price tag ... appears to have doomed the effort.”

Massachusetts House lawmakers set up a showdown with Governor Patrick over transportation funding in the Bay State with the passage of their less ambitious revenue package this week. Governor Patrick’s budget includes almost $2 billion in new revenues to boost transportation and education spending raised primarily through increasing the personal income tax. The Governor’s plan also includes a sharp reduction in the state’s sales tax. The House package, by contrast, raises just over $500 million through increases in fuel and cigarette taxes as well as a few business tax changes. Governor Patrick threatened to veto any tax package from the House or Senate that does not raise significant revenue for both transportation projects and education.

(Photo courtesy Bitterroot Star)


No Business Tax Repeal in Idaho, Only a Pared-Back Cut


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Idaho lawmakers have opted for a dramatically scaled back tax cut on business equipment.  Rather than repealing the business personal property tax entirely as Governor Butch Otter had proposed, the House and Senate have sent him a bill that exempts the first $100,000 of property from the tax.  This change eliminates the tax for 90 percent of Idaho businesses while costing the treasury a fraction of the amount of outright repeal.

Even with the bill’s $20 million price tag, the Associated Press (AP) reasonably described it as a victory for counties and schools that would have been hit hard if the tax were repealed.  The AP also called it a “setback” for big businesses’ major lobby—the Idaho Association of Commerce and Industry (IACI).  IACI has pledged to continue lobbying for full repeal next year.

Had the business personal property tax been repealed in full, the biggest winner would have been Idaho Power, which would have seen its tax bill drop by anywhere from $10.5 to $15.3 million per year. Our partner organization, the Institute on Taxation and Economic Policy (ITEP), helped put this property tax cut into context with a report explaining that Idaho Power already pays nothing in state corporate income taxes.  Looking at nationwide state corporate tax payments, ITEP showed that from 2007 to 2011, the company actually collected a $7 million state tax rebate despite earning $623 million in profits. That amounts to an overall effective tax rate of negative 1.1 percent.

While it’s discouraging that lawmakers prioritized cutting taxes this session on the heels of last year’s regressive income tax cut, the decision to keep the business personal property tax on the books is a welcome bit of fiscal sanity.

A story in the Arkansas News show why all citizens should be concerned about the bad design (PDF) of state gasoline taxes. Arkansas’ gas tax hasn’t been raised in over a decade, during which time it has lost about a quarter of its value due to rising construction costs alone. In order to offset those losses, lawmakers are debating a bill that would transfer $2.3 billion away from other areas of the state budget in order to pay for roads and bridges over the next 10 years.  At a rally protesting the idea, Rich Huddleston of Arkansas Advocates for Children and Families ticked off just some of the state services that would have to be cut: “education, higher education, Medicaid and health services for vulnerable populations, services for abused and neglected children, juvenile justice services for kids … public safety and corrections and pre-K and child care for our youngest populations.”

Girl Scouts in Idaho are seeking out a special sales tax loophole for selling their cookies so that they can keep an extra 22 cents on every box sold. There is no tax policy reason to exempt Girl Scout cookies from the sales tax. If enacted, this break would be a true “tax expenditure” -- a state spending program grafted onto the tax code (PDF) in a way that exempts it from the normal processes used to manage state spending year in and year out.

Minnesota Governor Mark Dayton is traveling the state on a “Meetings with Mark” tour to discuss his budget and tax plans with voters. Last week the Governor unveiled a revised tax plan, but minus the sales tax base expansion from his original proposal.  Wayne Cox of Minnesota Citizens for Tax Justice supports the new proposal as it retains two crucial pieces of the original – an income tax hikes for wealthy Minnesotans and a cigarette tax hike. “Gov. Mark Dayton’s new budget is a blueprint for fairer taxes and a brighter future for Minnesota families.  His reforms pave the way for new jobs, healthier lives and a better-educated workforce. Education and health experts around the state have praised Gov. Dayton’s reforms. Future economic growth depends on these changes.”

In response to Ohio Governor John Kasich’s regressive proposal to expand the state sales tax base and lower income taxes, Policy Matters Ohio (using ITEP data) released a paper reminding Ohioans how beneficial an Earned Income Tax Credit (PDF) could be to low-income families hit hardest by an increased sales tax.

Here’s a powerful column from the Atlanta Journal Constitution citing ITEP data. Advocating against a state Senator’s proposal to raise the Georgia sales tax and freeze revenues into the future, Jay Bookman writes: [h]e has proposed two amendments to the state constitution that, if approved by voters, would lead to significantly higher taxes on the vast majority of Georgia households, while sharply reducing taxes on the wealthiest. That ought to be controversial under any circumstances. As it is, lower- and middle-income Georgia households already pay a significantly higher percentage of their income in state and local taxes than do the wealthy. The Shafer amendments would make that disparity considerably worse.”


Idaho Ponders Tax Break for a Company that Pays Nothing in State Income Taxes


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For months, Idaho lawmakers have been seriously considering repealing the personal property tax on business equipment.  If enacted, repeal would cost local governments and public schools over $140 million a year, and would likely force cuts in public services and increases in property taxes on other taxpayers.

The single biggest winner under repeal would be Idaho Power, held by IDACorp, which will reportedly see its taxes fall by $10.5 to $15.3 million per year if repeal is enacted.  A new report from our partner organization, the Institute on Taxation and Economic Policy (ITEP), helps put this costly tax proposal into perspective by looking at the state income taxes being paid (or not) by the plan’s largest beneficiary.

According to IDACorp’s financial disclosures, the company earned $623 million in U.S. profits over the last five years (2007-11) but paid nothing in state income taxes to the states in which it operates.  In fact, the company’s effective state income tax rate across all states was actually negative.  IDACorp received $7 million in tax rebates from the states between 2007 and 2011, giving it an effective tax rate of negative 1.1 percent for the five year period as a whole.

The proposed repeal of the personal property tax in Idaho would leave the state corporate income tax as the main means by which companies like IDACorp contribute to the public investments that allow them to do business and generate profits. Before lawmakers take such a step, they should at least know whether the state corporate tax is working to begin with. In Idaho and virtually every other state, however, neither elected officials nor the tax-paying public have access to this kind of information. Obviously, they should (PDF).

