Michigan News


State Rundown 6/16: Budgets, Tax Debates, and Legislative Progress


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Thanks for reading the State Rundown!

Here's a look at what we're thinking about this week: the latest on Louisiana’s second special session, North Carolina’s Senate took steps to constitutionally cap the state’s income tax rate, West Virginia lawmakers passed a budget, “dark store” drama in Michigan, some in Missouri want to freeze sales the state’s tax base, and tax debates rage in New Jersey.

We are also debuting a new feature, News We’re Watching. After the Rundown you’ll see links to what our staff is reading this week. I’d love to hear from you especially about this new feature. Feel free to reach out on Twitter @megwiehe.

Lastly, this week Carl Davis, our Research Director, joined Twitter. Follow him @carlpdavis

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

In the second special session this year to address budgetary gaps, the Louisiana House Ways and Means Committee narrowly approved a complicated measure yesterday that would turn a costly tax deduction claimed mostly by households making over $100,000 into a short-term lending mechanism to the state. As originally proposed, HB 38 would permanently limit the itemized deductions in excess of the standard deduction taxpayers could claim to 57.5 percent. The amended bill exempts charitable and mortgage interest deductions from the 57.5 percent limitation and temporarily suspends the availability of the deduction until 2018, at which point taxpayers can claim the lost value of the deduction from the previous two years. The amended bill is estimated to raise $115 million of the $600 budget gap, but would create a liability of over $250 million in 2018—the same year the state is scheduled to lose $1 billion in revenue from temporary tax increases enacted in March, most notably the 1-penny sales tax increase. HB 38 goes to the full House today.

Also, the Louisiana House  voted down contingent bills HB 7 and HB 17, which would have eliminated the deduction for federal personal income taxes while creating a flat tax with a problematic capped rate—measures that would not address the state's immediate revenue needs and severely limit the ability of lawmakers to raise revenue in the future through the progressive income tax. The Louisiana Senate will consider a bill today that would require oil, gas, and chemical companies to choose between two tax breaks, which if passed, would raise $146 million in revenue for the next budget cycle.

North Carolina Senators approved a bill this week that would change the state’s constitution to prevent the state's income tax rate from ever going above 5.5 percent (the 2017 rate is 5.499%) via a voter referendum.  As our guest blogger Cedric Johnson wrote earlier in the week, the cap would forever lock in recent tax decisions that have primarily benefitted wealthy North Carolinians, force higher sales and property taxes, tie the hands of future lawmakers, and cut off a vital source of revenue needed to invest in education and healthy communities.  The bill was scheduled to go to the Senate floor on Wednesday, but at the last minute was pulled and moved to Saturday, June 25th a sign, according to the NC Budget and Tax Center, that the tax cap will be linked to budget negotiations in order to get the House to play along.

The West Virginia Legislature passed a compromise budget (SB 1013) earlier this week to close the state's $270 million budget shortfall, bringing their 17 day special session to an end as they await Gov. Earl Ray Tomblin's signature. After vetoing an earlier budget proposal that did not include any tax increases, Gov. Tomblin is expected to sign off on this version of the budget which includes a $98 million tax increase on cigarettes, e-cigarettes, and other tobacco products, a $70 million withdrawal from the state's Rainy Day Fund, and a range of budget cuts. $15 million in funding for the Public Employee Insurance Agency to offset premium increases for retirees and reduce premium increases and benefit cuts for current employees helped seal the deal. Other approved measures include the restoration of funding to the Volunteer Fire Department Workers' Compensation Premium Subsidy Fund and providing current year financial support to Boone County Schools.

With big-box retailers increasingly using a tactic known as the “dark store” method to avoid property taxes on brand-new multi-million-dollar stores, Michigan legislators are fighting back. The “dark store” method involves challenging property appraisals by arguing that they should be based on the value of nearby vacant and obsolete retail stores, while also building restrictions into the deeds of such stores that make them virtually worthless to any would-be buyers. The retailers point to those “dark stores” and deed restrictions (such as prohibiting a hardware store building from being used as a hardware store again if sold) to challenge their appraisals and drastically reduce their property taxes in the process.  Local governments in Michigan have already lost more than $200 million due to this dubious practice. Legislation that would clarify the rules and steps for property appraisals to ensure this tactic cannot be used in the future passed through the Michigan House late last week and now moves to the Senate.

Most state sales taxes were created in a time when buying tangible goods (scissors and combs, for example) was far more prevalent than buying services (like haircuts). Over the last few decades, as the U.S. economy becomes more and more service-based, many states have attempted to update their sales tax laws to include more services. Regrettably, some voters in Missouri are working to freeze that state’s tax code in the past, as signatures have been gathered to put a constitutional amendment on the ballot in November to restrict the sales tax from ever applying to any “service or activity” not already subject to tax.

 Tax debates continue to rage on in New Jersey, where the state’s Transportation Trust Fund is only funded until June 30. Legislators in both the House and Senate are working on plans to raise the state gas tax -- which is one of the lowest in the nation and has not been updated since 1988 -- to ensure funding for the state’s roads and bridges continues. But Gov. Chris Christie insists he won’t sign such a measure unless it also includes major tax cuts. The plans proposed thus far include a number of tax cuts for various groups in hopes of either winning over Gov. Christie or securing enough votes to override his veto. Some of the recent proposals have included a repeal of the state’s estate tax, an expansion of the existing pension and retirement income exclusion, an expansion  play along.the state Earned Income Tax Credit, and a new deduction for charitable contributions. With so much at stake and so many components to multiple tax packages, it will be a bumpy ride to close out the month in the New Jersey legislature.

News We're Watching:

Here’s a few other state tax-related stories that caught our eyes this week:

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


2016 State Tax Policy Trends: Shifty Tax Proposals


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This is the fourth installment of our six-part series on 2016 state tax trends. An overview of the various tax policy trends included in this series is here 

Tax shifts lower or eliminate one tax in exchange for increasing a different tax. While tax shifts can come in different forms, recent tax shift proposals have typically called for the reduction or elimination of personal and corporate income taxes and expanded consumption taxes to make up some or all of the lost revenue. Despite the detrimental effect these tax shifts have on working families and state budgets down the road, they’ve been quite popular among states. Unfortunately, this trend continues in 2016, with several states considering tax shift proposals right out of the gate.

This year we are keeping our eye on an emerging sub-trend in tax shifts—leveraging the need for states to make long-overdue improvements to transportation infrastructure in order to get tax cuts that disproportionately benefit the highest-income households. We saw this in Michigan this past November, where lawmakers approved increases to gas taxes and vehicle registration fees but also offset new revenue with future cuts to the state’s top income tax rate. While an increase in transportation funding has been long-overdue in many states, these tax shift proposals have the effect of doing so at the expense of other critical state investments including higher education, public health, and safe communities. 

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

Arizona. Eliminating the income tax and replacing lost revenues with a higher sales tax is still a priority for Gov. Doug Ducey and lawmakers like chairman of the Ways and Means Committee Representative Darin Mitchell. Details are still forthcoming, but the governor has stood by his campaign pledge to drive the income tax rate as close to zero as possible. In Arizona, the bottom 20 percent of taxpayers already pay three times as much in taxes as a share of their income as do the top one percent. Further tax shifts from the income tax to the sales tax would be a disastrous move for tax fairness, increasing taxes on low- and middle-income families while providing substantial tax cuts to those with high-incomes.   

Mississippi. There was no shortage of significant tax proposals last year, including the Senate’s proposal to reduce income tax rates and franchise taxes, the governor’s tax cut for working families, and the House’s proposal to eliminate the income tax. However, the session ended last year without a compromise plan that could garner enough votes to win approval.  Given a new supermajority among republican lawmakers thanks to November elections, the state is almost certain to see some sort of major tax shift this year. 

Mississippi’s transportation infrastructure needs may very well provide the ticket lawmakers need to enact their desired cuts. It’s been 27 years since Mississippi last raised its gas taxes, making proposals to reform fuel taxes this year most welcome and long-overdue. Plans to raise at least $300 million for road and bridge maintenance however, are unlikely to move forward without offsetting tax cuts. Even Governor Bryant is calling for “an equal and sufficient tax reduction” to offset any proposed tax increases.  His preferred plan is a “blue collar” tax cut in the form of a nonrefundable EITC (the same plan he advocated for last year), but he is also amenable to a reduction or elimination of the state’s corporate franchise tax. While a tax cut for working families would be an appropriate and targeted policy to pair with a regressive tax increase, House and Senate lawmakers are likely to propose less targeted and more broad-based tax cuts that could result in tilting the state’s already upside down tax system more in favor of the wealthy.

Tax Shifts for Transportation a Bridge to Nowhere

Indiana. To make it more palatable for lawmakers to fund repairs for roads and bridges, House Republicans slipped a phased-in 5 percent income tax cut into a transportation package that passed the House this past Tuesday. Intending to increase funds available for infrastructure improvements, HB 1001 raises the state’s gasoline excise tax by 4 cents per gallon and the tax on diesel fuel by 7 cents. It also increases the cigarette tax by $1 per pack. The revenue potential of this bill, however, is undermined by the reduction of the personal income tax rate down to 3.06 percent over eight years. The proposal also exacerbates the unfairness of Indiana taxes: an ITEP analysis of the proposal found that the average taxpayer among the bottom 80 percent of earners would see a tax hike while the wealthiest 20 percent would benefit from a tax cut.

Georgia. What we’re seeing in Georgia is an attempt to enact a tax shift over two legislative sessions. Last year, the state enacted significant gas tax reform amongst other measures, raising $1 billion in transportation revenue. Part of the transportation package created a Special Joint Committee on Revenue Structure, which was tasked with identifying tax cuts. Due to a failure of the House to appoint their members, the committee did not convene and no tax reform plan was created. As a result of this inaction and in direct response to the prior year’s tax increase, Senator Judson Hill has introduced his own tax-cutting measures. Senate Bill 280’s primary effect is to flatten Georgia’s personal income tax to a single rate of 5.4 percent. Senate Resolution 756 requires a constitutional amendment that would bring down this rate even further. Both measures would deprive the state of needed revenue and require it to inevitably to make up these losses through more regressive sources. 

New Jersey. Facing a drying up Transportation Trust Fund, lawmakers continue to talk this year about increasing the gas tax. However, Governor Christie has said that he won’t consider raising the gas tax unless lawmakers agree to other tax cuts, specifically raising the exemption level of the estate tax or eliminating the tax altogether. In contrast to the governor’s claim that the estate tax is a burden on the middle class, a new report from the New Jersey Policy Perspectives shows that just four percent of estates are subject to the tax and that cutting the tax could seriously threaten resources needed to fund important building blocks of a strong economy such as higher education, health care, and safe communities.

South Carolina. South Carolina is preparing to debate and vote on a road repair plan in the coming weeks. The proposed law would raise an estimated $700 million each year in new revenue once fully phased in through an increase to the gas tax and other transportation related-fees, but this amount would be offset by $400 million from a combination of income tax and business property tax cuts. While there are some targeted income tax breaks that would benefit working families, including the creation of a 3.5% refundable Earned Income Tax Credit, the overall effect of the plan is somewhat regressive. There may be talk of offsetting the gas tax increase with cuts to the sales tax instead of the income tax, which, all things being equal, would be a preferable shift since it would favor cuts for middle-income earners over the wealthiest. But, most importantly, like in every other state considering this brand of tax shift, increasing one set of fees and taxes to support new funding for transportation while cutting taxes that support public education and health care is not a sensible or sustainable policy idea.

Up Next

Not all tax cuts and shifts are bad policy. Building on the momentum from 2015 reforms, many states are headed into their legislative sessions looking to address poverty and inequality through targeted tax measures. Stay tuned for the next blog post in our series for a more in-depth look at what states are addressing poverty and inequality through enacting or strengthening tax credits for working families.

 


New Law Endangers Michigan's Fiscal Future


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Earlier today, Michigan Gov. Rick Snyder signed a package of tax changes that will eventually fund improvements to the state’s transportation infrastructure, but it comes with cuts to other services and a weakened long-term fiscal position.  When most of the law’s provisions are phased in five years from now, they will collectively drain (PDF) more than $800 million from local governments, universities, health care, and corrections every year.  Making matters worse, a modified income tax trigger could push the general fund loss to $1 billion per year within a decade and could turn this so-called “funding” package into a net revenue loser.

Below is a list of the package’s most significant components (revenue estimates are for Fiscal Year 2021):

New Revenue

  • $404 million from increasing the gasoline tax by 7.3 cents and the diesel tax by 11.3 cents on Jan. 1, 2017.  These tax rates will also be tied to inflation starting in 2022.
  • $221 million from increasing most vehicle registration fees by 20 percent and from levying higher fees on electric vehicles.

Funding Shifts

  • $600 million annually will be moved out of the general fund to be spent on transportation.  The Detroit Free Press identifies local governments as the group most likely to face funding cuts under this shift, followed by higher education, public health, and corrections.

Tax Cuts

  • $206 million in tax cuts will be distributed to Michiganders by expanding the state’s property tax credit for low- and moderate-income families.  Some features of the credit will also be indexed to inflation starting in 2021.
  • A sizeable, but uncertain revenue loss will come from cutting the state’s top income tax rate via an ill-conceived “trigger” mechanism.  Starting in 2023, the state’s income tax rate will be reduced if general revenue growth exceeds the inflation rate multiplied by 1.425.  The non-partisan House Fiscal Agency estimates (PDF) that if this law were in effect today, $593 million in revenue would be lost next year as a result of dropping the tax rate from 4.25 to 3.96 percent.  If this type of cut is combined with the property tax credit expansion, fuel tax increases, and vehicle registration fees just described, the net result of this “funding” package will be to reduce state revenues—not raise them.

Ultimately, these reforms to Michigan’s fuel taxes are long-overdue and the property tax credit expansion is a reasonably effective way of offsetting some of these taxes for lower-income families.  But the components of this package that will have the largest impact on Michigan’s budget in the years ahead are the $600 million general fund earmark for transportation, and the automatic income tax cuts scheduled to take effect long after most of today’s lawmakers have left office.


State Rundown 10/23: Cuts, Roads and Student Kickbacks


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A coalition of Iowa student leaders is calling for a tax incentive to keep graduate and professional students in the state. Student government leaders from the University of Iowa, Iowa State University and the University of Northern Iowa want lawmakers to implement a 50 percent income tax break for graduate and professional students who reside in Iowa for up to five years after graduation. For students who choose to reside in rural areas, the tax break would increase to 75 percent. Student leaders say the measure would address a shortage of healthcare and legal professionals in the state. However, a recent survey of Iowa graduate and professional students found that employment opportunities were the biggest factor in choosing to remain in the state, not tax incentives.

The battle over road funding in Michigan continues. House Republicans managed to pass a road funding plan despite objections by chamber Democrats, though some say the measure is unlikely to pass. The measure would increase the state’s gasoline excise tax by 3.3 cents per gallon, increase the state’s diesel tax by 7.3 cents per gallon over two years, and increase vehicle registration fees by 40 percent. It would also shift hundreds of millions of dollars from the general fund to the roads budget. In a bizarre twist, House Republicans decided to tie these revenue-raising measures to a triggered personal income tax rate cut that would overwhelmingly benefit the wealthy and could ultimately repeal the state’s income tax entirely. Critics say the proposal would fail to raise enough revenue and that the income tax cut and general fund transfer could cause major budget problems down the road. They generally favor a larger increase in the gas excise tax. The bill is the latest salvo in transportation talks between the legislature and Gov. Rick Snyder that have collapsed into impasse. Voters rejected a sales tax increase to pay for road construction in May.