Read the report

There’s no doubt the fiscal cliff compromise reached on New Year’s Day will impact state budgets in complex ways, as CTJ’s partner organization, the Institute on Taxation and Economic Policy (ITEP) will be explaining in the coming weeks.  In the meantime here’s an important blog post from the Wisconsin Budget Project on why extending the federal estate tax cut will actually reduce Wisconsin state tax revenues.

The Roanoke Times is wrong to call Virginia Governor Bob McDonnell’s plan to eliminate the gas tax “worth debate” (we explain why here), but the editors hit the nail on the head with this: “The component of McDonnell's plan that does not merit consideration is his reliance on money plundered from education, health care, public safety and other programs to backfill transportation. The highway program is starved for money because the gas tax rate has not changed since 1987. Are teachers and their students to blame? No, they are not. Did doctors and mental health workers cause the problem? Absolutely not. Did sheriff's deputies and police officers? No. Legislators themselves are at fault, and it is shoddy business for them to strangle other services rather than accept responsibility.”

Focus on State of the State: In his combined inaugural and state-of-the-state address last week, Vermont Governor Peter Shumlin proposed cutting his state’s refundable Earned Income Tax Credit (PDF) by more than half to pay for an expanded low-income child care subsidy.  The Public Assets Institute called the governor out, observing that his proposal “would take from the poor to give to the poor.”  Rather than supporting broad-based tax increases to boost available revenue to pay for state priorities such as affordable child care, Governor Shumlin’s plan will substantially raise taxes on the very families he purports to help. From the Public Assets Institute: “...if the governor is going to insist on a zero-sum game and take from one group of Vermonters in order to “invest” in another, he should look elsewhere for the child care money. Vermont’s business tax credits would be a good place to start. The EITC was created to reduce poverty, and it’s been a great success. The same can’t be said about business tax credits and jobs.”

Focus on State of the State: During his 2013 State of the State speech, Idaho Governor Butch Otter officially outlined his intention to eliminate the state’s personal property tax. The state policy team at ITEP recently previewed this proposal (among others), saying that Idaho’s “personal property tax raises 11 percent of property tax revenue statewide, and in some counties it raises more than 25 percent. Some legislative leaders in the Senate have expressed doubts about the affordability of repeal, especially on the heels of last year’s $35 million income tax cut for wealthy Idahoans—a change that put more than $2,600 in the pocket of each member of Idaho’s top one percent (PDF), while failing to cut taxes at all for four out of every five Idaho families.”

Months after cutting the state income tax for wealthy taxpayers, Idaho’s budget situation isn’t looking good.  The Associated Press reports that “earlier this year it looked like the state had sufficient revenue to provide a $36 million tax cut, as well as give state employees a 2 percent raise” but that surplus has already evaporated. In fact, there was never real consensus about the state’s revenue projections in the first place.

Kansas Governor Sam Brownback admits his radical tax cut package is a “real live experiment.”

The South Carolina House approved a measure to keep the state running if it doesn’t have a budget by July 1 when the new fiscal year begins.  The Senate and House are currently bickering over how to implement a (regressive) tax cut for so-called "small" business owners.

It’s back! New Jersey Assembly Democrats are once again planning to introduce a millionaire’s tax into the budget debate.  Proponents of the tax on the wealthiest New Jerseyans want to use the $800 million in revenue it would raise to boost funding to the state’s current property tax credit program for low and middle-income homeowners and renters.  Governor Chris Christie has already vetoed a millionaire’s tax twice. 

The clever folks at Together NC, a coalition of more than 120 organizations in North Carolina, held a Backwards Budget 5K race this week to “to shine a spotlight on the legislature’s backwards approach to the state budget.” 

California Governor Jerry Brown’s revenue raising initiative (which temporarily raises income taxes on the state’s wealthiest residents and increases the sales tax ¼ cent) has officially qualified for the state’s November ballot. Two additional tax measures will join Brown’s plan on the ballot: a rival income tax measure pushed by a billionaire lawyer to fund education and early childhood programs; and an initiative to increase business income tax revenues by implementing a mandatory single-sales factor (PDF backgrounder) formula.

The Pittsburgh Post-Gazette editorializes in favor of capping Pennsylvania’s “vendor discount,” a program (PDF) that allows retailers to legally pocket a portion of the sales taxes they collect in order to offset the costs associated with collecting the tax.  The Gazette explains that a handful of big companies are taking in over $1 million per year thanks to this “antiquated” giveaway.  Computerized bookkeeping takes the effort out of tax collecting and a cap would only impact the national chain stores who disproportionately benefit from the program.


New Analysis: Idaho House Tax Plan Stacked in Favor of the Wealthy


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Talk about wrong priorities.  Earlier this month the Idaho House of Representatives approved a bill that hands the state’s wealthiest 1 percent a tax cut of about $2,600, while giving more than 80 percent of Idaho families precisely nothing.

In a new analysis, the Institute on Taxation and Economic Policy (ITEP) estimates that over half of the plan’s benefits would flow to the richest one percent of taxpayers, and four-fifths of the benefits would go to the best-off five percent of Idaho residents.

While it might seem like a bill stacked so blatantly in favor of the wealthy would be a tough sell in an election year, it actually has a real chance of passage.  The bill passed the House by a convincing 49-20 margin, it’s a top priority of Governor Butch Otter, and the state’s business lobbyists are tickled pink, referring to the cut as “manna from heaven.”

Fortunately, the plan does have some influential opponents.  The Chair of the House tax-writing committee complained about the long-term affordability of the plan, saying “That’s one-time money that we’re doing ongoing tax relief with…I don’t think it works.”  Meanwhile, the chair of the Senate’s tax committee is also cool to the idea, thanks in part to the very minimal (or even nonexistent) benefits it would provide to most families.

Supporters of the bill have predictably tried to rationalize its lopsided impact by claiming it will benefit the state’s economy, but as ITEP and Idaho-based analysts have pointed out, these claims amount to little more than a modern day snake oil sales pitch.