Nebraska Gov. Pete Ricketts will push a package of income and property tax cuts next legislative session, according to a recent address the governor delivered to Lincoln Chamber of Commerce. Ricketts claimed that cutting taxes would be the key to economic growth and would be his “No. 1 issue.” Similar efforts to cut income and property taxes failed in Nebraska during the last legislative session. An ITEP analysis of one of these plans found that wealthier Nebraskans would benefit disproportionately, while revenue losses would be drastic. 


Fiscal Time Bomb Quietly Advances in Michigan


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Years of debate over how to boost funding for Michigan’s roads may be nearing an end.  But somewhere along the way, that debate was hijacked in a way that few people seem to have fully noticed.

Earlier this week, the Michigan House passed a road funding package that would raise the gasoline tax by 3.3 cents per gallon, raise the diesel tax by 7.3 cents, boost vehicle registration fees by roughly 40 percent, and offset some of these regressive tax increases with an expansion of the state’s circuit breaker tax credit for low- and moderate-income homeowners and renters.

So far, so good.  But these changes aren’t the real story.

Buried beneath talk of those 3.3 extra pennies that motorists would pay for a gallon of gasoline is a provision that could eventually eliminate the state’s single largest, and fairest, source of revenue: the personal income tax.  Under SB 414, which has passed both the House and Senate in slightly different forms, income tax rate cuts would be triggered whenever general fund revenues grow faster than inflation.  Unlike recent triggers enacted in states such as Oklahoma, SB 414 does not specify a target income tax rate and thus rate cuts would continue until the tax vanishes entirely.  In the House version of the bill the first cuts could begin as early as 2019, while the Senate’s version would start the process in 2018.

There are a multitude of problems with this approach.  Among them:

  • The cost of these triggered cuts would be enormous.  The Michigan League for Public Policy (MLPP) explains that the state’s most recent budget “falls short in key areas related to economic growth and opportunity, and many investments are not on a scale that will make Michigan a comeback state for all of its residents.”  And yet, the Michigan House Fiscal Agency (HFA) explains (PDF) that if SB 414 were in effect right now, the result in 2016 would have been roughly $700 million less to invest in public services (caused by a drop in the income tax rate from 4.25 to 3.92 percent).  That revenue loss would compound as additional rate cuts are triggered.
  • Michigan already has a regressive tax system where low- and middle-income families pay 9 percent, or more, of what they earn in state and local taxes.  High-income families, meanwhile, pay just 5 percent of their incomes in tax.  As ITEP’s Who Pays? analysis shows, the state’s personal income tax is the only major tax on the books running counter to this unfairness.  Cutting or repealing the income tax would primarily benefit those wealthy individuals who already face the lowest state and local tax rates.  According to Who Pays?, four of the five states with the most regressive tax systems in the country do not to have an income tax—hardly a group that Michiganders should be eager to join.
  • SB 414 is designed to appear fiscally responsible by allowing income tax rate cuts to take effect only when overall revenue growth exceeds the rate of inflation.  In this case, inflation is measured for the cost of products typically purchased by household consumers—known as the Consumer Price Index (CPI).  But the CPI is not a reliable measure of the costs that Michigan’s state government will incur in the years ahead.  As we explain in our brief outlining Colorado’s disastrous history with a somewhat similar inflation-based formula, growth in the cost of services such as medical care, education, and infrastructure has routinely outpaced growth in the CPI.  This suggests that SB 414’s inflation measure is a poor gauge of the state’s fiscal trajectory.
  • Even if the CPI were a relevant measure of inflation for these purposes, the Michigan proposal’s vulnerability to the “ratchet effect” would still guarantee its fiscal irresponsibility.  If revenues plummet in one year because of an economic downturn and then partially recover in the following year, that modest recovery could trigger an income tax rate cut even if the state’s revenues remained far below their pre-recession levels.  In other words, every recession would lower the bar needed to trigger an income tax rate cut to the point that even an anemic recovery could be enough set it off. 
  • While an economic recovery may be the most frequent scenario in which an unaffordable income tax rate cut would take effect, it is by no means the only scenario.  The Michigan HFA, for example, explained in its analysis (PDF) of the bill that a “one-time revenue increase” caused by unusual economic events or federal tax changes could also result “in a permanent reduction in the income tax rate.”  If that happens, Michigan will find itself trying to provide the same level of services, with a lower income tax rate, even after the temporary tax windfall that triggered the rate cut is no more than a distant memory.

Michigan Rep. Jim Townsend recently called this income tax trigger proposal “the ugly conclusion to what term limits have brought us.”  This is in reference to the fact that Michigan’s fairly strict cap on the number of years that lawmakers can hold office will mean that many—if not most—of the lawmakers voting for this trigger law will no longer be in the legislature when it comes time to deal with its full budgetary consequences.

Enacting tax cuts that will not take effect for years, and even decades, in the future under the mistaken impression that SB 414 will be able to accurately gauge their affordability is a major gamble that is unlikely to pay off.  Michigan residents would be better served if their lawmakers refocused their efforts on the issue that is supposed to be at the core of their work: finding a way to fund the state’s deteriorating transportation infrastructure.


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.


State Rundown 9/30: Fall Budget Tumbles


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Michiganders will pay sales and use tax on online purchases for the first time when a new law goes into effect this Thursday. The Main Street Fairness Act, signed by Gov. Rick Snyder in January, requires out-of-state companies with a physical presence in the state, such as a warehouse or distribution center, to collect and remit sales and use taxes on online purchases made by Michigan residents. State analysts estimate that the measure will increase revenue by $60 million annually. The Michigan law is the latest in a series of so-called “Amazon laws,” named after the largest online retailer most likely to be affected by such measures. For more on this story, check out this ITEP blog post.

Conservative lawmakers in Arizona could be gearing up for a push to eliminate the state’s income tax, according to trial balloons in Forbes and by the Arizona Free Enterprise Club (AFEC). The recent advocacy comes from none other than Travis Brown and Stephen Moore, the Scooby Doo villains seemingly behind every terrible state tax plan. In Forbes, Brown uses praise for Gov. Doug Ducey’s education plan as an excuse to argue that Arizona should eliminate its income tax because “now is the time to end the price on work…. There’s no need for such an innovative and financially attractive place as Arizona to slap a growth-discouraging premium on doing business in the state.” Moore argues in a paper on behalf of AFEC that eliminating the income tax would make Arizona more competitive and attract jobs, investments and new residents. Left unmentioned were the disaster in Kansas, where lawmakers took such advice to heart, or the numerous studies showing that businesses and residents don’t follow income tax cuts. 

The budget impasse in Illinois continues with no end in sight. This week, Illinois Sec. of State Jesse White warned that the lights at the state capitol could be cut off if lawmakers can’t reach a deal. Moody’s noted that even reinstating the income tax increase that expired in January, a source of continuing conflict between Gov. Bruce Rauner and the legislature, won’t be enough to close the $5 billion gap. Illinois Comptroller Leslie Munger says the state’s backlog of unpaid bills could hit $8.5 billion by the end of December. Meanwhile, Chicago Mayor Rahm Emmanuel has proposed a city property tax increase of $543 million over the next three years to avoid huge spending cuts.

Deadlock is the name of the game in Pennsylvania, too, where Gov. Tom Wolf and the legislature have yet to agree on a new budget. The governor and key lawmakers met on and off on Monday, which marked 90 days since the start of the fiscal year, but there were no breakthroughs. Gov. Wolf has proposed a tax plan  that would increase education funding and eliminate the budget deficit, while legislators want to privatize state-run wine and liquor stores and reduce pension spending. Wolf says he plans to veto a continuing resolution passed by the legislature since the state has waited too long for a permanent solution. Yields on state bonds have increased as investors see Pennsylvania’s financial situation as increasingly risky


State Rundown 9/3: Back to School, Back to the Drawing Board


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The Texas Supreme Court this heard oral arguments in a school finance case regarding recession-era education budget cuts. In 2011, the Texas Legislature cut K-12 education spending by $5.4 billion and per-pupil spending declined by more than 8 percent. More than 600 school districts sued the state, arguing that the cuts make it impossible to meet minimum education standards and that funding is inadequate and unfairly apportioned. Over the past four years, the state has restored about $5 billion in funding, but District Judge John Dietz still sided with the plaintiffs, declaring that the funding system is unconstitutional. The state then appealed the case. Texas, which has no income tax, relies on local property taxes to fund its public schools. In 1993 the legislature passed the “Robin Hood” plan, which mandated some revenue sharing between wealthy and poor school districts.

The latest group to be fed up with the interminable budget impasse in Illinois is credit rating agency Moody’s, which said that the stalemate is a sign of “weak governance.” Moody’s warned Gov. Bruce Rauner and lawmakers that failure to reach an agreement by late September would turn a projected deficit of $5.14 billion into an actual one. Moody’s suggested that raising the income tax would be the most logical solution, as the state “has the economic capacity to absorb higher income tax rates. It is one of only eight states that levy a flat individual income tax. Among those states, Illinois’ current rate is comparatively low: the average among these states is 4.4%, compared with 3.75% in Illinois.” Increasing the personal income tax by 1 percent and the corporate income tax by 1.5 percentage points would generate approximately $2.4 billion in additional revenue.

Michigan group Citizens for Fair Taxes is fighting for a ballot initiative that would increase the state corporate income tax rate from 6 percent to 11 percent, a change they say would bring in $900 million annually for public roads and reverse the tax shift from businesses to working families begun under Gov. Rick Snyder in 2011. About one-third of Michigan businesses are subject to the corporate income tax. If the group collects 253,000 signatures, the proposal would go before the legislature. If the legislature fails to act or votes down the proposal, it will be put to the voters on the November 2016 ballot.

Connecticut Gov. Dannel Malloy is fighting to keep GE headquarters in the state after the company threatened to move. Some state leaders want to repeal the combined reporting requirement just enacted as part of the tax package supporting the two-year budget in June. Malloy is working with officials to create a sweetheart package of tax incentives to keep GE in the state. The move comes after GE used its political clout to force the legislature into special session this June, after the tax package narrowly won legislative approval despite business objections. Numerous studies have shown that taxes are not the primary driver behind business relocation decisions, but GE and other business still use the threat of relocation to wring concessions out of state and local governments.

Speaking of dubious tax claims, Art Laffer urged West Virginia leaders to slash income taxes to stimulate economic growth, weeks after the state’s commerce secretary said taxes were a non-issue in business relocation decisions. The secretary stated that West Virginia’s uneducated workforce was a larger factor in attracting new companies to the state. Unmoved by facts, Laffer told the West Virginia Chamber of Commerce that lower taxes and a reduced social safety net would result in more growth: “If you tax rich people and give money to poor people, you're going to get lots and lots of poor people and no rich people.” Laffer’s remarks were praised by Senate President Bill Cole, who said, “There's no question in my mind that, by itself, it could be the single biggest and largest economic driver that this state has ever seen. I think he's spot on. I think, virtually, everything he's said has proven itself out in history.” Clearly Sen. Cole has never been to Kansas.

A recent op-ed in The Huntsville Times outlines how Alabama legislators could reform the state’s tax system without constitutional amendments. The four proposals outlined would reform the state’s business privilege tax by reducing rates for small businesses and increasing them on large multinational businesses, require combined reporting on corporate income tax forms, increase the cigarette excise tax, and transfer use tax revenues to the General Fund. Author Carol Gundlach of Arise Citizen’s Policy Project says these reforms would avoid harmful cuts to Medicaid, prisons and mental health being considered by legislators.

 

Do you have a hot state tax tip? Send it to sdpjohnson@itep.org for the next State Rundown!

 


State Rundown 8/20: Summertime Sadness


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Budget gridlock continues in a few states across the country, including North Carolina where lawmakers are dragging through one of the longest sessions in 40 years, and taxpayers have already spent an extra $1 million to keep the legislature in session. House and Senate leaders agreed on a $21.74 billion budget, or roughly the mid-point between the two chambers' spending packages passed earlier this summer.  However, lawmakers now need to agree on how to spend the money.  As a News and Observer editorial notes, such a restrictive level of spending keeps the state's budget "suspended in the recession’s gloomy economic period." A proposed change to local sales tax revenue also caused deadlock. Rural legislators would like to redistribute local sales tax revenue from urban areas and tourist destinations to their jurisdictions, while legislators from those places say the change would require a tax hike on their constituents. Last week legislators passed a stopgap funding measure through Aug. 31.

The Michigan House this week again debated road funding but adjourned Wednesday without a deal, the latest move in a long debate that has already defeated a ballot measure and threatened the state’s EITC. After voters torpedoed a sales tax increase at the polls that would have paid for transportation improvements, both chambers of the legislature passed alternative funding plans. The compromise package called for $600 million in new fuel tax and vehicle registration tax increases as well as a transfer of $600 million in income tax revenue from the general fund. Gov. Rick Snyder and Democratic legislators balked at the general fund transfer, while Republicans in the House were slow to rally around the new taxes. Both houses of the legislature will return after Labor Day.

A controversial education tax credit in Kansas is drawing fire from critics who say it directs public money to religious schools. Created in 2014, the Kansas Low-Income Students Scholarship Program allows non-profit organizations to collect donations from businesses to pay private school tuition for low-income students who attend public schools with low test scores. In return, businesses are allowed a state income tax credit equal to 70 percent of their donation. More than 50 private schools, many of which offer religious education, have signed up for the program. Opponents of the scholarships say the program is unconstitutional, as Article 6 of the State Constitution states “No religious sect or sects shall control any part of the public educational funds.”

New Jersey lawmakers are trading proposals to cut taxes on yacht owners with Gov. Chris Christie. Lawmakers sent a budget to the governor that capped the 7 percent sales tax on yachts at $20,000, a windfall for boats costing more than $286,000. Christie vetoed that measure and responded with a plan that would halve the yacht sales tax from 7 percent to 3.5 percent. Marinas and boat retailers favor the governor’s plan. The vetoed plan would have cost between $3 million and $4 million; estimates on the governor’s alternative are not available but are expected to be higher. Legislators will consider Christie’s proposal when the legislature reconvenes, perhaps as soon as September.

As West Virginia legislators continue to consider changes to the state’s income tax structure to draw more businesses, state Commerce Secretary Keith Burdette questioned whether such an effort was necessary. Burdette pointed out that location was the number one reason that companies chose not to expand in the Mountain State:  “We don’t lose prospects over taxes; I’m not sure we lose them over regulations any more. We lose them over site.” Burdette also pointed out that the state’s lack of an educated workforce hurts business recruitment efforts. “Simply making us the lowest cost state without acknowledging and focusing attention and resources on other factors which make an attractive business climate would be a mistake,” Burdette acknowledged. 


State Rundown 7/22: The Dog Days of Summer


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The Illinois budget saga continues as Gov. Bruce Rauner and Illinois House Speaker Michael Madigan remain at odds. After Rauner vetoed the FY15-17 spending plan passed by the legislature, lawmakers were unable to override it – resulting in a one-month stop-gap state budget passed last week. However, the governor insists that he won’t sign these piecemeal measures, and demands that Madigan embrace his reforms. Any new revenues will have to be passed with a veto-proof majority, as Rauner has pledged not to raise taxes.

Impasse continues in Michigan as well, where the House lacks the votes to pass the roads funding bill that barely passed the Senate. The Senate plan would have increased the gas tax by 15 cents, raised diesel taxes and cut non-transportation areas of the state budget by $700 million. Legislators are wary of enacting gas tax increases after a ballot proposal that would have raised revenue for transportation was defeated by the voters in May. The state legislature will adjourn until mid-August, when new proposals could be offered.

The Maine Republican Party has signed on to help fund and promote Gov. Paul LePage’s plan to put a proposal to phase out and eliminate the state’s income tax before voters. GOP Chairman Rick Bennett said the party would help collect the tens of thousands of signatures required to put the measure on the 2016 ballot. The deadline for gathering signatures is in January.

An Arizona personal income tax credit for contributions to public schools is drawing attention from citizens concerned that it exacerbates inequality. According to The Arizona Republic, a small number of schools in wealthy areas receive most of the donations eligible for the dollar-for-dollar credit – on average nearly $400 per student. One school received almost $900,000 in one year. The average per-pupil expenditure statewide is just $45 in state income tax revenue. The donations were restricted to extracurricular spending, but the legislature approved a change this session that will allow the money to be spent on SAT and AP tests – worsening academic inequality between rich and poor districts. Coupled with proposed K-12 budget cuts at the state level, this income tax credit funnels resources from lower-income to upper-income school districts.

Ohio legislators inadvertently raised taxes on businesses despite attempting to enact deep cuts for them in the recently passed budget. Under the terms of the budget, business income above $250,000 was to be taxed at a reduced rate of 3 percent under the personal income tax. Instead, the legislative language omitted the $250,000 cutoff, saying that all business income would be taxed at a rate of 3 percent. And under Ohio’s graduated income tax structure, most business owners paid a rate lower than 3 percent on their business income. Lawmakers trying to give businesses a break through a flat tax and mistakenly taxing them more is the height of irony. State Senate President Keith Faber says the legislature will fix the error in the fall. For more on how this mishap highlights the need for a graduated income tax, check out this piece from Policy Matters Ohio.

New Jersey officials are considering an increase in the state’s tax on wholesale petroleum (currently at 4 cents a gallon) in the wake of a transit fare hike.  Lawmakers failed to pass an increase in the gasoline tax during the session – at 10.5 cents a gallon, New Jersey’s gas tax is among the lowest in the nation. The wholesale petroleum tax and gasoline excise tax support the state’s transportation fund, which is dangerously close to running out of money.  

 


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.

 


Michigan House Wants Poor to Pay for Road Repairs


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There’s no doubt that Michigan needs to find additional funds to repair its rapidly deteriorating transportation network.  But the package of bills just approved by the Michigan House of Representatives represent some of the worst ideas for doing so.

The most problematic change would repeal the state’s Earned Income Tax Credit (EITC).  The EITC is a vital pro-work and anti-poverty tax credit that benefits roughly 800,000 Michigan families every year.  Just four years ago, Michigan lawmakers voted to scale back the state’s EITC by 70 percent to help fund large business tax cuts.  Rather than revisiting whether such dramatic tax cuts were prudent, the House wants to double down and repeal the modest EITC that remains.

Judging by the statements being made by some lawmakers, this decision seems to be based in part on a fundamental misunderstanding of how Michigan’s tax system works.  State Rep. Aric Nesbitt, for example, justified his vote by saying that EITC repeal “helps ensure a flat and fair system.”  In reality, repealing the EITC would only exacerbate the unfairness of a tax system already tilted against low- and moderate-income taxpayers. 

Under current law, Michigan’s wealthiest residents pay 5.1 percent of their income in state and local taxes while the state’s poorest residents pay a significantly higher 9.2 percent rate.  Repealing the EITC would have no impact on the taxes paid by the state’s more affluent taxpayers, but an ITEP analysis showed that it would raise the rate paid by the state’s low-income residents to 9.7 percent.  The result would be an even more steeply regressive tax system, and one even further from the “flat” ideal that Rep. Nesbitt says he supports.

While EITC repeal is the most troubling aspect of the House package, the lion’s share (more than $900 million out of a $1.1 billion package) of the road funding would come from simply diverting money away from other vital services such as health care, education, corrections, and economic development.  This reshuffling of funds toward roads and bridges is nothing more than a Band-Aid tactic—and one that we’ve seen create real budgetary problems in states such as Oklahoma and Utah.

The one bright spot in this plan would raise the diesel tax by four cents and would index both gasoline and diesel tax rates to inflation.  If these changes are enacted into law, Michigan would become the 17th state to raise or reform its fuel taxes since 2013.  Such reforms are vital to ensuring the long-run sustainability of gas taxes—the single most important source of transportation funding available to Michigan lawmakers. 

But despite their merits, these incremental gas tax reforms will hardly be worth celebrating if they’re accompanied by an elimination of the EITC and cuts to non-transportation areas of public investment.  Hopefully the Michigan Senate will be able to come up with some better ideas as it crafts its own transportation funding package.


Some States Support Earned Income Tax Credits for Working Families, Others Fall Short


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familyeitc.JPGEarned Income Tax Credits (EITCs) are one of the most popular and effective tools available for fighting poverty through the tax code. In 2013 alone, the federal EITC helped lift 6.2 million working families, including 3.2 million children, out of poverty. Numerous studies show that federal EITC expansions in the 1990s helped boost work effort among single mothers and female heads of households, and that the women who participated in the program saw higher wage growth over time. The EITC has also been associated with better health and educational outcomes for the families that it benefits. It’s no wonder that EITCs have gained bipartisan support at both the federal and state level.

Maryland offered the first state EITC to its residents in 1987, and 25 states and the District of Columbia now provide their own version modeled on the federal credit. During this legislative session, two more states – California and Massachusetts – are considering EITC proposals that would provide a hand up to working families.

California lawmakers are considering implementing a state EITC for the first time, with competing proposals from the Assembly, Senate and governor. Gov. Jerry Brown   included an EITC proposal in his revised budget plan last week which would provide qualifying working families in California an average credit of $460 a year; the maximum credit for a family with three or more kids would be $2,653. Qualifying families can earn a maximum of $13,870 under the governor’s proposal, about the average income of California’s bottom fifth of taxpayers but relatively low considering California’s median household income of $60,194. Brown’s plan is much less generous than two bills under consideration in the legislature, but the fact that the governor’s budget contains an EITC proposal and both houses of the legislature are considering their own plans is a good sign that California will adopt an EITC in the near future. Senate Bill 38 and Assembly Bill 43 propose EITCs with no income cutoff for eligibility. According to an ITEP analysis, SB 38 would provide an average credit of $781 to the bottom fifth of taxpayers, as well as generous credits to middle-income taxpayers. AB 43 would provide an average credit of $602 to the bottom fifth.

In Massachusetts, leaders in the Senate want to fund an expansion of the state’s existing EITC by freezing the state’s personal income tax rate at 5.15 percent. Otherwise, the rate will fall to 5.1 percent in January. The Senate plan also includes a modest increase in the personal exemption. An ITEP analysis of the Senate plan found that the average taxpayer in the bottom 60 percent of Massachusetts’s income distribution would get a tax cut. According to senators who support the plan, this is all about fairness: “It’s about rewarding work and not just rewarding wealth,” argues state Sen. Ben Downing. Gov. Charlie Baker wants to double the state EITC by eliminating the state’s film tax credit and leaving the planned income tax cut in place, a good sign that the state EITC will be strengthened if the governor and legislature can agree on how to pay for it.

Sadly, some states are moving backwards on state EITCS. In North Carolina, where legislators have an unexpected revenue windfall, progressive groups have called on lawmakers to restore the state EITC that was allowed to expire last year, costing nearly one million families an important lifeline. A House Committee rejected an amendment that would do that, electing moments later to instead renew a tax break for buyers of airplanes and yachts.

After the defeat of a ballot measure to raise additional road funding through a sales and gas tax expansion, conservative lawmakers in Michigan unveiled a proposal that would fund road repairs in part by eliminating the state EITC. About 780,000 Michiganders received the EITC in 2013, with most of the benefits going to those earning between $15,000 and $20,000. Many legislators want to avoid raising sales or gas taxes in order to fund roads, but eliminating this crucial program for working families is not the answer.

To learn more about the role that state EITCs can play in supporting working families and creating more prosperity for everyone, check out this ITEP report.

 


State Rundown 5/14: Helping and Hurting Working Families


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California Gov. Jerry Brown included a new state Earned Income Tax Credit (EITC) in his revised budget plan this week, responding to critics who claim he has not done enough to address poverty. Brown’s proposed EITC would provide qualifying working families in California an average credit of $460 a year, with the maximum credit for a family with three or more kids of $2,653. In order to qualify, families must earn a maximum of $13,870, about the average income of California’s bottom fifth of taxpayers but relatively low considering the median household income in California is $60,194. The governor’s proposal is much less generous than two bills under consideration in the legislature. Senate Bill 38 and Assembly Bill 43 propose EITCs with no income cutoff for eligibility. According to an ITEP analysis, SB 38 would provide an average credit of $781 to the bottom fifth of taxpayers, as well as generous credits to middle-class taxpayers. AB 43 would provide an average credit of $602 to the bottom fifth. State EITCs are one of the most successful poverty-fighting tools available to policymakers, and we hope that California adopts an EITC more in line with the legislative proposals on the table.

A Michigan representative wants to replace the state’s flat personal income tax with a progressive structure, arguing that the recent defeat of ballot measure Prop 1 shows Michigan voters reject regressive sales taxes and want the wealthy to pay their fair share. “The middle class is pretty tapped out, and obviously the working poor can't afford to pay more,” Rep. Jim Townsend noted. “And yet we have the people in the top five percent, and specifically the top one percent, who have been doing by all accounts, extremely well.” Changing the state’s income tax structure from a flat rate to a graduated version would require a two-thirds vote of the legislature and approval by a majority of voters. Townsend’s bill is unlikely to pass the current legislature, but the people are already on board; a recent survey of Michigan voters found that 66 percent would vote for a graduated income tax.

A new report finds that voters have not punished lawmakers who support gas tax increases to fund transportation investments. The study by the American Road and Transportation Builders Association says 95 percent of Republican and 88 percent of Democratic legislators who voted to increase state gas taxes in 2013 or 2014 were reelected last cycle. Even legislators who pledged to never raise taxes were unpunished at the polls; of the 191 legislators included in the study that signed the Americans for Tax Reform (ATF) state pledge, 13 percent “ignored the ATR and supported increased revenue for transportation improvements… Only one legislator who defied the ATR and sought re-election was not returned to office.”

 

Following Up:
Nebraska: Lawmakers successfully overrode Gov. Pete Rickett’s veto of a 6 cent increase in the state’s gas tax over four years. The tax increase will raise an additional $25 million annually for the state and $51 million for cities and counties once fully implemented. The revenue is sorely needed, as Nebraska’s gas tax rate, adjusted to inflation, is currently at an all-time low according to ITEP data.

Kansas: Legislators in the House and Senate are gravitating toward plans to increase the sales tax to make up for the budget deficit. The plans would also implement a lower sales tax on food; Kansas is one of a few states where the full sales tax applies to food. Meanwhile, a bill to repeal Gov. Brownback’s income tax exemption for business pass-through income was approved by the House Taxation Committee. 

 


Back to the Drawing Board in Michigan


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Although Michigan voters rejected a ballot proposal Tuesday that would have raised sales taxes, gasoline taxes, and vehicle registration fees, the debate over how to boost funding for the state’s deteriorating infrastructure is far from over. 

Leading up to the election, 87 percent of likely voters said that if defeated, lawmakers should immediately begin work on a new plan to fix the state’s transportation system.  It appears voters were turned off by what The Detroit Free Press described as “one of the most complicated and confusing questions ever placed on a Michigan ballot.”  Had the measure passed, it would have triggered ten other laws that dealt with issues such as offsetting the tax increases paid by some low-income families via a boost in the state’s EITC, and reimbursing local governments for the revenue loss they would otherwise have faced under the plan.

Some voters said that lawmakers showed “cowardice” by bringing a plan to voters rather than raising revenue through the normal legislative process.  These voters are likely to get their wish in the months ahead.  Polling indicates that a straight up sales tax increase could be popular.  There is also talk about asking businesses to pay more, particularly since they saw their taxes slashed dramatically under the tax package signed by Gov. Rick Snyder in 2011.

The ballot measure was a complicated mix of tax increases and tax cuts that anti-tax advocates trumpeted as a tax increase on working people.  An ITEP analysis found that while most Michiganders would indeed pay more, the bottom fifth of Michigan taxpayers would actually receive an average tax cut of $24, and it would be the state’s highest earners that would face the largest increases.  For the vast majority of drivers, the increase would be a relative bargain given that the poor condition of the state’s roads costs most drivers over $500 per year in vehicle repairs.

Now that voters have defeated the measure, anti-tax advocates have begun spinning this election as evidence that voters are unwilling to pay higher taxes.  But the reality is that just 37 percent of Michigan residents think spending cuts alone could free up enough money to bring the state’s infrastructure up to 21st century standards.  When asked about cuts in specific programs, the results were similar.  Majorities ranging from 63 to 88 percent of voters oppose major cuts in K-12 education, universities, public safety, and health care for the poor, elderly, disabled, and children.

The hard truth is that Michigan’s roads are not going to fix themselves, and the state has to raise money some way to bring roads up to par. Gov. Snyder has conceded as much. 


State Rundown 5/4: Road Money and Budget Gaps


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A complex Michigan ballot initiative that would increase various taxes to fund roads, public transit, K-12 education and local governments is a sound idea that, unfortunately, is unpopular among the state’s voters. The measure, Proposal 1, would increase the sales tax from 6 to 7 percent for education, and increase the gas tax and vehicle registration taxes to fund transportation. The measure also includes a provision to improve the EITC. An analysis of the plan estimates it would raise about $1.8 billion annually. The bottom fifth of Michigan taxpayers would receive an average tax cut of $24, while earners in the state’s top bracket would pay an average of $497 to $697 more. Given that Michiganders spend more than $686 a year on vehicle repairs thanks to atrocious roads, the measure is a comparative bargain for most.

The South Carolina Senate Finance Committee passed a road funding bill that would raise $800 million a year by increasing the gas tax and driver’s license and vehicle registration fees. It would also tie the gas tax to inflation and increase the sales tax cap on cars.  Passed earlier, a House plan would raise $400 million by increasing the gas tax and sales tax cap on cars (by smaller amounts than the Senate bill) and introducing a new gas excise tax at the wholesale level. Neither measure includes the immense income tax cuts that Gov. Nikki Haley insisted be included with any bill that raises the state gas tax. For more on the gas tax debate in South Carolina, check out this guest blog post from John Ruoff on the Tax Justice Blog.

Despite the plethora of bad press the state has received for attempting to balance the budget on the backs of low-income people while maintaining ill-advised tax cuts for the wealthy and businesses, Kansas lawmakers continue to propose regressive tax plans to plug the state’s deficit. Sen. Les Donovan, who chairs the Senate Assessment and Taxation Committee, suggested that the committee would consider a measure to increase excise taxes on cigarettes and liquor as well as a bill that would weaken the state’s EITC by reducing the credit and making it non-refundable. The committee will also review a host of small tax exemptions to phase out. Kansas faces an $800 million deficit, $400 million of which must be closed with spending cuts or tax increases.