Quick Hits in State News: ITEP Testifies in Maryland, and More


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The Institute on Taxation and Economic Policy (ITEP) testified this week in favor of a bill that would reinstate Maryland’s recently expired “millionaires’ tax.”  As ITEP explains in its testimony, the millionaires’ tax would make the state’s regressive tax system slightly less unfair.  And despite predictable claims from the anti-tax crowd, there’s no reason to think that the tax would harm the state’s economy.

Confirming our fears, it looks like Idaho lawmakers’ plan to cut taxes for the wealthiest and businesses in Idaho is moving forward. Legislation to reduce the top income tax rate passed out of the House Revenue and Taxation Committee.  In more bad Idaho news, it will not be joining the ranks of states with an Amazon tax this year as the bill failed to gain enough support.

It’s only March, yet Sales Tax Holiday season is already rearing its head. Alabama Governor Robert Bentley supports a “storm gear” holiday in advance of tornado season.  Lawmakers in Georgia are combining a sales tax holiday (bad idea) with a proposal to require online retailers to start collecting sales taxes from Peach State e-shoppers (good idea) in an effort “to kill any talk that a tax increase is afoot.”  And, Florida House members have already approved another year of a back to school tax holiday planned for August. 

ITEP’s Who Pays study was cited in an Associated Press article about heroic efforts to start taxing capital gains and other reforms in Washington State.  Because Washington has no personal or corporate income tax, and instead relies heavily on sales taxes, it has the most regressive tax system in the country.  At a press conference this week in support of the capital gains tax, Rep. Laurie Jinkins said, “Our fundamental problem in this state, in terms of revenue long term, has to do with fairness, adequacy of resources and stability of the resources that we bring into this state.”

  • In this upside down world where closing a corrupt tax loophole is called a tax hike (like that’s a bad thing), some states are moving towards amending their constitutions to require a two thirds supermajority to raise taxes or borrow money. This is a shame. New Hampshire Senators, for example, are expected to vote on a supermajority proposal later this week. Here’s an excellent editorial from the Idaho Statesman and a new report from the Center on Budget and Policy Priorities about the perils of supermajorities.
  • It’s been just over a month since Kansas Governor Brownback unveiled his tax plan and the criticism continues. His plan, which would raises taxes on the bottom 80 percent of the income distribution, was recently called “radical and troubling.” Attention is shifting to the House, where leaders are now introducing their own tax proposal which includes the most costly and regressive elements of the Governor’s proposal.
  • Kudos to Kentucky Governor Steve Beshear for appointing his 23 member blue ribbon commission to study the  state’s tax system and propose ways to reform it.  Let’s hope they heed the governor’s call for "a tax system that produces adequate revenue that meets the needs of our people," and his admonition that there comes a time "when slashing programs and services starts a downward spiral from which recovery is too difficult and too steep."
  • Good news from Nebraska, where it looks like support is weak for the Governor’s proposal to eliminate the inheritance tax.  Legislators know that revenue from this tax goes directly to counties, which would have to cut services or make up the revenues with regressive tax increases.
  • Finally, in planning your Valentine’s dinner, you might think twice about eating at a Yum Brands restaurant (KFC, Taco Bell, and Pizza Hut) or serving Campbell Soup, H.J. Heinz or ConAgra Foods products.  Our Corporate Tax Dodging in the Fifty States, 2008-2010 found that, despite being profitable, these companies didn’t pay any federal corporate income taxes in at least one year between 2008-2010.

 


Trending in the States: Cutting Corporate Taxes Because Lobbyists Say You Should


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Note to Readers: Over the coming weeks, ITEP will highlight tax policy proposals that are gaining momentum in states across the country.  This article takes a look at efforts to roll back business taxes in states based on the shopworn, erroneous argument that tax cuts are good for the economy.

Robust corporate income taxes ensure that large and profitable corporations that benefit from publicly subsidized services (transit that delivers customers, education that trains workers, electricity that powers industry, etc.) pay their fair share towards the maintenance of those services. But, as ITEP’s recent report, Corporate Tax Dodging in the Fifty States, 2008-2010, found, twenty profitable Fortune 500 companies paid no state corporate income taxes over the last three years, and 68 paid none in at least one of those three years, even as state budgets are stretched to the point of breaking.  

As a new legislative season gets underway, too many political leaders are bashing taxes in general and business taxes in Governor Nikki Haleyparticular.  Here are some states to watch for more bad business tax policy (followed by a few glimmers of hope).

South CarolinaSouth Carolina Governor Nikki Haley is following through on her misguided campaign promise and recently proposed eliminating the state’s corporate income tax over four years. This despite the fact that South Carolina’s corporate income taxes as a share of tax revenue are among the lowest in the country, at a mere 2.4 percent.

KentuckyState Representative Bill Farmer has filed legislation that, instead of strengthening the tax, would repeal the state’s corporate income tax entirely. Farmer worked as a “tax consultant” and has been an anti-tax crusader in the Kentucky legislature since 2003.

Nebraska – Governor Dave Heineman recently unveiled his plan to reduce the top corporate income tax rate from 7.81 to 6.7 percent (and eliminate other key state revenue sources, too).

Florida Governor Rick ScottFloridaIn his recent State of the State address, Governor Rick Scott said that taxes and regulations were “the great destroyers of capital and time for small businesses.”  And – no surprise here – he also called for lowering business taxes.

IdahoGovernor Butch Otter has called for $45 million in tax cuts but is leaving the details to the legislature.  Of course, when a lobbyist from the Idaho Chamber Alliance of businesses calls the governor’s position “manna from heaven,” there’s a good chance some of those cuts will be given to business.

A few signs of sanity. In Connecticut , the governor is looking to improve the return on tax-break investment for the Nutmeg state. Perhaps he’s learned from states like Ohio, where a recent report issued by the attorney general showed that fewer than half of all companies receiving tax subsidies actually fulfilled their commitments in terms of job creation or economic growth.   We also see combined reporting getting attention in a couple of states.  It’s smart policy that discourages companies from creating multi-state subsidiaries to shelter their profits from taxes. We will report on other positive developments as warranted – so watch this space.