Over the past decade, West Virginia lawmakers have phased out and eliminated the state’s Business Franchise Tax and reduced the corporate income tax rate from 9 to 6.5 percent. The tax cuts failed to deliver the promised job growth, instead blowing a hole in the state budget; business tax collections next year will be lower than they were in 1990.  Meanwhile, public university students in West Virginia could soon see big tuition increases thanks to shrinking state funding. West Virginia University is considering a 10 percent tuition hike on top of the 29 percent increase over the past five years, while West Virginia State University recently announced a 7 percent hike.

A California Senate committee approved a bill that creates a refundable earned income tax credit (EITC) for low-income and working families. The state EITC would equal 30 percent of the federal EITC for eligible individuals with children.

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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.

 


State Rundown 1/22: Twists, Turns and Intrigue


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Although it significantly cut income taxes over each of the last three legislative sessions, the North Dakota Legislative Assembly heard the first of 30 bills this week aimed at income tax cuts, One proposal would reduce all personal income tax rates to zero and collapse the state’s current five income brackets to one. The governor’s income tax plan would reduce personal income tax rates by 10 percent and corporate income tax rates by 4.8 percent across the board. Another proposal currently before Senate would reduce the income tax rate on the bottom income bracket from 1.22 percent to 0 percent, eliminating the tax liability for 170,000 North Dakotans. The tax cut would cost $151 million a year and expire after two years. Sponsors of the bill argue that the tax cut would provide relief to renters, who have seen rents skyrocket as a result of the oil boom. Other legislators have suggested a more targeted approach, through an income tax credit for renters. 

South Carolina Gov. Nikki Haley endorsed an increase in the state’s gas tax in her state of the state Wednesday. Previously, the governor pledged to veto any increase in the state’s gas tax, which has not changed since 1987. The catch (and there’s always a catch) is that Haley will not support a gas tax increase without an income tax cut for top earners (from 7 to 5 percent).  Hiking gas taxes while cutting the top income tax rate would result in a tax shift from well-off South Carolinians to middle income and working families. State legislators had varied reactions to the governor’s plan; while Republicans were enthusiastic, Democrats pointed out that the plan would result in a net revenue loss of $117 million.

A state Senate committee approved Arkansas Gov. Asa Hutchinson’s tax plan Wednesday  with an amendment that would eliminate a planned capital gains tax cut. The amendment, offered by Sen. Bill Sample, would reverse a measure passed in 2013 to increase the exemption on capital gains from 30 percent to 50 percent and eliminate the tax on capital gains above $10 million. The amendment reduces the total cost of the governor’s tax plan to $93.4 million, according to the state’s Department of Finance and Administration. Local political prognosticators have noted the unorthodox nature of a Republican governor and legislature introducing a bill with tax increases.

Michigan Governor Rick Snyder signed a package of bills last week related to a ballot question that voters will decide on in May.  If approved, the package will generate $1.2 billion per year for roads and $300 million per year for schools by raising sales taxes, gas taxes, and vehicle registration fees.  In sharp contrast to Governor Haley’s proposal for South Carolina (described above), this package includes an income tax cut targeted toward low-income taxpayers, rather than the wealthy.  If approved, the state’s Earned Income Tax Credit (EITC) would rise to equal 20 percent of the federal credit.

 

Following Up:

MontanaDebate over tax cut measures continues in the legislature, and Gov. Steve Bullock’s budget director opposed the measures in committee hearings, saying they would endanger the state’s surplus. The Montana Budget and Policy Center, citing ITEP numbers, said that the top 1 percent of Montana taxpayers would see a tax cut of $2,200, while low-income Montanans would see a cut of just $12.

New Hampshire – Gov. Maggie Hassan has announced she opposes  proposed corporate tax cuts, saying that the bills currently before the state senate would create a significant budget hole. It is uncertain if Hassan will veto the bills should they reach her desk.

New York – In a stunning turn of events, state assembly speaker and Cuomo ally Sheldon Silver was arrested this morning on corruption charges. The charges stem from investigations related to the Moreland Commission, which the governor shut down prematurely last year amid controversy. Needless to say, this development will have an impact on Gov. Cuomo’s legislative agenda.


Why Now May Be the Time to Implement Higher Gas Taxes


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Earlier this year, copious potholes on highways and roads due to severe winter weather conditions exposed the harsh truth about our nation’s transportation funding: there’s not enough of it, and potholes and other crumbling infrastructure could become the norm if the states and the federal government don’t address the issue.

Twenty-four states have gone a decade or more without increasing their gas tax, and 16 states have gone two decades or more without an increase. The last time Congress increased the federal gas tax was in 1993.

A blog in Wednesday’s Washington Post pondered whether now is the time for the federal government to raise the tax since gas prices have dropped to levels last seen four years ago. While there will not be any movement on the federal level in the short term, a couple of states are weighing increases. 

South Carolina Gov.  Nikki Haley and a majority of House members have historically refused to increase the state’s gas tax, but The State newspaper reported that lawmakers are increasingly recognizing that the South Carolina’s transportation infrastructure needs are woefully underfunded. Perhaps a hike in the gas tax isn’t that unrealistic.  A state Department of Transportation report released earlier this year found that the state needs to generate an additional $43 billion over the next 25 years to meet those needs.

South Carolina’s gas tax is one of the lowest in the country (PDF) and hasn’t been raised in more than 25 years. After adjusting for inflation, ITEP found that the state’s current gas tax is lower today than at any point in history – going all the way back to the tax’s creation in 1922. For example, while the 2 cent gas tax that South Carolina levied in 1922 may sound very low to today’s drivers, in the context of the 1922 economy it was actually higher than the 16 cent gas tax South Carolina levies today. In fact a 2-cent tax in 1922 is roughly equivalent to a 28.3-cent tax in today’s dollars. Simply restoring the South Carolina gas tax to the same inflation-adjusted levels would represent a big step toward fully funding the state’s transportation needs. More and more states are realizing that undoing inflationary tax cuts is the most straightforward way to keep their infrastructure from crumbling beneath their feet.

In Michigan, Governor Rick Snyder is putting pressure on the House of Representatives to follow in the footsteps of the Senate and pass legislation that would replace both the state’s current 19-cent gas tax and 15-cent tax on diesel with a tax on the average wholesale price of gas. Based on current gas prices the tax rate would increase to 44 cents in 2018 and raise an additional $1.2 billion for transportation by 2019.   The Governor admits this is asking representatives to take a “tough vote”, but it’s one that the Senate already took by a nine-vote margin (23-14). Gov. Snyder said of the state’s infrastructure crisis, “Every day that passes it's only going to get worse. Pothole season isn't going to be any better next year.”

Because this legislation links the gas tax to the wholesale price of gas the state is putting itself in a better position to ensure that transportation funding keeps up with inflation overtime. 

Policymakers in South Carolina and Michigan aren’t alone in their quest for dealing with infrastructure woes. ITEP’s report State Gasoline Taxes: Built to Fail, But Fixable concludes that the poor design of gas taxes “has resulted in sluggish revenue growth that fails to keep pace with state infrastructure needs.” ITEP recommends raising gas taxes especially in states that haven’t increased their taxes in several years, restructuring gas taxes to take into account increased fuel efficiency and construction costs, and offsetting regressive gas tax hikes with targeted low-income tax relief.

In this political environment, tax increases may be a tough sell. But roads aren’t going to fix themselves, and the D-grade results of inadequate transportation funding will only get worse. States and the federal government should present and consider serious policy proposal for raising gas taxes to repair our nation’s roads and bridges.

 


State Rundown 9/30: The Gas Tax Cometh?


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WP-Gas-Pump-1.jpgPolitical leaders in New Jersey could be close to figuring out a fix for the state’s transportation funding crisis. The Transportation Trust Fund is set to run out of money soon, and Gov. Chris Christie has declared that all options are on the table -- including, perhaps, an increase in the gas tax, which is currently second lowest in the nation (it has been more than 20 years since the tax was increased). The pledge represents a softening of the governor’s position; he has opposed any increase in the gas tax in recent years, and has also raided the trust fund to balance the state budget. State lawmakers could also consider indexing the gas tax to inflation, as they’ve done in Massachusetts, or applying the state’s sales tax to gasoline purchases, as advocated by New Jersey Policy Perspective, a leading nonpartisan think tank in the state.

The president of the South Carolina Chamber of Commerce recently announced that his group would support the first state gas tax increase in over 25 years (lowest in the nation -- take that New Jersey). Otis Rawl says the chamber will push for a 1-cent-per-year increase for the next 10 years to address the state’s crumbling infrastructure, citing a poll that shows a majority of the state’s Republican voters would support such a measure. Both candidates for governor are on the record as opposing an increase in the gas tax, though their alternatives haven’t been well-received by state leaders. Incumbent Nikki Haley (R) has been criticized for refusing to reveal her “secret” plan to fix the state’s roadways, while challenger Vincent Sheheen would rely on anticipated revenue increases from the state’s general fund.

An analysis from Wyoming finds that the state’s 10-cent increase in the gas tax has not been entirely passed to consumers. The Casper Star-Tribune found that after the tax on gas and diesel was increased by 10 cents in 2013, the price of unleaded gasoline increased only 5 cents per gallon in 2014 while the price of diesel increased by 8 cents. Gov. Matt Mead (R), who signed the tax increase, has long argued that infrastructure investment is the conservative approach, since maintenance costs increase with less investment.

Transportation spending is a big issue in the Michigan governor’s race, with challenger Mark Schauer (D) calling out incumbent Rick Snyder (R) for his failure to convince state legislators to fix the states’ potholes and bridges. Snyder supports an increase in the state’s gas tax and wants to hike vehicle registration fees, while Schauer opposes an increase on the grounds that the governor has already raised taxes on ordinary Michiganders to pay for business tax cuts. Michigan’s gas tax is which is one of the nation’s highest at ten cents above the national average, but state road spending per driver is far below average. Meanwhile, the sale of tire and wheel insurance has skyrocketed across the state.

If you have a great state news item that we missed here, please send it to Sebastian at sdpjohnson@itep.org so we can spread the word.


 


Tax Policy and the Race for the Governor's Mansion: Michigan Edition


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Voters in 36 states will be choosing governors this November. Over the next several months, the Tax Justice Digest will be highlighting 2014 gubernatorial races where taxes are proving to be a key issue. Today’s post is about the race for Governor in Michigan.

michigan.jpgThe gubernatorial race in Michigan pits incumbent Rick Snyder (R), a businessman who won election four years ago as a technocratic outsider, against challenger Mark Schauer (D), a former congressman from Battle Creek. Taxes are a contentious campaign issue – the governor and Republican legislature passed a tax package in 2011 that decreased business taxes and increased taxes on seniors and working families, and Schauer has vowed to repeal the increases. Since enacting his tax plan, Gov. Snyder has sought to move to the middle, alienating some of his more conservative supporters in the process.

The race is a dead-heat. A recent poll for NBC News found registered voters backing Snyder 46 percent to Schauer’s 44 percent, with 9 percent undecided. While the incumbent is still favored to win and will likely outspend his challenger, Gov. Snyder is in a tough spot; no poll shows him with the support of 50 or more percent of voters, and Schauer continues to gain on Snyder despite the governor’s improved job performance ratings.

Gov. Snyder’s 2011 tax-cut bill was the largest Michigan had seen in 17 years. The package eliminated the Michigan Business Tax, enacted in 2008, and replaced it with a 6 percent corporate income tax. The tax cut, estimated at $1.65 billion, benefited 100,000 Michigan businesses. To help pay for the cut, Snyder and Republican legislators increased taxes on pensioners (by eliminating the pension tax exemption for those born after 1952), middle-income families (by eliminating the Homestead Property Tax Credit for those making over $50,000 and the $600-per-child tax credit), and working families (by reducing Michigan’s Earned Income Tax Credit from 20 percent to 6 percent of the federal credit.) The net result left a $220 million hole in state revenues.

Gov. Snyder remains a traditional business-establishment Republican, but he angered state Republicans by embracing the ACA’s Medicaid expansion and Common Core, and has attempted to triangulate to shore up his reelection prospects. His proposed 2014 budget retroactively restored the Homestead Property Tax Credit for those in the $50,000 to $60,000 income range, increased education funding for K-12 and higher education, and increased state aid to local governments. Critics derided the budget as an election-year stunt that didn’t reverse the damage of his earlier tax cut, or offer relief to pensioners burdened with higher taxes.

Schauer, a former one-term congressman from Battle Creek, has forged a progressive campaign built on repealing Snyder’s 2011 tax package – nixing the tax increases on pensions, restoring the cuts to the Earned Income Tax Credit and Homestead Property Tax Credit, and bringing back the child tax credit. He also pledged to increase education and road funding and enact other measures designed to support women and working families, such as paid sick leave and increased unemployment benefits. However, he has offered few ways to pay for these proposals other than ending tax breaks for companies that outsource Michigan jobs and eliminating “wasteful spending.” He also does not want to increase the corporate income tax. The coming months will determine if he can convert his recent momentum into a lasting advantage, as no poll has shown him leading the governor.

One issue that has put Snyder and Schauer on unlikely sides of the usual partisan divide is transportation funding. Gov. Snyder has been a high-profile proponent of raising the gas tax and increasing automobile fees to fund roads and transit projects, though his proposals have not gained much traction. Schauer has flatly said he doesn’t support a hike in the gas tax, saying that he instead would insist on getting Michigan’s fair share of federal gas tax revenues and impose a higher fee on heavy commercial trucks. 


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


State News Quick Hits: Party With Boeing, Targeted Tax Cuts and More


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It’s an age-old question: How do you thank legislators who give your profitable company an $8.7 billion tax subsidy? Most etiquette experts agree that a handwritten note just won’t do. But a lavish party thrown in your benefactors’ honor — that’s more like it. Recently, Boeing threw a party for Washington state lawmakers to thank them for the record amount of taxpayer money they delivered to the company in a special legislative session late last year. The reception was conveniently held across the street from the Capitol. Thankfully for Boeing, the cost of the party will likely be written off as a business expense on next year’s taxes.

Indiana lawmakers are looking in all the wrong places for a way to boost their state’s economy. The Indiana Senate has passed a bill eliminating the business equipment tax for companies with less than $25,000 worth of equipment, while the House version would give localities the option of eliminating the tax entirely for new machinery. But a new report (PDF) from the Indiana Fiscal Policy Institute explains that localities are in no position to deal with yet another cut in their property tax bases, and that giving localities the option of eliminating this tax is unlikely to draw any new businesses into the state (though it may reshuffle existing businesses around within the state’s borders).

The Arizona Daily Star reports that “a bid to enact a flat income-tax rate in Arizona is dead.” State Representative J.D. Mesnard had hoped to begin flattening one of the state’s only major progressive revenue sources by reducing the number of income tax brackets from five to three, but he appears to have abandoned that effort after failing to gather any support. But income tax cuts are hardly off the agenda. Mesnard still wants to funnel any new sales tax revenue collected from cracking down on online sales tax evasion into income tax cuts that are likely to benefit the rich. Much more reasonable, however, is his proposal to index the state’s tax brackets to inflation—a change that would actually help retain the progressivity of Arizona’s income tax over time.