Photo of Rick Scott via Gage Skidmore and Photo of Nikki Haley via Mary Austin Creative Commons Attribution License 2.0


Flood of Bad Tax Ideas Coming from the States


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Ill-conceived tax ideas are coming out of statehouses and governors’ mansions at a faster rate than we’ve seen in quite a while.  Here’s a quick summary on recent proposals receiving serious consideration in Arizona, Florida, Idaho, Maine, Michigan, Minnesota, New Jersey, Ohio, and Wisconsin.

Arizona: Business tax breaks and property tax breaks are being pushed by the Arizona Chamber of Commerce, and legislative leaders are taking them seriously.  The specifics have yet to be worked out, but expect at a minimum to see tax subsidies ostensibly aimed at boosting business hiring and investment.  As the Center on Budget and Policy Priorities (CBPP) has explained, however, states cannot stimulate their economies by cutting taxes.

Florida: Newly elected Governor Rick Scott continues to insist that “the way to get the state back to work is to cut property taxes and phase-out the corporate income tax, and we’re going to get that done.”  The state’s enormous budget gap has caused Senate President Mike Haridopolos to approach the issue more cautiously, though he still claims that “if we see some opportunities for tax relief that we feel absolutely confident will create more jobs and actually grow the economy, we’re open to them.”  Haridopolos is also pushing a “Taxpayer Bill of Rights” (TABOR) proposal similar to the one that decimated Colorado’s education funding stream.

Idaho: Legislators in Idaho — including the House majority leader — are preparing to revive an idea they first proposed toward the end of last year’s session: slashing the state’s corporate income tax rate from 7.6 percent to 4.9 percent.  Idaho legislators are also discussing cutting the state’s top personal income tax rate from 7.8 percent to 4.9 percent.  Each of these changes would drastically reduce the amount of revenue available to pay for vital state services, though by proposing that these changes be phased-in gradually over the course of the next decade, legislators are hoping to avoid having to spend too much time thinking about what state services will eventually have to be cut.

Maine: State Tax Notes (subscription required) reports that the chairman of Maine’s Senate tax committee plans to make cutting the state’s personal income tax rate his top priority.  Unlike the tax reform package that Maine voters recently rejected, this cut would be paid for not by broadening the state’s tax base, but by cutting spending and hoping for strong revenue growth.  Maine’s legislators are also apparently contemplating a constitutional amendment that would require supermajority support in the legislature in order to raise taxes.  A supermajority requirement of this type would result not only in lower state services, but also in more tax loopholes.  This is because such a requirement would prevent a simple majority of legislators from eliminating a tax loophole unless they also enlarged another loophole or lowered tax rates in a way that resulted in no net revenue gain.

Michigan: House and Senate leadership on both sides of the aisle in Michigan have inexplicably come to an agreement that the state’s EITC should be cut.  It’s unclear why tax increases on low-income families have suddenly become so popular in Michigan.  If Governor Rick Snyder gets his way, some of the revenue generated by taxing low-income families will likely to be used to pay for his proposed $1.5 billion cut in state business taxes.

Minnesota: The Republican leaders of Minnesota’s state legislature made clear this week that business tax cuts will be one of their top priorities.  One Senate leader has proposed cutting the state’s corporate income tax rate in half by 2017 and freezing statewide taxes on business property.  Fortunately, Minnesota Governor Mark Dayton is likely to vigorously oppose these cuts.

New Jersey: Democratic legislators are seriously considering a move to single sales factor apportionment for their corporate income tax.  The bill has already cleared the relevant committee, and will move to the full Senate soon.  See ITEP’s policy brief criticizing the single sales factor for state corporate income taxes.

Ohio: Ohio’s House and Governor have declared repealing the state's estate tax to be a top priority.  Local governments receive a majority of the revenue generated by Ohio’s estate tax, and therefore oppose its repeal.  Ohio’s House leaders would also like to create a business tax credit for hiring new employees.

Wisconsin: Governor Scott Walker has proposed a variety of business tax breaks and, as in Maine, the creation of a supermajority requirement to raise taxes.  More bad ideas are almost certain to come from Wisconsin in the weeks ahead, as Governor Walker made clear during last year’s campaign that he supports the outright repeal of Wisconsin’s corporate income tax.

For a review of the most significant state tax actions across the country this year and a preview for what’s to come in 2011, check out ITEP’s new report, The Good, the Bad, and the Ugly: 2010 State Tax Policy Changes.

"Good" actions include progressive or reform-minded changes taken to close large state budget gaps. Eliminating personal income tax giveaways, expanding low-income credits, reinstating the estate tax, broadening the sales tax base, and reforming tax credits are all discussed.  

Among the “bad” actions state lawmakers took this year, which either worsened states’ already bleak fiscal outlook or increased taxes on middle-income households, are the repeal of needed tax increases, expanded capital gains tax breaks, and the suspension of property tax relief programs.  

“Ugly” changes raised taxes on the low-income families most affected by the economic downturn, drastically reduced state revenues in a poorly targeted manner, or stifled the ability of states and localities to raise needed revenues in the future. Reductions to low-income credits, permanently narrowing the personal income tax base, and new restrictions on the property tax fall into this category.

The report also includes a look at the state tax policy changes — good, bad, and ugly — that did not happen in 2010.  Some of the actions not taken would have significantly improved the fairness and adequacy of state tax systems, while others would have decimated state budgets and/or made state tax systems more regressive.

2011 promises to be as difficult a year as 2010 for state tax policy as lawmakers continue to grapple with historic budget shortfalls due to lagging revenues and a high demand for public services.  The report ends with a highlight of the state tax policy debates that are likely to play out across the country in the coming year.


State Transparency Report Card and Other Resources Released


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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.


Will Idaho Balance Its Budget by Making Food More Expensive for the Poor?


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If the recent rumblings about eliminating Idaho’s grocery tax credit become more than talk, the state will join a handful of others (Virginia, New Jersey, Minnesota, and Georgia) to address budget shortfalls on the backs of their most vulnerable residents. 

Some lawmakers seem to think the Gem State can no longer afford the annual $100 million cost of the grocery tax credit.  But, a growing number of Idahoans are living in poverty (the state’s poverty rate increased from 12.9% in 2008 to 14.3% in 2009) and those individuals can also ill-afford what amounts to a regressive tax increase as they work to make ends meet during challenging economic times.

When Idaho first adopted a state sales tax in the 1960's, lawmakers decided to leave groceries in the sales tax base and created a refundable grocery tax credit to partially offset the cost of sales taxes paid on the most basic of goods. 

Recently, the per person credit was increased and made available for the first time to those too poor to owe income taxes but who still must pay sales taxes on groceries.  While the credit is available to households at all income levels, taxpayers with taxable income under $1,000 and older adults receive a slightly larger amount per person. 

Understanding that fiscal times are tight, limiting the grocery credit to low- and moderate-income households, those who are most impacted by the regressive nature of the sales tax, is a smarter approach than outright eliminating the credit.

 

 

 

 

 


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


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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


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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.


New ITEP Report Examines Five Options for Reforming State Itemized Deductions


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The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.


State Budget Deficits Drive Greater Interest in Examining Tax Breaks


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State budget woes appear to be spurring an increasing amount of interest in re-examining state tax breaks.  The Governors of both Michigan and Idaho have taken steps to ramp up the scrutiny directed at their state’s tax breaks, while a new report out of Oklahoma and an editorial highlighting legislation in Georgia this week have urged similar actions.

In Michigan, the Detroit Free Press urged the adoption of Governor Granholm’s proposal to thoroughly analyze the merits of every tax break, and to saddle most breaks with sunset provisions that would force lawmakers to either debate and renew these breaks, or to let them expire.  This proposal would help to remedy the lack of scrutiny given to tax breaks because of their exclusion from the appropriations process.  Notably, the proposal’s use of sunsets as a mechanism for forcing review seems to resemble a law enacted in Oregon just last year.

In Georgia, the need for additional scrutiny of tax breaks is even more desperate.  Because the state lacks a tax expenditure report, Georgia lawmakers are not even aware of the full range and cost of special breaks that their tax system provides.  SB 206, which was endorsed by a Macon Telegraph editorial this week, would remedy this problem by finally requiring the creation of such a report.  The editorial rightly points out that the bill could be strengthened by requiring an analysis of each tax break’s effectiveness, but at this point, even simply producing a list of tax breaks and their costs would be a major step forward.  The Georgia Budget and Policy Institute has been pushing for the creation of such a report for many years.

Idaho governor Butch Otter has also shown some tentative interest in figuring out whether his state’s tax breaks are worth their cost.  While Governor Otter continues to hold out hope that the state’s revenues will rebound soon, he also recently directed the state’s Tax Commission to study sales tax exemptions in the event that closing some of those exemptions becomes necessary to fill the state’s budget gap next year.  If done carefully, the studies produced by the Tax Commission could provide a wealth of information on breaks that have so far received a relatively small amount of scrutiny.
    
The Oklahoma Policy Institute has also added to the progress being made on this issue with a new report outlining what should be done to scrutinize tax breaks in a systematic fashion.  Their report, titled “Let There Be Light: Making Oklahoma’s Tax Expenditures More Transparent and Accountable,” provides twelve specific recommendations for realizing this vision.  Among those recommendations are: improving the state’s existing tax expenditure report, sunsetting all tax incentives, requiring the extension of a sunsetting incentive to undergo a “performance review,” and developing a unified economic development budget.


Corporate Taxes in the News


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In at least three states, lawmakers are ignoring fiscal reality and advocating for cuts in one of the most progressive taxes levied by states -- the corporate income tax. The general consensus among experts is that most states aren't out of the woods yet when it comes to economic recovery. That means their budget gaps are going to be a problem for some time. Yet, legislators in Florida, Idaho, and Iowa are pushing the same old proposals to reduce state revenue in order to benefit corporations.

For example, Florida Governor and U.S. Senate hopeful Charlie Crist is crafting a plan that would cut the state's corporate income tax. Details remain sketchy, but he is quoted as saying that he'd "love" to reduce the tax "because I think it would help job stimulation."

Actually, any business person will tell you that he or she wants to hire workers whenever there is demand for their products. If no one is ready to buy orange juice, Tropicana is not going to create jobs regardless how many tax cuts Governor Crist throws at them. Further, there is ample evidence that corporate taxes aren't a major factor in business location decisions because those decisions are affected by numerous other factors. (For instance, Tropicana will not try growing oranges in Alaska just because Alaska offers a tax break.)

The corporate tax cut madness has popped up in other parts of the country. Idaho Representative Marv Hagedorn is proposing cutting both the personal and corporate income tax rates by a third. However, it appears that more sensible minds will prevail. The House Revenue and Tax Commmittee chairman calls the proposal "more political statements than they are reality. I just think it's a tough sell to say we're going to reduce somebody's taxes -- I don't care who it is -- when we're cutting programs left and right."

Cutting taxes is also a hot topic in the Republican primary for Iowa Governor, as the candidates attempt to outdo each other with little thought to the impact that their proposals will actually have on the services Iowans depend on. Two of the Republican candidates are reportedly open to the idea of completely eliminating the state's corporate income tax.


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


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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.


State Revenue Matters In the News


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With legislative sessions starting in just a few months, advocates and the press are weighing in on the options available to cash-strapped states. Kentucky lawmakers are urged to find a real solution to the state's fiscal woes. Idaho's Governor is suddenly open to delaying an improvement in an important tax justice tool. Maryland advocates urge a balanced approach to this year's budget, Arizona researchers offer insight into the cost of previous tax cuts, and Ohio lawmakers rethink their own previously enacted tax cuts.

Kentucky

Late last week, Kentucky's Lexington-Herald Leader published an editorial urging lawmakers to reform that state's tax code, saying "Our representatives and senators turned to a 'smoke and mirrors' approach to budgeting because they simply lacked the backbone to do the right thing: Pass the kind of real tax reform that could provide state government with a stable, sustainable revenue base." They fear that during this session lawmakers will continue to cut important programs instead of fixing the state's revenue stream. The paper warns the lawmakers appear to be on track to continue "robbing Peter to pay Paul...Only this time, Peter is a schoolchild."