Michigan Governor Rick Snyder has a better tax-cutting plan than his colleagues in the legislature. Rather than rewarding wealthy taxpayers with a cut in the state’s income tax rate, Snyder wants to provide targeted property tax relief to middle-income families through an expansion of the state’s circuit breaker program. The expansion would help offset a reduction in the circuit breaker passed in 2011 to help pay for a massive business tax cut sought by the Governor. But while Snyder’s plan is an improvement over plans to cut the income tax rate, the Michigan League for Public Policy notes that Snyder’s plan is hardly perfect: “a critical omission [from Snyder’s budget] was the failure to restore cuts in the state’s Earned Income Tax Credit, the best tool for helping families with the lowest wages.” And there are also serious questions about whether Michigan lawmakers should be discussing tax cuts at all—a new poll shows that in terms of their top priorities, voters rank tax cuts a “distant third” behind spending on schools and roads.


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.


What to Watch for in 2014 State Tax Policy


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Note to Readers: This is the first of a five-part series on tax policy prospects in the states in 2014.  This post provides an overview of key trends and top states to watch in the coming year.  Over the coming weeks, the Institute on Taxation and Economic Policy (ITEP) will highlight state tax proposals and take a deeper look at the four key policy trends likely to dominate 2014 legislative sessions and feature prominently on the campaign trail. Part two discusses the trend of tax shift proposals. Part three discusses the trend of tax cut proposals. Part four discusses the trend of gas tax increase proposals. Part five discusses the trend of real tax reform proposals.

2013 was a year like none we have seen before when it comes to the scope and sheer number of tax policy plans proposed and enacted in the states.  And given what we’ve seen so far, 2014 has the potential to be just as busy.

In a number of statehouses across the country last year, lawmakers proposed misguided schemes (often inspired by supply-side ideology) designed to sharply reduce the role of progressive personal and corporate income taxes, and in some cases replace them entirely with higher sales taxes.  There were also a few good faith efforts at addressing long-standing structural flaws in state tax codes through base broadening, providing tax breaks to working families, or increasing taxes paid by the wealthiest households.

The good news is that the most extreme and destructive proposals were halted.  However, several states still enacted costly and regressive tax cuts, and we expect lawmakers in many of those states to continue their quest to eliminate income taxes in the coming years.  

The historic elections of 2012, which left most states under solid one-party control (many of those states with super majorities), are a big reason why so many aggressive tax proposals got off the ground in 2013.  We expect elections to be a driving force shaping tax policy proposals again in 2014 as voters in 36 states will be electing governors this November, and most state lawmakers are up for re-election as well.

We also expect to see a continuation of the four big tax policy trends that dominated 2013:

  • Tax shifts or tax swaps:  These proposals seek to scale back or repeal personal and corporate income taxes, and generally seek to offset some, or all, of the revenue loss with a higher sales tax.

    At the end of last year, Wisconsin Governor Scott Walker made it known that he wants to give serious consideration to eliminating his state’s income tax and to hiking the sales tax to make up the lost revenue.  Even if elimination is out of reach this year, Walker and other Wisconsin lawmakers are still expected to push for income tax cuts.  Look for lawmakers in Georgia and South Carolina to debate similar proposals.  And, count on North Carolina and Ohio lawmakers to attempt to build on tax shift plans partially enacted in 2013.  
  • Tax cuts:  These proposals range from cutting personal income taxes to reducing property taxes to expanding tax breaks for businesses.  Lawmakers in more than a dozen states are considering using the revenue rebounds we’ve seen in the wake of the Great Recession as an excuse to enact permanent tax cuts.  

    Missouri
    lawmakers, for example, wasted no time in filing a new slate of tax-cutting bills at the start of the year with the hope of making good on their failed attempt to reduce personal income taxes for the state’s wealthiest residents last year.  Despite the recommendations from a Nebraska tax committee to continue studying the state’s tax system for the next year, rather than rushing to enact large scale cuts, several gubernatorial candidates as well as outgoing governor Dave Heineman are still seeking significant income and property tax cuts this session.  And, lawmakers in Michigan are debating various ways of piling new personal income tax cuts on top of the large business tax cuts (PDF) enacted these last few years.  We also expect to see major tax cut initiatives this year in Arizona, Florida, Idaho, Indiana, Iowa, New Jersey, North Dakota, and Oklahoma.

    Conservative lawmakers are not alone in pushing a tax-cutting agenda.  New York Governor Andrew Cuomo and Maryland’s gubernatorial candidates are making tax cuts a part of their campaign strategies.  
  • Real Reform:  Most tax shift and tax cut proposals will be sold under the guise of tax reform, but only those plans that truly address state tax codes’ structural flaws, rather than simply eliminating taxes, truly deserve the banner of “reform”.

    Illinois and Kentucky are the states with the best chances of enacting long-overdue reforms this year.  Voters in Illinois will likely be given the chance to convert their state's flat income tax rate to a more progressive, graduated system.  Kentucky Governor Steve Beshear has renewed his commitment to enacting sweeping tax reform that will address inequities and inadequacies in his state’s tax system while raising additional revenue for education.  Look for lawmakers in the District of Columbia, Hawaii, and Utah to consider enacting or enhancing tax policies that reduce the tax load currently shouldered by low- and middle-income households.
  • Gas Taxes and Transportation Funding:  Roughly half the states have gone a decade or more without raising their gas tax, so there’s little doubt that the lack of growth in state transportation revenues will remain a big issue in the year ahead. While we’re unlikely to see the same level of activity as last year (when half a dozen states, plus the District of Columbia, enacted major changes to their gasoline taxes), there are a number of states where transportation funding issues are being debated. We’ll be keeping close tabs on developments in Iowa, Michigan, Missouri, New Hampshire, Utah, and Washington State, among other places.

Check back over the next month for more detailed posts about these four trends and proposals unfolding in a number of states.  


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).   

The Philadelphia Inquirer reports on a poll showing that most Pennsylvanians care more about the quality of their schools than about keeping their tax bills low: “The poll found that in order to restore $1 billion in state aid [that was] cut two years ago, more than half the respondents - 55 percent - would be willing to support increasing the state sales tax from 6 percent to 6.25 percent and postponing corporate tax breaks as long as the money went into a dedicated trust for schools... Fifty-four percent said they would favor boosting the state income tax rate from 3.07 percent to 3.30 percent to help the schools.”

In other Pennsylvania news, a proposal by state Senate Majority Leader Dominic Pileggi to uncap that state’s film tax credit failed to garner support during this legislative session. Yesterday, Governor Tom Corbett signed the 2013-14 Executive Budget, maintaining the credit’s $60 million annual cap. Lawmakers must have read our discussion of why film tax credits are a poor economic development tool – hopefully next year the proposal will be to eliminate them entirely.

The Michigan League for Public Policy (MLPP) uses new data to make the case for reversing the 70 percent cut in the state’s Earned Income Tax Credit (EITC) that lawmakers enacted in 2011 to pay for a big cut in businesses’ tax bills.  As the MLPP points out, “One in every four children (25%) in Michigan lived in poverty in 2011, up from one in five (19%) in 2005. Only nine states had bigger jumps in the child poverty rates … The state and federal credits literally lift children in low-income families out of poverty. Studies show a strong correlation between income boosts and good outcomes for kids.”

Goodbye and Congratulations! The Institute on Taxation and Economic Policy (ITEP) often works with the Iowa Policy Project (IPP) on tax and budget issues in the Hawkeye State. The organization’s founding director David Osterberg  announced that he will be stepping away from his director duties to focus on environment and energy policy. Taking over as director will be Mike Owen, IPP’s current assistant director. We wish David all the best and congratulate Mike in his new role.

Our friends at ITEP are busy crunching the numbers for yet another version of tax “reform” in North Carolina. The Senate is expected to approve a revamped bill this week which is more in line with the concepts the House and Governor support.  But, with a more than $1 billion annual price tag and most of the benefits going to wealthy North Carolinians and profitable corporations, the effort still falls far short of being real reform.  Be sure to check out www.ncjustice.org this week for the latest information about the ongoing debate and to see ITEP’s numbers in action.


State News Quick Hits: Pushback on Tax Cuts as Job Creators, and More


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Michigan’s former Treasurer, Robert Kleine, explains in a Detroit Free Press op-ed that “there is no evidence that … [a 2011 tax change] reducing business taxes by $1.7 billion has created new jobs in Michigan.”  Among other things, Kleine observes that “state business taxes are such a small part of a business’ costs that even large changes have a minor impact.”

Gas taxes remain a major topic of debate in the states.  Since publishing our mid-session update on state gas tax debates two weeks ago, Vermont Governor Peter Shumlin signed a gas tax increase into law, Iowa Governor Terry Branstad reiterated that a gas tax hike is still on the table in his state, and The Olympian reports that raising Washington State’s gas tax is “now widely seen as a topic for special session.”

New Jersey Governor Chris Christie has been traveling the state seeking support for his more than $2 billion tax cut proposal (once fully phased-in) ever since using Tax Day 2013 to announce his renewed push for the plan he first championed last year. An op-ed from the Better Choices for New Jersey Campaign says the proposal was “a bad idea then, and it remains one today.”  Why?  Simply put, the state cannot afford even the scaled-back tax cut the governor is proposing for 2013 without reducing spending.

A new report from the North Carolina Budget and Tax Center takes on two common myths about the state’s economy that policymakers often use to justify cutting or eliminating taxes: North Carolina’s economy is uncompetitive compared to neighboring states and high tax rates drive North Carolina’s high unemployment. The report found that North Carolina is actually either leading or in the middle of the pack in every major indicator of economic health except for unemployment.  And, the explanation for high unemployment? A decline in specific industries the state has long relied on – like textiles and furniture – that are highly vulnerable to offshoring, outsourcing and other global pressures, not high tax rates.

Anti-Taxer-in-Chief Grover Norquist recently travelled to Minnesota where he met up with Congresswoman Michele Bachmann to rally against taxes. Minnesota is actually one of the bright lights this year for tax justice advocates who are supporting House and Senate plans there that would raise taxes on the wealthiest Minnesotans.


Mid-Session Update on State Gas Tax Debates


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In a stark departure from the last few years, one of the most debated state tax policy issues in 2013 has been the gasoline tax (PDF).  Until this February, it had been almost three years since any state’s lawmakers approved an increase or reform of their gasoline tax.  That changed when Wyoming Governor Matt Mead signed into law a 10 cent gas tax hike passed by his state’s legislature.  Since then, Virginia has reformed its gas tax to grow over time alongside gas prices, and Maryland has both increased and reformed its gas tax.  By the time states’ 2013 legislative sessions come to a close, the list of states having improved their gas taxes is likely to be even longer.

Massachusetts appears to be the most likely candidate for gas tax reform.  Both the House and Senate have passed bills immediately raising the state gas tax by 3 cents per gallon, and reforming the tax so that its flat per-gallon amount keeps pace with inflation in the future (see chart here).  In late 2011, the Institute on Taxation and Economic Policy (ITEP) found that Massachusetts is among the states where inflation has been most damaging to the state transportation budget—costing some $451 million in revenue per year relative to where the gas tax stood in 1991 when it was last raised.  Governor Deval Patrick has expressed frustration that legislators passed plans lacking more revenue for education—in sharp contrast to his own plan to increase the income tax—but he has also signaled that there may be room for compromise.

Vermont lawmakers are also giving very serious consideration to gas tax reform.  At the Governor’s urging, the House passed a bill increasing the portion of Vermont’s gas tax that already grows alongside gas prices.  The bill also reforms the flat-rate portion of Vermont’s gas tax to grow with inflation.  The Senate is now debating the idea, and early reports indicate that the package may be tweaked to rely slightly more on diesel taxes in order to reduce the size of the increase on gasoline.

Pennsylvania Governor Tom Corbett has also proposed raising and reforming his state’s gasoline tax.  While Pennsylvania’s tax is technically supposed to grow alongside gas prices, an obsolete tax cap limits the rate from rising when gas prices exceed $1.25 per gallon.  Corbett would like to remove that cap in order to improve the sustainability of the state’s revenues, and members of his administration have been traveling the state to explain how doing so would benefit Pennsylvanians.  While the legislature has yet to act on his plan, the fact that it has the backing of the state’s Chamber of Business and Industry is likely to help its chances.

In New Hampshire, the Governor has said she is open to raising the state gas tax and the House has passed a bill doing exactly that.  But there are indications that lawmakers in the state Senate might continue procrastinating on raising the tax, as the state has done for over two decades.

Nevada lawmakers are discussing a gas tax increase following the release of a report showing that the state’s outdated transportation system is costing drivers $1,500 per year.  ITEP analyzed a gas tax proposal receiving consideration in the Nevada House and found that even with the increase, the state’s gas tax rate (adjusted for inflation) would still remain low relative to its levels in years past.

Iowa lawmakers have been debating a gas tax increase for a number of years, and there may be enough support in the legislature to finally see one enacted into law.  The major stumbling block is that Governor Branstad will only agree to raise the gas tax if it’s part of a larger package that cuts revenue overall—particularly revenues from the property tax.  As we’ve explained in the past, such a move would effectively benefit the state’s roads at the expense of its schools.

Earlier this year, Washington State House lawmakers unveiled a plan raising the state’s gas tax by 10 cents per gallon and increasing vehicle registration fees.  Senate leaders are reportedly less excited about the idea of a gasoline tax hike, though there are indications they would consider such an increase if it were to pass the House.  While talk of a 10 cent increase has since quieted down, there are rumors that a smaller increase could be enacted.

Unfortunately, some states where the chances of gas tax reform once appeared promising have since begun to move away from the idea.  In Michigan, while the Governor and the state Chamber of Commerce have voiced strong support for generating additional revenue through the gas tax, neither the House nor the Senate appears likely to vote in favor of such a reform this year.  Meanwhile, the chances for a gas tax increase in Minnesota seem to have faded after the Governor came out against an increase and the House subsequently unveiled a tax plan that leaves the gas tax untouched.

Overall, 2013 has already been a significant year for state gas tax reform.  Both Maryland and Virginia have abandoned their unsustainable flat gas taxes in favor of a better gas tax that grows over time, just like construction costs inevitably will.  Hopefully, within the next few months, more states will have followed their lead.


State News Quick Hits: Promoting Tax Justice in the States on April 15


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On April 15, the majority of Americans file their income taxes, federal and state. As CTJ and ITEP demonstrate in their annual Who Pays Taxes in America, state tax systems are overwhelmingly regressive and the federal system just barely makes up for that. Today we highlight some great, creative efforts in a few states promoting the importance of state tax fairness.

Michigan: The Michigan League for Public Policy organized a social media campaign and video called “Pay it Forward Michigan.” The League explains that “its aim is to remind us about the good things our tax dollars create or protect — clean water, parks, good schools, safe streets, good roads, protection for children, great universities, the arts, bike paths, pristine beaches and more.”

North Carolina: Russell the Public Investment Hound was back and starring in a new film, The Great Tax Shift.  Also, check out this tax day Fair Fight Luchadora (Mexican wrestling) showdown that was staged across the street from the North Carolina General Assembly building. From the press advisory: “Tax Day is a reminder that wealthy and powerful special interests aren’t made to pay their fair share because too few lawmakers in Raleigh and in D.C. care about being champions of the People who elected them. This year, working people will get to settle the score!” Spoiler alert: the people’s champ won!