Idaho

Tax fairness advocates in Idaho may be facing a similar uphill battle. Governor Butch Otter, once a strong proponent of the state's grocery tax credit (which helps to offset the state's sales tax on food), has now left the door open for delaying an increase in the credit amount in order to save the state $15.5 million. Of course, now is precisely the wrong time to delay such an important credit specifically targeted to help offset the state's regressive sales tax on food. While it's important to keep all options on the table, during this time of fiscal upheaval delaying the increase in this credit is an option that should be quickly dismissed.

Maryland

Recently the Maryland Budget and Tax Policy Institute released a paper urging lawmakers to approach the state's budget woes in a balanced way. The report makes a strong case against a cuts-only budget. "An all-cuts budget solution would sacrifice too many of the things that make Maryland such a great state." The report goes on to offer a list of concrete revenue-raising options available to lawmakers interested in preserving the state's education, health, and transportation programs.

Arizona

Arizona's budget woes are dire. A new report from the Arizona Children's Action Alliance describes the state's budget crater, which is projected to be $1.5 billion for FY10 and $2.5 billion in FY11. The report is useful for any Arizona advocate interested in understanding the impact that previous rounds of tax cuts have had on the resources available to fund public services. It explains "why any [budget] package that results in further net loss to the state general fund endangers the common benefits that Arizona counts on." The report goes on to offer ten reasons why the state should freeze and reverse the harmful tax cuts from recent years.

Ohio

Last week, the Ohio House of Representatives voted to suspend the state's scheduled income tax rate reductions for two years to help plug a budget hole. Governor Ted Strickland congratulated members of the House, saying they "acted quickly, courageously and responsibly to protect Ohio schools from devastating cuts while reducing their own pay in solidarity with struggling Ohio families and businesses." Now the legislation moves to the state's Republican controlled Senate. Let's hope lawmakers there follow in the House's footsteps and put the needs of Ohio first.


Property Tax "Reform" Voted Down in Idaho


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Recently, the Idaho House of Representatives voted nearly unanimously (68-1) in favor of legislation to allow nonitemizers to write off their property taxes, but this week the Senate defeated the measure. In Idaho, currently only taxpayers who itemize on their state income tax forms are eligible for the deduction. Ultimately the Senate defeated the legislation because of its $2 million price tag. But folks really interested in property tax reform would be wise to stay away from poorly targeted deductions and instead take a second look at expanding Idaho's elderly property tax circuit breaker (a credit designed to assist low income taxpayers with their property tax bills) and expand the credit to include nonelderly homeowners and renters.


Food Fight: Lawmakers Must Decide Whether Food Should Be Subject to Sales Taxes


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The debate over whether and how to tax food has been in the news a lot lately. On the one hand, policymakers need the revenues generated from applying sales taxes to a broad base of goods and services. On the other hand, taxing food is regressive, and lawmakers always believe they will benefit politically from eliminating some portion of taxes. The result is that only a handful of states tax food.

This is currently a topic of a debate in Utah, where Governor Jon Huntsman wants to remove the sales tax on food entirely. But according to the Senate Majority Leader Sheldon Killpack, "(There's) really not much of an appetite for removing the rest of the sales tax." Governor Huntsman's plan to replace the revenue lost from removing the 2.75 percent sales tax on food is to increase the cigarette tax to $3.00 a pack. There are many reasons why increasing the cigarette tax is a lousy idea, regressivity and declining base being the most serious. Utah policymakers should follow the lead of other states like Idaho which tax food just as other goods are taxed, but then offer a targeted grocery tax credit ensuring that low-income folks receive some assistance for paying sales taxes.

Speaking of Idaho, Governor Butch Otter recently championed an increase in the state's grocery tax credit, but now that scheduled increase is threatened because the state is having difficulty balancing its budget. Kudos to Governor Otter for backing the scheduled increase in his State of the State address, rightly saying, "Idaho taxpayers are struggling. And that means we must fulfill our commitment to keep increasing the grocery tax credit. The budget I'm submitting today does just that and holds us to a principle-based policy that empowers Idahoans." While it may be tempting to delay the scheduled credit increase because of budget concerns, it's necessary that those most in need receive an increase in the credit that helps offset the sales tax they pay on food. For more on low-income credits and sales tax relief, read ITEP's policy brief.


Gas Tax Increases: An Increasingly Popular Idea


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At the state level, the usual response to recommendations that taxes be increased to preserve vital state services has generally been: "Now is not the time". The most notable exception to this trend so far has been with the cigarette tax, as we've explained before. Increasingly, however, policymakers appear to be coming around to the idea of boosting gas tax rates in order to raise the revenue needed to maintain our nation's infrastructure. Given that most state gas taxes haven't been increased for quite a few years, and that during that time inflation has significantly eroded the value of most gas tax rates, our only response can be, "It's about time."

In Maryland, for example, the Senate President recently expressed an interest in raising the gas tax, urging that "there's got to be an increase in the transportation trust fund somewhere, and there's got to be a way we can find people with the political will to make it happen". Numerous governors have echoed this call as of late, most recently in Massachusetts, and Idaho.

In Idaho, especially, the Governor was able to hit the nail on the head with his observation that, "[we last raised] the fuel tax... 13 years ago. And now here we are trying to accomplish 2009 goals with 1996 dollars. Everyone in this room or listening to me throughout Idaho today -- everyone who has a household budget or runs a business -- knows that just doesn't work".

In response to this problem, Idaho Governor "Butch" Otter has recommended bumping the gas tax upward by 2 cents in each of the next 5 years. Addressing the root of the problem even more directly, Wisconsin Governor Jim Doyle has proposed indexing the gas tax rate to inflation -- a practice that had existed in Wisconsin up until 2006. Maine and Florida continue to index their gas tax rates today, with very favorable results in terms of providing each state with a somewhat more adequate and sustainable source of transportation revenue.

Importantly, the federal gas tax is not indexed to inflation, meaning that the Federal Highway Trust Fund is suffering from many of the same problems we see plaguing the states mentioned above. The federal gas tax has not been increased in over 15 years. President Obama's new Energy Secretary, Steven Chu, has previously gone on the record as supporting raising the gasoline tax. The views of Transportation Secretary Ray LaHood are not yet clear. What is clear, however, is that something will have to be done at the federal, as well as the state level, if gas tax revenues are to be restored to their previous purchasing power.

Of course, the gas tax is not perfect. Aside from the long-term issues arising out of improved fuel efficiency (which we need to begin planning for now), the regressivity of the tax is very worrisome, especially in these difficult times. Fortunately, low-income gas tax credits, as we've advocated on multiple occasions, are very capable of remedying this shortcoming.


Idaho Tax Credit to Make Food More Affordable


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Idaho Governor Butch Otter this week signed legislation expanding the Gem State's grocery tax credit and correcting a major flaw that had plagued the credit for some time. The measure, which is projected to reduce state revenue by $122 million once fully implemented, will ultimately increase the value of the refundable credit to $400 for a family of four or $240 for an elderly couple. More importantly, though, taxpayers who are too poor to owe income taxes but who still must pay sales taxes on their groceries will finally be able to receive the credit. Until the Governor signed this latest bill, married couples earning less than $17,500 were ineligible for the credit, unless they were elderly or disabled. As this policy brief from ITEP points out, the new law is only one of several steps Idaho should take towards making its tax system more fair.


Progress on State Tax Breaks for Low-Income Families


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Advocates in Kentucky have long been pushing for the implementation of a state Earned Income Tax Credit (EITC). The EITC is a popular, targeted tax credit that offers assistance to working families. Similar credits have been enacted in 22 states and the District of Columbia. The House Budget Committee passed a bill that would introduce a credit equal to 7.5 percent of the federal EITC, coupled with a broader state estate tax. The bill will now go before the full House.

Policymakers in Connecticut have revived their efforts - stymied by a veto by Governor Jodi Rell - to enact a refundable EITC equal to 20 percent of the federal credit. A bill creating such a credit was approved by the General Assembly's Human Services Committee in late February; see this recent testimony from Connecticut Voices for Children on the measure's potential impact.

The state of Washington, despite lacking a personal income tax, could also be moving towards adopting a version of the EITC. Called the Working Families Credit, it would provide as many as 350,000 Washington residents with a credit amounting to 10 percent of their federal EITC, thus offsetting some of the impact of Washington's highly regressive tax system.

In more low income tax relief news, the Idaho House Revenue and Taxation Committee voted this week to increase the state rebates offered to offset the state's sales tax on groceries. Currently Idaho residents receive a $20 credit as an offset to the sales tax on groceries (more for seniors). The proposal being debated in the House would provide increased and targeted tax relief. For example, the new expanded credit would offer $50 per family member if the family's income is less than $25,000. The value of the rebates would increase each year until the maximum credit of $100 is reached. By 2015 the proposal is expected to cost about $122 million. Read more about options states have to provide targeted tax relief in ITEP's policy brief.


State of the States Roundup


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Idaho

Idaho Governor Butch Otter's State of the State included one good tax policy idea, but failed to provide additional information on one terrible idea that the Governor has championed in the past. In his January 7 speech, the Governor once again proposed improvements to the state's innovative "grocery tax" credit, which seeks to offset some of the impact of the sales tax on food purchases, but suffers from a serious flaw: the poorest taxpayers in the state are unable to receive it. He neglected, however, to discuss his proposal to follow the disastrous lead of Florida and other states and limit the growth of a house's value for property tax purposes until it is sold. Such limitations allegedly help state residents afford to the pay the property taxes on their homes, but, as the experience in Florida has shown, they end up leading to enormous inequities within the property tax, not to mention constraining the revenue needed to provide public services.


Reducing Grocery Taxes: "Yes, but how?"


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Four states - Mississipi, Tennessee, Arkansas, and Idaho - are currently debating ways to reduce the sales taxes paid on food. But how (or whether) to pay for the cuts and who should benefit remain key sticking points.

On Thursday, the Mississippi House of Representatives passed (91-27) a "tax swap" bill that would cut the state's sales tax on groceries in half and raise the tax on cigarettes to $1 per pack. The bill still faces significant challenges before becoming law, however, since key members of the Senate oppose it and Governor Haley Barbour vetoed a similar bill last year. Although the plan's reliance on revenue from cigarette taxes is not a long-term solution, it does offer a temporary mechanism to make up the revenue that would be lost from a cut on the sales tax on food.

In Tennessee, a similar "tax swap" is under consideration. However Gov. Phil Bresden has expressed reluctance to link a cigarrette tax increase with a grocery tax reduction, and has instead proposed using revenue from a cigarette tax increase for education funding.

Arkansas Gov. Mike Beebe signed a grocery tax reduction into law on Thursday that will reduce the state's sales tax on groceries from 6% to 3% effective July 1st. However, no funding mechanism was enacted to make up for the decreased revenue, as lawmakers instead decided to rely on a projected surplus to pay for the proposal.

In Idaho, Gov. Butch Otter continues to struggle with the state legislature over how best to enact a grocery tax credit. Otter's proposal would target low-income Idahoans with a credit of up to $90, while the House's newly passed version would give a smaller grocery tax credit (up to $50) to a broader range of residents.


Removing the Sales Tax on Food: Two Approaches


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On Wednesday newly elected Arkansas Governor Mike Beebe kept a campaign promise and proposed a cut in the state's sales tax on food. The proposal would cut the state's 6 percent sales tax, as it applies to groceries, by half. The Governor hopes to eventually repeal the tax on food altogether. However, the price tag for this cut is over $200 million and the benefits from this tax cut aren't targeted towards those who need it. Also, despite the state's recent higher-than-expected revenues, many advocates are worried the funding for the tax cut could come from education or other programs.