Ohio: Amy Hanauer of Policy Matters Ohio writes in the Cleveland Plain-Dealer about why income tax cuts won’t help the state’s economy, and highlights research from ITEP to make her case.  She also shares a personal experience with a fire in the basement of her home just days before Tax Day in 2001. “The firefighters arrived in minutes and put out the still-tiny fire ... and I suddenly had a more vivid picture of what my un-mailed taxes would pay for. Twelve years later, I can thank countless teachers, crossing guards, snowplow drivers, police officers, water inspectors and others for helping keep my kids educated, protected, safe and happy in our community.”

Wisconsin: Ever wonder what Wisconsin income taxes help fund? Read all about it here and check out the gorgeous infographic showing how tax revenues are an economic investment.

Photo courtesy of FairFight North Carolina.


Earned Income Tax Credits in the States: Recent Developments, Good and Bad


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Note to Readers: This is the last in a six part series on tax reform in the states. Over the past several weeks CTJ’s partner organization, The Institute on Taxation and Economic Policy (ITEP) has highlighted tax reform proposals and looked at the policy trends that are gaining momentum in states across the country.

Lawmakers in at least six states have proposed effectively cutting taxes for moderate- and low-income working families through expanding, restoring or enacting new state Earned Income Tax Credits (EITC) (PDF). Unfortunately, state EITCs are also under attack in a handful of states where lawmakers are looking to reduce their benefit or even eliminate the credit altogether.

The federal EITC is widely recognized by experts and lawmakers across the political spectrum as an effective anti-poverty strategy. It was introduced in 1975 to provide targeted tax reductions to low-income workers and supplement low wages. Twenty-four states plus the District of Columbia provide EITCs modeled on the federal credit. At the state level, EITCs play an important role in offsetting the regressive effects of state and local tax systems.

Positive Developments

  • Last week, the Iowa Senate Ways and Means Committee approved legislation to increase the state’s EITC from 7 to 20 percent. Committee Chairman Joe Bolkcom said, “This bill is what tax relief looks like. The tax relief is going to people who pay more than their fair share.”

  • The Honolulu Star-Advertiser recently reported on the push to create an EITC and a poverty tax credit (PDF) in Hawaii. The story cites data from ITEP showing that Hawaii has the fourth highest taxes on the poor in the country and describes the work being done in support of low-income tax relief by the Hawaii Appleseed Center.  The poverty tax credit would help end Hawaii’s distinction as one of just 15 states that taxes its working poor deeper into poverty through the income tax.

  • In Michigan, lawmakers are looking to reverse a recent 70 percent cut in the state’s EITC.  That change raised taxes on some 800,000 low-income families in order to pay for a package of business tax cuts.  Lawmakers have introduced legislation to restore the EITC to its previous value of 20 percent of the federal credit, and advocates are supporting the idea through the “Save Michigan’s Earned Income Tax Credit” campaign

  • Pushing back against New Jersey Governor Christie’s reduction of the EITC from 25 to 20 percent, last month the Senate Budget and Appropriations Committee approved a bill to restore the credit to 25 percent. Senator Shirley Turner, the bill’s sponsor, said there was no reason to delay its passage as some have suggested because low-income New Jersey families need the credit now.  "People would put this money into their pockets immediately. I think they would be able to buy food, clothing and pay their rent and their utility bills. Those are the things people are struggling to do."

  • Oregon’s EITC is set to expire at the end of this year, but Governor Kitzhaber views it as a way to help “working families keep more of what they earn and move up the income ladder” so his budget extends and increases the EITC by $22 million. Chuck Sheketoff with the Oregon Center for Public Policy argues in this op-ed, “[t]he Oregon Earned Income Tax credit is a small investment that can make a large difference in the lives of working families. These families have earned the credit through work. Lawmakers should renew and strengthen the credit now, not later.”

  • In Utah, a legislator sponsored a bill to introduce a five percent EITC in the state. The bipartisan legislation is unlikely to pass because of funding concerns, but the fact that the EITC is on the radar there is a good development. Rep. Eric Hutchings said that offering a refundable credit to working families “sends the message that if you work and are trying to climb out of that hole, we will drop a ladder in."

Negative Developments

  • Last week, North Carolina Governor McCrory signed legislation that reduces the state’s EITC to 4.5 percent. The future looks grim for even this scaled down credit, though, since it is allowed to sunset after 2013 and it’s unlikely the credit will be reintroduced. It’s worth noting that the state just reduced taxes on the wealthiest .2 percent of North Carolinians by eliminating the state’s estate tax, at a cost of more than $60 million a year. Additionally, by cutting the EITC the legislature recently increased taxes on low-income working families, saving a mere $11 million in revenues.

  • Just two years after signing legislation introducing an EITC, Connecticut Governor Dannel Malloy is recommending it be temporarily reduced “from the current 30 percent of the federal EITC to 25 percent next year, 27.5 percent the year after that, and then restoring it to 30 percent in 2015.” In an op-ed published in the Hartford Courant, Jim Horan with the Connecticut Association for Human Services asks, “But do we really want to raise taxes on hard-working parents earning only $18,000 a year?”

  • Last week in the Kansas Senate, a bill (PDF) was introduced to cut the state’s EITC from 17 to 9 percent of its federal counterpart. This would be on top of the radical changes signed into law last year by Governor Sam Brownback which eliminated two credits targeted to low-income families including the Food Sales Tax Rebate.

  • Vermont Governor Shumlin wants to cut the EITC and redirect the revenue to child care subsidy programs, a move described as taking from the poor to give to the poor. A recent op-ed by Jack Hoffman at Vermont’s Public Assets Institute cites ITEP Who Pays data to make the case for maintaining the EITC.  Calling the Governor’s idea a “nonstarter,” House and Senate legislators are exploring their own ideas for funding mechanisms to pay for the EITC at its current level.

State News Quick Hits: Myth of the Tax-Fleeing Millionaire, and More


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In 2011, Michigan lawmakers enacted a huge “tax swap” that cut taxes dramatically for businesses and raised them on individuals – especially lower-income and elderly families. Given that many of these changes went into effect at the beginning of 2012, and that many Michiganders are just now beginning to file their 2012 tax forms, the Associated Press provides a rundown of the ways in which the tax bills of typical Michiganders will look different from previous years. Our partner organization, the Institute on Taxation and Economic Policy (ITEP), estimated (PDF) that changes in the personal income tax would result in tax increases of $100 for a poor family, $300 for a middle income family and $7 from a rich one.

South Carolina is considering jumping onto a bandwagon heading the wrong way: supplementing the state’s transportation revenues by taking money away from schools and other state services. If enacted, the plan under consideration would raid $80 million from the state’s general fund every year and use it for roads instead. ITEP estimated, however, that South Carolina could raise more than $400 million for transportation every year just by updating its stagnant gasoline and diesel taxes to catch up to over two decades of inflation.

There’s some good news on the gas tax issue in Iowa. This week, an ad hoc transportation lobby will rally to support the “It’s Time for a Dime” campaign. These builders, farmers and contractors are urging lawmakers to raise the state’s gas tax to pay for needed infrastructure repairs. The Institute on Taxation and Economic Policy’s (ITEP) Building a Better Gas Tax concludes that Iowa hasn’t raised its gas tax in over two decades and has lost 43 percent of its value since the last increase.

In case you missed it, here’s a great read from the New York Times about how we shouldn’t be so quick to assume that millionaires are ready to pack up their bags and move at the slightest increase in their tax bills. In “The Myth of the Rich Who Flee From Taxes,” the Times cites ITEP’s work on the Maryland millionaire tax: “a study by the Institute on Taxation and Economic Policy, a nonprofit research group in Washington, found that nearly all the decline in millionaires was the result of a drop in incomes largely attributable to the stock market plunge and recession, and not to migration — “down and not out,” as the study put it.”


Gas Tax Gains Favor in the States


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Note to Readers: This is the fifth of a six part series on tax reform trends in the states, written by The Institute on Taxation and Economic Policy (ITEP).  Previous posts in this series have provided an overview of current trends and looked in detail at “tax swaps,” personal income tax cuts and progressive tax reforms under consideration in the states.  This post focuses on one of the most debated tax issues of 2013: raising state gasoline taxes to pay for transportation infrastructure improvements.

States don’t tend to increase their gas tax rates very often, mostly because lawmakers are afraid of being wrongly blamed for high gas prices.  The result of this rampant procrastination is that state gas tax revenues are lagging far behind what’s needed to pay for our transportation infrastructure.  Until last week, the last time a state gas tax increase was signed into law was three and a half years ago—in the summer of 2009—when lawmakers in North Carolina, Oregon, Rhode Island, Vermont, and the District of Columbia all agreed that their gas tax rates needed to go up, albeit modestly in some cases.  (Since then, some state gas taxes have also risen due to provisions automatically tying the tax to gas prices or inflation.)

But Wyoming was the state that ended the drought when Governor Matt Mead signed into law a 10 cent gas tax increase passed by the state’s legislature.  And Wyoming is not alone.  In total, lawmakers in nine states are seriously considering raising (or have already raised) their gas tax in 2013: Iowa, Maryland, Massachusetts, Michigan, New Hampshire, Pennsylvania, Vermont, Washington, and Wyoming. And until recently, Virginia appeared poised to increase its gas tax, too.In addition to Governor Mead, Republican governors in Pennsylvania and Michigan and Democratic governors in Massachusetts and Vermont have proposed raising their state gas taxes despite the predictable political pushback that such proposals seem to elicit.  The plans under discussion in these four states are especially reform-minded since they would not just raise the gas tax rate today, but also allow it to grow over time as the cost of asphalt, concrete, machinery, and everything else the gas tax pays for grows too.

In New Hampshire, meanwhile, Governor Hassan has said that the state needs more funding for transportation and is open to the idea of raising the gasoline tax, among other options.  The state House is debating just such a bill right now.  The situation is similar in Maryland where Governor O’Malley, who pushed for a long-overdue gasoline tax increase last year, recently met with legislators to discuss a gas tax increase proposed this year by Senate President Mike Miller.  Washington State Governor Jay Inslee has also not ruled out an increase in the gas tax—an idea backed by the state Senate majority leader and the House Transportation Committee chair.  And in the Hawkeye State, Governor Branstad once described 2013 as “the year” to raise Iowa’s gas tax (which happens to be at an all-time low, adjusted for inflation), although he has since said that he would support doing so only after lawmakers cut the property tax.

Other states where gas tax increases have gotten a foothold so far this year include Minnesota, Texas, West Virginia, and Wisconsin, though it’s not yet clear how far those states’ debates will progress in 2013.

Across the country, no state has received more attention this year for its transportation debates than Virginia, where Governor Bob McDonnell kicked off the discussion by actually proposing to repeal the state’s gasoline tax.  But while Governor McDonnell’s idea was certainly attention-grabbing, it also failed to gain traction with most lawmakers, and the Virginia Senate responded by passing a bill actually increasing the state gasoline tax and tying it to inflation.  Since then, the preliminary details of an agreement being negotiated between House and Senate leaders are just now emerging, but early indications are that the legislature will try to cut the gas tax in the short-term, but allow the tax to rise alongside gas prices in the future.  The size of the cut will also depend on whether Congress enacts legislation empowering Virginia to collect the sales taxes owed on online purchases.

It’s good to see Virginia lawmakers looking toward the long-term with reforms that will allow the gas tax to grow over time.  But asking less of drivers through the gas tax today—when the state is facing such serious congestion problems—is fundamentally bad tax policy.  For more on the merits of the gas tax and the reforms that are needed to improve its fairness and sustainability, see Building a Better Gas Tax from the Institute on Taxation and Economic Policy (ITEP).


Quick Hits in State News: The Perils of Tax Credits, Breaks and Incentives


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A Los Angeles Times report out of Hawaii illustrates why all tax breaks need to be subjected to more scrutiny.  The state’s well-intentioned and wildly popular tax “incentive” for solar energy has gotten more than a little out of control, skyrocketing in cost from $34.7 million in 2010 to $173.8 million in revenues this year, and even jeopardizing the reliability of the state’s power grid. Tax authorities have responded by slicing the credit in half for now.  Had Hawaii implemented some of the tax break accountability reforms we’ve recommended before, (first among them establishing measurable outcomes!), they could have prevented some of this chaos.

South Dakota Governor Dennis Daugaard is encouraging Congress to take action on a national Amazon tax policy because he worries about the impact that exempting online sales from his state’s tax base has on tax fairness and revenues. In the wake of a record settling Cyber Monday he points out that the “gift-buying binge also likely broke another record: most purchases made in South Dakota without paying sales tax.” For more on taxing Internet sales see this Institute on Taxation and Economic Policy (ITEP) brief (PDF).

The Illinois Senate deserves kudos for passing legislation that would require publicly traded corporations to disclose their Illinois income tax bill.  Currently about two-thirds of the companies doing business in Illinois aren’t paying state income taxes. If the bill passes the House and is signed into law by Governor Quinn, important, never-before-known information will be available about corporate taxpayers.  House Majority Leader Barbara Flynn Currie said, "Public policymakers can't make good public policy if they don't know what's going on. We don't know whether those 66 percent of corporations that pay no income tax in fact don't have any profits."

In case you missed it -- Good Jobs First and the Iowa Policy Project recently collaborated to release this must read report, Selling Snake Oil to the States, which debunks the tax and regulatory recommendations made by the American Legislative Exchange Council (ALEC) for building economic growth in the states. Here’s a sneak peak of the study’s findings: “the states ALEC rates best turn out to have actually done the worst.”

Michigan House members will likely approve a proposal in the next week to repeal the tax businesses pay on industrial and commercial personal property (equipment, furniture and other items used for business purposes). Idaho lawmakers are considering a similar proposal.  An editorial in the Battle Creek (MI) Enquirer, however, urges lawmakers to put the plan on hold until there is a “better understanding of the impact on local units of government, along with a plan to mitigate that impact.”  Indeed, the overwhelming majority of revenue generated by this tax helps to fund  local governments, and it would be difficult for localities to absorb a cut that severe. 


Ballot Measures in Eleven States Put Taxes in Voters' Hands


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California is not the only state this election season taking taxing decisions directly to the people on November 6.  The stakes will be high for state tax policy on Election Day in nine other states with tax-related issues on the ballot. With a couple of exceptions, these ballot measures would make state taxes less fair or less adequate (or both).

Arizona

  • Proposition 204 would make permanent the one percentage point sales tax increase originally approved by voters in 2010.  The increase would provide much-needed revenue for education, particularly in light of the worsened budget outlook created by a flurry of recent tax cuts.  But it’s hard not to be disappointed that the only revenue-raising option on the table is the regressive sales tax (PDF), at a time when the state’s wealthiest investors and businesses are being showered with tax cuts.
  • Proposition 117 would stop a home’s taxable assessed value from rising by more than five percent in any given year.  As our partner organization, the Institute on Taxation and Economic Policy (ITEP) explains (PDF), “Assessed value caps are most valuable for taxpayers whose homes are appreciating most rapidly, but will provide no tax relief at all for homeowners whose home values are stagnant or declining. As a result, assessed value caps can shift the distribution of property taxes away from rapidly appreciating properties and towards properties experiencing slow or negative growth in value - many of which are likely owned by low-income families.”