A similar discussion is taking place in Idaho, where Governor Butch Otter is proposing a more progressive approach to this issue. His proposal would keep the grocery tax and would instead offer a low-income tax credit designed to offset it. For more on the relative merits of exemptions and credits as strategies for making sales taxes less unfair, check out this ITEP Policy Brief.

While the Democratic takeover of the House of Representatives (and apparently also the Senate) on Tuesday has has given new hope to advocates of progressive tax policies at the federal level, the results of ballot initiatives across the country indicate that state tax policy is also headed in a progressive direction.

In the three states where they were on the ballot, voters rejected TABOR proposals, which involve artificial tax and spending caps that would cut services drastically over several years. Washington State defeated repeal of its estate tax. Several states also rejected initiatives to increase school funding which, while based on the best intentions, were not responsible fiscal policy. Two of four ballot proposals to hike cigarette taxes were approved and the night also brought a mixed bag of results for property tax caps.

Taxpayer Bill of Rights (TABOR):
Maine - Question 1 - FAILED
Nebraska - Initiative 423 - FAILED
Oregon - Measure 48 - FAILED
Voters in three states soundly rejected tax- and spending-cap proposals modeled after Colorado's so-called "Taxpayers Bill of Rights" (TABOR). Apparently people in these three states had too many concerns over the damage caused by TABOR in Colorado. Property Tax

Caps:
Arizona - Proposition 101 - PASSED - tightening existing caps on growth in local property tax levies.
Georgia - Referendum D - PASSED - exempting seniors at all income levels from the statewide property tax (a small part of overall Georgia property taxes. (The Georgia Budget and Policy Institute evaluates this idea here.)
South Carolina - Amendment Question 4 - PASSED - capping growth of properties' assessed value for tax purposes. The State newspaper explains why the cap would be counterproductive.
South Dakota - Amendment D - FAILED - capping the allowable growth in taxable value for homes, taking a page from California's Proposition 13 playbook. (The Aberdeen American News explains why this is bad policy here - and asks tough questions about whether lawmakers have shirked their duties by shunting this complicated decision off to voters.)
Tennessee - Amendment 2 - PASSED - allowing (but not requiring) local governments to enact senior-citizens property tax freezes.
Arizona's property tax limit will restrict property tax growth for all taxpayers in a given district. South Dakota's proposal was fortunately defeated. It would have offered help only to families whose property is rapidly becoming more valuable, and those families are rarely the neediest. Georgia's is not targeted at those who need help but would give tax cuts to seniors at all income levels. The Tennesse initiative, which passed, is a reasonable tool for localities to use, at their option, to target help towards those seniors who need it.

Cigarette Tax Increase:
Arizona - Proposition 203 - PASSED - increase in cigarette tax from $1.18 to $1.98 to fund early education and childrens' health screenings.
California - Proposition 86 - FAILED - increasing the cigarette tax by $2.60 a pack to pay for health care (from $.87 to $3.47)
Missouri - Amendment 3 - FAILED - increasing cigarette tax from 17 cents to 97 cents
South Dakota - Initiated Measure 2 - PASSED - increasing cigarette tax from 53 cents to $1.53. While many progressive activists and organizations support raising cigarette taxes to fund worthy services and projects, the cigarette tax is essentially regressive and is an unreliable revenue source since it is shrinking.

State Estate Tax Repeal:
Washington - Initiative 920 - FAILED
Complementing the heated debate over the federal estate tax has been this lesser noticed debate over Washington Stats's own estate tax which funds smaller classroom size, assistance for low-income students and other education purposes. Washingtonians decided it was a tax worth keeping.

Revenue for Education:
Alabama - Amendment 2 - PASSED - requiring that every school district in the state provide at least 10 mills of property tax for local schools.
California - Proposition 88 - FAILED - would impose a regressive "parcel tax" of $50 on each parcel of property in the state to help fund education
Idaho - Proposition 1 - FAILED - requiring the legislature to spend an additional $220 million a year on education - and requiring the legislature to come up with an (unidentified) revenue stream to pay for it.
Michigan - Proposal 5 - FAILED - mandating annual increases in state education spending, tied to inflation - but without specifying a funding source. The Michigan League for Human Services explains why this is a bad idea.
Voters made wise choices on education spending. The initiative in California would have raised revenue in a regressive way, while the initiatives in Idaho and Michigan sought to increase education spending without providing any revenue source. Alabama's Amendment 2 takes an approach that is both responsible and progressive.

Income Taxes:
Oregon - Measure 41 - FAILED - creating an alternative method of calculating state income taxes. Measure 41 was an ill-conceived proposal to allow wealthier Oregonians the option of claiming the same personal exemptions allowed under federal tax rules and would have bypassed a majority of Oregon seniors and would offer little to most low-income Oregonians of all ages.

Other Ballot Measures:
California - Proposition 87 - FAILED - would impose a tax on oil production and use all the revenue to reduce the state's reliance on fossil fuels and encourage the use of renewable energy
California - Proposition 89 - FAILED - using a corporate income tax hike to provide public funding for elections
South Dakota - Initiated Measure 7 - FAILED - repealing the state's video lottery - proceeds of which are used to cut local property taxes
South Dakota - Initiated Measure 8 - FAILED - repealing 4 percent tax on cell phone users.

United Vision for Idaho Report

Property tax is a major issue in Idaho. One proposal put forward by the Governor would repeal one property tax levy and increase the sales tax. On August 25, a special session of the Idaho Legislature will consider Governor Risch's proposal, which would result in a net tax increase for most Idaho families.


Good Ideas and Bad Ideas for State Budget Surpluses


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Several states are debating ways to spend budget surpluses.

Arkansas Governor Mike Huckabee has "tax reformation" plans which include putting more money in a rainy day fund and rebating money to taxpayers in the form of a tax credit.

In response to the surplus in Idaho, legislators are debating ways to shift the tax burden from property taxes to regressive sales taxes.

North Carolina legislators are taking notice of the financial hit that mental health services took during the previous recession and both houses have passed budgets that would provide more funds for these services. Of course, if any of these states had a Colorado-style TABOR policy there wouldn't even be a question about how to spend state surpluses because TABOR takes these important budget decisions out of the hands of elected officials.

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