Arkansas

  • Issue #1 is a constitutional amendment that would allow for a temporary increase in the state’s sales tax to pay for large-scale transportation needs like highways, bridges, and county roads. If approved, the state’s sales tax rate would increase from 6 to 6.5 percent for approximately ten years, or as long as it takes to repay the $1.3 billion in bonds issued for the relevant transportation projects. Issue #1 would also permanently dedicate one cent of the state’s 21.5 percent gas tax (or about $20 million annually) to the State Aid Street Fund for city street construction and improvements. It’s no wonder the state is looking to increase funding for transportation projects. ITEP reports that Arkansas hasn’t increased its gas tax is ten years, and that the tax has lost 24 percent of its value during that time due to normal increases in construction costs. Governor Beebe is supporting the proposal, and his Lieutenant Governor Mark Darr recently said, “No one hates taxes more than me; however, one of the primary functions of government is to build roads and infrastructure and this act does just that. My two primary reasons for supporting Ballot Issue #1 are the 40,000 non-government jobs that will be created and/or protected and the relief of heavy traffic congestion.”

California

  • Thus far overshadowed by the competing Prop 30 and 38 revenue raising proposals, Proposition 39 would close a $1 billion corporate tax loophole that Governor Brown and other lawmakers have tried, but failed to end via the legislative process.  Currently, multi-national corporations doing business in California are allowed to choose the method for apportioning their profits to the state that results in the lowest tax bill.  If Prop 39 passes, all corporations would have to follow the single-sales factor apportionment (PDF) method.  Half of the revenue raised from the change would go towards clean energy efforts while the other half would go into the general fund.

Florida

  • Amendment 3 would create a Colorado-style TABOR (or “Taxpayer Bill of Rights”) limit on revenue growth, based on an arbitrary formula that does not accurately reflect the growing cost of public services over time.  As the Center on Budget and Policy Priorities (CBPP) explains, Amendment 3 is ““wolf in sheep’s clothing” because it would phase in over several years, which obscures the severe long-term damage it would cause.  Once its revenue losses started, however, they would grow quickly. To illustrate its potential harm, we calculate that if the measure took full effect today rather than several years from now, it would cost the state more than $11 billion in just ten years.” The Orlando Sentinel's editorial board urged a No vote this week writing that voters “shouldn't risk starving schools and other core government responsibilities that are essential to competing for jobs and building a better future in Florida.”
  • Amendment 4 would put a variety of costly property tax changes into Florida’s constitution, including most notably an assessment cap (PDF) for businesses and non-residents that would give both groups large tax cuts whenever their properties increase rapidly in value.  Moreover, as the Center on Budget and Policy Priorities (CBPP) explains, “Amendment 4’s biggest likely beneficiaries would be large corporations headquartered in other states, with out-of-state owners and shareholders,” including companies like Disney and Hilton hotels.

Michigan

  • Proposal 5 would enshrine a “supermajority rule” in Michigan’s constitution, requiring two-thirds approval of each legislative chamber before any tax break or giveaway could be eliminated, or before any tax rate could be raised.  As we explained recently, the many flaws associated with handcuffing Michigan’s elected representatives in this way have led to a large amount of opposition from some surprising corners, including the state’s largest business groups and its anti-tax governor. Republican Governor Rick Snyder wrote an op-ed in the Lansing State Journal opposing the measure saying it was a recipe for gridlock and the triumph of special interests. Proposal 5 is also bankrolled by one man to protect his own business interests.

Missouri

  • Proposition B would increase the state’s cigarette tax by 73 cents to 90 cents a pack. The state’s current 17 cent tax is the lowest in the country.  Increasing the state’s tobacco taxes would generate between $283 million to $423 million annually. The Kansas City Star has come out in favor of Proposition B saying, “It’s not often a single vote can make a state smarter, healthier and more prosperous. But Missourians have the chance to achieve all of those things on Nov. 6 by voting yes on Proposition B.”

New Hampshire

  • Question 1 would amend New Hampshire’s constitution to permanently ban a personal income tax.  The Granite State is already among the nine states without a broad based personal income tax and proponents want to ensure that will remain the case forever. As Jeff McLynch with the New Hampshire Fiscal Policy Institute explains, a Yes vote would mean that “you’d limit the choices available to future policymakers for dealing with any circumstances, and by extension, you’re limiting choices for future voters.”

Oklahoma

  • State Question 758 would tighten an ill-advised property tax cap (PDF) even further, preventing taxable home values from rising more than three percent per year regardless of what’s happening in the housing market.  As the Oklahoma Policy Institute explains, “Oklahomans living in poor communities, rural areas, and small towns would get little to no benefit, since their home values will not increase nearly as much as homes in wealthy, suburban communities.”  And since many localities are likely to turn to property tax rate hikes to pick up the slack caused by this erosion of their tax base, those Oklahomans in poorer areas could actually end up paying more.  
  • State Question 766 would provide a costly exemption for certain corporations’ intangible property, like mineral interests, trademarks, and software.  If enacted, the biggest beneficiaries would include utility companies like AT&T, as well as a handful of airlines and railroads.  The Oklahoma Policy Institute explains that the exemption, which would mostly impact local governments, would have to be paid for with some combinations of cuts to school spending and property tax hikes on homeowners and small businesses.  And the impact could be big.  As one OK Policy guest blogger explains: “In 1975, intangible assets comprised around 2 percent of the net asset book value of S&P 500 companies; by 2005, it was over 40 percent, and the trend is likely to continue. If SQ 766 passes, Oklahoma will find itself increasingly limited in its ability to tax properties.”

Oregon

  • Measure 84 would gradually repeal Oregon’s estate and inheritance tax (PDF) and allow tax-free property transfers between family members.  If the measure passes, Oregon would lose $120 million from the estate tax, its most progressive source of revenue.   According to many legal interpretations of the measure, the second component - referring to inter-family transfers of property - would likely open a new egregious loophole allowing individuals to avoid capital gains taxes (PDF) on the sale of land and stock by simply selling property to family members.  Oregon’s Legislative Revenue Office released a report last week that showed 5 to 25 percent of capital gains revenue could be lost as a result of the measuring passing. The same report also found no evidence for the claim that estate tax repeal is some kind of millionaire magnet that increases the number of wealthy taxpayers in a state.
  • Measure 79, backed by the real estate industry, constitutionally bans real estate transfer taxes and fees.  However, taxes and fees on the transfer of real estate in Oregon are essentially nonexistent, prompting opponents to refer to the measure as a “solution in search of a problem.”
  • Measure 85 would eliminate Oregon’s “corporate kicker” refund program which provides a rebate to corporate income taxpayers when total state corporate income tax revenue collections exceed the forecast by two or more percent. Instead of kicking back that revenue to corporations, the excess above collections would go to the state’s General Fund to support K-12 education. Supporters of this measure acknowledge that a Yes vote will not send buckets of money to schools right away since the kicker has rarely been activated.  But, it is a much needed tax reform that will help stabilize education funding and peak interest in getting rid of the Beaver State’s more problematic personal income tax kicker.

South Dakota

  • Initiative Measure #15 would raise the state’s sales tax by one cent, from 4 to 5 percent. The additional revenue raised would be split between two funding priorities: Medicaid and K-12 public schools. As a former South Dakota teacher writes, “[w]hile education and Medicaid are important, higher sales tax would raise the cost of living permanently for everyone, hitting struggling households the hardest, to the detriment of both education and health.”  This tax increase is the only revenue-raising measure on the horizon right now; South Dakotans deserve better choices.

Washington

  • Initiative 1185 would require a supermajority of the legislature or a vote of the people to raise revenue. A similar ballot initiative, I-1053, was already determined to be unconstitutional. As the Washington Budget and Policy Center notes about this so called “son of 1053” initiative:  “Limiting our state lawmakers with the supermajority requirement is irresponsible, and serves only  to limit future opportunity for all Washington residents.”

 


Anatomy of a Disastrous Supermajority Proposal in Michigan


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It recently came out that one man—billionaire Manuel Moroun—is almost singlehandedly responsible for getting Proposal 5, (dubbed the “two thirds” tax proposal by supporters), onto Michigan’s November ballot.  If enacted, the proposal would require two-thirds approval of each legislative chamber before any tax break or giveaway could be eliminated, or before any tax rate could be raised.  The results of such a “supermajority” restriction would be unambiguously bad for Michigan.

Paying for schools, roads, and police would become much more difficult over time as the costs of these services grow and Michigan’s narrow sales tax, flat income tax, and flat gas tax would struggle to keep up. The risk of a downgrade in Michigan’s credit rating would also increase under a supermajority rule, as the range of options for keeping the state’s finances in order would be drastically reduced.  Tax reform would become much more difficult, as many loophole-closing proposals could suddenly be blocked by a small minority of legislators.  And the ability of Michigan’s government to deal responsibly with unexpected fiscal crises would be greatly reduced.

Unsurprisingly, all of these dangers are of little concern to folks like Stephen Moore at the Wall Street Journal, who’s almost certainly never met a tax cut he didn’t like.  But many stakeholders based in Michigan, who would actually have to deal with these consequences, have concluded that a supermajority requirement would do far more harm than good.

Both of the state’s largest business groups—the Chamber of Commerce and Business Leaders for Michigan—have come out against the measure.  In noting just how restrictive the measure would be Chamber President Rich Studley quipped that “on some days you couldn’t get a two-thirds vote in the Legislature on what time of day it is.”  Even Governor Rick Snyder, whose record on tax policy we’ve criticized a number of times, opposes the supermajority rule on the grounds that it’s “not good public policy” and would have “unintended consequences.”  Other opponents include the Senate Majority Leader, AARP Michigan, the Farm Bureau, and the Michigan Municipal League, among many other groups.

And it appears that Michigan voters are getting the message.  As the Detroit News reports, polling show that “support for Proposal 5 … plunged 17.5 percentage points, from 68 percent a month ago to 50.5 percent” in mid-September. That is not only the most recent poll, but it’s also relevant because ballot measures usually need at least 60 percent support in September to have much chance of passing in November, since support tends to wane closer to the election.

The Michigan League for Human Services has more details on why a supermajority requirement is a super-bad idea (PDF) for Michigan, and the Center on Budget and Policy Priorities has a report on the issue as well. And at CTJ, we’ve been writing for years about how these rules cripple legislatures and hamstring democracy by undermining the power of elected representatives.

Oh, and there’s a chilling, masters-of-the-universe twist to the story, too. The reason this one man went to all that trouble and expense to buy the proposal a spot on the ballot is not because he’s on some ideological crusade. Rather, he wants to make sure Michigan can never afford to invest in a new bridge to Canada – because it would compete with the one he owns. 

Image from Metro Times, Detroit.


Michigan: Pure Disaster When It Comes to Tax Policy


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The Michigan government is facing an unprecedented lawsuit charging that some of its public schools are inadequate to the point that they violate state law.  You might think this would make lawmakers revisit the wisdom of their tax-cutting compulsion, but you would be wrong.

Last year, anti-tax lawmakers’ crowning achievement in the Great Lakes State was to slash business income taxes by some $1.6 billion, or 83 percent.  Some of that cut was funded with cuts in state services, though most of it was paid for with personal income tax hikes (PDF) on the state’s elderly and poor.  Some lawmakers viewed those personal income tax hikes as a political liability, however, so Gov. Snyder went ahead and signed a token tax cut, worth an average of ten dollars per taxpayer per year, conveniently designed to take effect about one month before voters head to the polls in November.

But more troubling than this political gamesmanship is a pair of larger tax cuts that lawmakers may try to enact this fall after returning from recess.

In May, the state Senate passed a bill, after many months of negotiations, that repeals the tax businesses pay on industrial and commercial personal property (equipment, furniture, and other items used for business purposes).  The Detroit Free Press said that “there’s general agreement across party lines and all levels of government” that the tax is bad for business and should be repealed, and noted that the House may follow the Senate in doing so this fall.

There is also consensus, however, that since the overwhelming majority of revenue generated by the business personal property tax flows to local governments, localities can’t absorb a cut that severe.  But while the state seems likely to make up part of the difference, there are also serious doubts regarding how much of the lost revenue the state can actually afford to replace, and whether that replacement revenue will dry up the next time the state’s budget is battered by a national recession.

But property tax cuts for businesses aren’t the only pricey tax cut on the legislature’s list. Last month, the House overwhelmingly voted to slash the state’s personal income tax rate, at a cost of $800 million per year by 2018.  The bill’s sponsor promises that revenue growth resulting from the cut will be so strong that it will “not lead to program cuts or shifted funds.” Forgive us if we’re skeptical of that claim.

Finally, to top things off, reversing these tax cuts if they prove destructive and unaffordable could soon become a lot harder.  That’s because the Koch-backed Americans for Prosperity-Michigan has just submitted the signatures needed to put a measure on the ballot amending the state’s constitution to require a supermajority vote of the legislature to raise taxes. Just so we’re clear, supermajority requirements are one of the worst tax ideas of all time.  The Michigan League for Human Services explains the problems with the supermajority proposal in this report (PDF), including how it could entrench special interest tax breaks, damage the state’s credit rating, and pressure local governments to the point of breaking when state funds run short.

 

  • The Detroit News’ editorial board recently criticized a plan to cut Michigan’s personal income tax rates which, despite its hefty $800 million price tag, managed to pass the state’s House.  The editors called it risky election year pandering.
  • Oregon is launching a pilot program to figure out how road and bridge repairs will be funded when cars no longer run on gasoline and drivers no longer pay the gas tax.  One possible solution is a tax directly on miles traveled rather than gallons consumed, but the last time the state tested that out, it “didn’t sit well with the public” because the GPS-like technology made people worry the government would be spying on them.
  • Rhode Island Governor Lincoln Chafee signed a state budget that includes a small foray into sales tax base expansion.  Starting July 1, taxi and limo rides and pet grooming services will be subject to the state’s seven percent sales tax rate, as will clothing and shoes costing more than $250.
  • The Associated Press offers a smart analysis of tensions within state Republican parties and their impact on a variety of state legislative activities, including tax policy debates. Written by a senior AP reporter in Missouri, it reveals (among other things) that moderate Republicans played a role in thwarting some of the more conservative members’ plans.

Taxes Are Pawns In Michigan Election Year


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Political gamesmanship is on full display in the tax policy debates happening in Michigan.  Last Wednesday, the state House passed a tiny, temporary income tax cut that would kick in a month before voters head to the polls in November.  This after paying for a $1.6 billion business tax cut last year with a $1.4 billion individual tax hike which falls most heavily (PDF) on Michigan’s poorest taxpayers.

Do Lansing politicians really think that temporarily cutting the state’s flat tax rate a fraction, from 4.35 to 4.32 percent, is going to make voters forget their recklessness? Here’s how the Associated Press is reporting on the plan:

A few dollars in savings doesn’t make a big difference for Mark Lankin, a machine operator who lives in the Detroit suburb of Ferndale. He said he’d rather see more money go to fixing roads.  “I don’t think a lot of normal people would miss $10 … if that money could go to something more useful,’’ said Lankin, 53, who described himself as politically independent. “If you didn’t have it in your hands, it really wouldn’t matter.’’

The token tax cut was also panned in a Detroit Free Press editorial:

“Some people have more money under their couch cushions than the amount the Legislature intends to give back to Michigan taxpayers this year…. The point is that a $103-million tax cut, which might allow an individual taxpayer to buy an extra can of name-brand soup every other week, is a decent chunk of change when it's aggregated and put to work for everyone in Michigan.

They’re right. An analysis by the Institute on Taxation and Economic Policy (ITEP) showed that a family of four earning $25,000, for example, would see just three percent of last year’s tax hike offset by this election year stunt.  But if used in a more thoughtful way, that money could do a lot of good, as the Detroit Free Press’ impressive list of alternatives showed.

All this criticism apparently got to House lawmakers, but rather than drop the tax cutting charade, they decided to up the ante.  On Thursday, they proposed a much more expensive proposal that would drop the state’s flat income tax rate to 3.9 percent.  Unlike their previous plan, it certainly can’t be accused of being “token” relief, but that doesn’t make it good policy.  And lest anyone think they were serious policy makers, these legislators even designed the cut to phase in slowly, so they wouldn’t face any tough decisions about what public services to eviscerate in order to pay for it.

ITEP will soon complete a full analysis of this newest plan, but two things are already clear.  First, Michigan can’t afford to pile a personal income tax cut on top of the massive business tax cuts enacted last year unless the corporate income tax is increased.  And second, if lawmakers do insist on providing individual tax relief, there are much fairer and more affordable options for doing so, like boosting the Earned Income Tax Credit (EITC), as recommended by the Michigan League for Human Services.

  • Michigan lawmakers recently slashed income taxes for businesses by about $1.6 billion, and paid for it mostly with income tax hikes on the elderly and poor.  Now lawmakers are debating a gimmicky income tax cut that would take effect about a month before voters head to the polls in November but do little to offset recent tax increases on the state’s working poor.
  • Late last week, the Illinois House voted to raise the state’s cigarette tax. This is big news not only because the tax increase will help to fill a nearly $3 billion budget hole in the state’s Medicaid program, but because anti-tax zealot Grover Norquist was resoundingly defeated despite threats from his Illinois staffers that voting for the cigarette tax could “ruin the GOP brand in the state for a generation.”
  • Question: Could the popularity of the no-new taxes pledge championed by Grover Norquist be waning? Answer: Yes. Read this.
  • To understand how the regressive, multi-billion dollar tax cut bill signed into law last week in Kansas is being received, check out this news round up from the Wichita Eagle.  A lot of people are “horrified.”
  • Michigan Governor Rick Snyder is voicing support for federal legislation that would allow states to collect sales taxes owed on purchases made over the Internet, but he has little interest in pursuing a state-level law that would allow Michigan to begin chipping away at the problem.
  • The Gazette has an article about the failure of Maryland legislators to raise the gas tax during their recently concluded regular session.  It cites research from the Institute on Taxation and Economic Policy (ITEP) showing that the state’s gas tax rate would need to rise by 15.8 cents just to offset the last two decades of construction cost inflation.  In the article, Governor O’Malley explains the obvious: high gas prices caused lawmakers to delay this overdue reform, again.
  • Legislators in New Hampshire were well on the way to eliminating a tax on internet access, until a flap between the House and Senate over other provisions in the legislation derailed it. Still, leadership in both chambers remain committed to eliminating the tax that appears on consumers’ broadband and wireless bills.  But the New Hampshire Fiscal Policy Institute (NHFPI) warns against eliminating the tax in a recent report which explains that $12 million in annual revenues are a stake, and that better, more targeted options for reducing taxes on New Hampshire families are available.
  • This week, New Hampshire gubernatorial candidate Bill Kennedy came out with his own proposal to reduce property and businesses taxes and make up for the loss of those revenues by introducing a personal income tax in the state, which is one of nine states that doesn’t levy one. At the same time, the Granite State’s Senate is about to take up a radical and constraining proposal to amend their constitution to make sure no personal income tax can ever be levied. Stay tuned.

 

  • Florida Governor Rick Scott is attending grand openings of 7-Eleven® stores but a columnist at the Orlando Sentinel observes that “if incentives and low corporate tax rates were working, Florida wouldn't rank 43rd in employment.”  It’s a common sense column worth reading.
  • As another massive tax cut for Michigan businesses continues to make its way through the legislature, the Michigan League for Human Services chimes in with a report, blog post, and testimony on why localities can’t afford to foot the bill for state lawmakers’ tax-cutting addiction.
  • Bad tax ideas abound in Indianas gubernatorial race.  Democratic candidate John Gregg wants to blast a $540 million hole in the state sales tax base by exempting gasoline; he claims he can pay for it by cutting unspecified "waste" from the budget. And Gregg’s Republican opponent, Mike Pence, doesn’t seem to have any better ideas.  So far he’s only offered a "vague proposal" to cut state income, corporate, and estate taxes – without a way to pay for those cuts.
  • Kansas lawmakers are feverishly working to meld differing House and Senate tax plans into a single piece of legislation. Governor Sam Brownback has endorsed an initial compromise which includes dropping the top income tax rate and eliminating taxes on business profits. Earlier in the week the Legislative Research Department said the plan would cost $161 million in 2018 and new state estimates say the price tag is more like $700 million in 2018.  Senate leaders have said that they aren’t likely to approve a tax plan that creates a shortfall in the long term. Stay tuned....
  • Finally, a USA Today article should give pause to lawmakers hoping that drilling and fracking for natural gas leads to a budgetary bonanza.  It explains how the volatile price of natural gas is creating headaches in energy-producing states like New Mexico, Oklahoma, and Wyoming where a dollar drop in the commodity’s price means a budget hit of tens of millions.

Calling it “a far-out idea that would force Missourians to pay much more for groceries, homes and everything in between, while sparing wealthy citizens the need to pay income taxes,” the Kansas City Star editorial board bids good riddance to an income tax repeal proposal in Missouri.

Apparently not content with the massive business tax cut enacted last year, Michigan lawmakers are continuing to push to repeal the property tax on business equipment – a vital revenue source for local governments who can expect a net, permanent 19 percent revenue loss.

Instead of an immediate income tax cut that will cost significant revenue (that the state can’t afford),  Oklahoma lawmakers are contemplating a “trigger” plan tying cuts to year-over-year revenue growth that would eventually eliminate the tax altogether.  The Oklahoma Policy Institute explains that triggers are sold as a “responsible” way to cut taxes, "but it’s the opposite. It’s an attempt to avoid responsibility by putting the tax system on auto-pilot.“

An important study from the Pew Center on the States showing the lack of accountability in tax giveaways to business keeps getting good press. Here’s a piece from Illinois describing how, despite some very public giveaways to companies like Sears and the CME Group, the state lags in holding companies accountable for the tax breaks they receive.

This great article explains who actually pays Minnesota taxes. It cites data from Minnesota’s own tax incidence analysis report – a report that only a handful of states have the technology to develop, but is vital to understanding how taxes impact people of different income levels.

 


Transportation Funding Debacles Around the Country


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Our nation’s gas tax policy is horribly designed, and the consequences have never been more obvious at either the federal or state levels.  Construction costs are growing while the gas tax is flat-lining, and the resulting tension has made even routine transportation funding debates too much for our elected officials to handle.  Just last week, President Obama signed into law the ninth temporary, stop-gap extension of our nation’s transportation policy since 2009, and numerous states are similarly opting to kick the proverbial can down the crumbling road.

Much of our collective transportation headache arises from our “fixed-rate” gas taxes that just don’t hold up in the face of rising construction costs.  The federal gas tax hasn’t been raised in over 18 years, and most states have gone a decade or more without raising their tax.  There’s no doubt that we’re long-overdue for a gas tax increase, but political concerns have kept that option largely off the table.  In addition to the embarrassing federal Band-Aid fix just signed into law by the President, here’s what we’re seeing in the states:

The Michigan Senate has voted to permanently take millions in sales tax revenue away from health care, public safety, and other services in order to complete basic road repairs.  But as the Michigan League for Human Services explains, the state would be much better off modernizing its stagnant gas tax.

Both the Oklahoma House and Senate have voted to raid the general fund as a result of lagging gas tax revenues.  These proposals are very similar to the one under consideration in Michigan, and when fully phased-in they would divert $115 million away from education and other services in order to improve some of the state’s wildly deficient bridges.

Luckily, Virginia lawmakers didn’t agree to Governor McDonnell’s proposal to raid the general fund in a manner similar to what’s being considered in Michigan and Oklahoma.  But they also failed to enact a much smarter proposal passed by the Senate that would have indexed the state’s gas tax to inflation.  It looks like rampant traffic congestion will remain the norm in Virginia for the foreseeable future.

Iowa and Maryland appear likely to follow Virginia’s lead and do nothing substantial on transportation finance this year.  Iowa House Speaker Kraig Paulsen says that after much talk, a gas tax increase is not happening.  And while Maryland Governor Martin O’Malley is trying hard to end almost two decades of gas tax procrastination in the Old Line State, it doesn’t look like the odds are on his side.

Connecticut lawmakers aren’t just continuing the status quo, they’re actually making it worse.  Connecticut is among the minority of states where the gas tax actually tends to grow over time, since it’s linked to gas prices.  But the Governor recently signed a hard “cap” on the gas tax that prevents it from rising whenever wholesale prices exceed $3.00 per gallon.  Lawmakers in North Carolina briefly considered a similar cap last year, but as the Institute on Taxation and Economic Policy (ITEP) explains, blunt caps are very bad policy and there are much better options available.

For more on adequate and sustainable gas tax policy, read ITEP’s recent report, Building a Better Gas Tax.

Photo of Governor Martin O'Malley and Sunoco Gas Station via  Third Way and MV Jantzen Creative Commons Attribution License 2.0

 

Oklahoma’s Governor Mary Fallin finally unveiled her plan for eliminating the state income tax.  Full elimination would take a number of years, but low-income families are likely to be hit hard right away when various refundable credits are repealed.  The Institute on Taxation and Economic Policy (ITEP) plans to conduct a full analysis as soon as sufficient details are made available.

One Michigan lawmaker wants to take money away from Medicaid, education, and other programs to cover the cost of maintaining the state’s roads – costs that the state’s long stagnant gas tax can’t keep up with.  This is not the only such proposal to redirect money to cover up for lawmakers who lack the political courage to raise their state’s gas tax. Nebraska, Utah, Wisconsin, Virginia, and Oklahoma have proposed or enacted similar raids that ITEP warned of in its recent report, Building a Better Gas Tax.

The Colorado legislature is debating a boondoggle of a bill which would create a sales tax holiday the first weekend in August.  The facts are getting out that these events are expensive and don’t benefit the people who need them most.

The Virginia-Pilot has an excellent editorial on the efforts of some lawmakers to ramp up the level of scrutiny applied to billions of dollars in special interest tax breaks.  As the Pilot points out, Richmond is increasingly forcing cities and counties to pick up costs the state can’t cover, yet lawmakers threw away $12.5 billion in corporate tax breaks without any evidence they are helping Virginians.

Two tax increase initiatives appear headed for California’s November ballot that Governor Jerry Brown fears will undermine support for his own initiative to temporarily raise the sales tax and income taxes on wealthier Californians.  The competing measures are both permanent and superior in terms of fairness: a “millionaire’s tax” backed by labor groups who say it will raise $6 to $10 billion for education; and a $10 billion personal income tax hike on all Californians except for low-income families, backed by a wealthy civil rights attorney. But with three tax increasing options on the ballot, there’s a good chance the measures will cancel each other out, leaving California still in a fiscal wreck.

Photo of Jerry Brown via Randy Bayne  and Creative Commons Attribution License 2.0

 

 


Naughty States, Nice States: The Institute on Taxation and Economic Policy's 2011 List


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Naughty

Michigan’s legislature and Governor Snyder top the naughty list by giving away more than $1.6 billion in tax cuts for business and paying for it with tax increases on low-and middle-income working and retired families.

Florida continued to dole out more corporate pork this year, including a property tax break that happens to benefit huge commercial land owners, like Disney World and Florida Power and Light, and other corporations (that also happen to be major donors to the state’s Republican governor and legislative majority party).

Minnesota’s legislature missed an opportunity to do the right thing when it rejected a tax increase on the state’s wealthiest residents. The plan was proposed by Governor Dayton and supported by 63 percent of Minnesotans over the alternative, which was cuts to spending on education, health care and other vital public services.

Anti-tax activists in Missouri were hard at work again. This year they were collecting signatures for a ballot initiative that would eliminate the state’s personal income tax and replace it with a broadened and increased sales tax.

Nice

Connecticut’s Governor Malloy and the legislature adopted a $1.4 billion tax increase that improved tax fairness in the state and protected public investments like education and health care.  Most notably, the state added an Earned Income Tax Credit, a significant tax break for low-income working families.

District of Columbia lawmakers greatly reduced the ability of corporations to dodge their fair share of taxes by adopting combined reporting (which makes it harder to hide profits in other states) and a higher corporate minimum tax. The Council also temporarily increased taxes for individuals making more than $350,000 a year and limited itemized deductions, which are most often taken by high income filers.

Hawaii lawmakers also limited upside-down tax giveaways (itemized deductions) for their state’s richest residents and passed other tax changes to raise much needed revenue.

A Little Bit Naughty and Nice

New York’s Governor Andrew Cuomo reversed his campaign vow not to raise taxes and supported a tax increase on residents earning more than $2 million a year.   The plan, passed by the legislature, also included a tax break for those with income under $300,000.

However, New York lawmakers passed the governor’s cap on property taxes this summer, which is predictably creating crises and forcing dramatic cuts in local education, medical, and public safety services.

Illinois raised significant revenue earlier in the year through temporary personal and corporate income tax rate increases, all designed to stave off harsh spending cuts, but then turned right around and gave away hundreds of millions of dollars to Sears and CME, allegedly to keep them in the state.


Michigan Governor Seeks Tax Cuts for Business, Again


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Just a few months back, Michigan Governor Rick Snyder barely managed to push through a massive bill cutting the state’s largest business tax by over 80% -- paid for by raising taxes on Michigan’s elderly and low-income families.  Now, Snyder’s administration is apparently readying for Round Two, as Lt. Gov. Brian Calley has declared that his new top priority is slashing business taxes even further.  Clearly there’s not a lot of original thinking going on in Lansing.

Calley is referring to the Snyder administration’s plan to repeal the tax businesses pay on industrial and commercial personal property (equipment, furniture and other items used for business purposes).  This change would cost somewhere in the neighborhood of $800 million in lost revenue each year – revenues that flow overwhelmingly to local governments in Michigan.  As a result, state lawmakers will be tempted to pass the buck to local officials when it comes time to make the many hard choices required by a tax cut of this size.

On average, Michigan municipalities receive about eleven percent of their property tax revenues from these business personal property taxes.  As The Detroit News points out, however, that average varies widely across jurisdictions.  While the tax usually amounts to just two percent of local property taxes in wealthy residential communities, it can account for 20 to 50 percent, or more, of property tax revenues in some industrial towns.

The most vocal critic of Snyder’s proposed tax cut right now is the Michigan Municipal League, whose main concern is ensuring that the state doesn’t leave local governments high and dry when it comes to paying for repeal.  This is a very real concern.  When Ohio repealed its personal property tax, the state offered to replace lost local funds on only a temporary basis, and withdrew support even more quickly once the state encountered its own budget difficulties.  Governor Snyder’s recent remarks to Gongwer News Service (subscription required) indicate that he’s aware of this concern, describing his plan to be “largely revenue-neutral.” But we can forgive local governments if they are dubious about the governor’s assurances their budgets won’t suffer.

The issue here goes beyond just ensuring that localities aren’t unduly harmed by repeal.  Even if the state does pick up the tab, that money is going to have to come from somewhere.  And with anti-tax lawmakers in control of both houses of the state legislature and the Governor’s mansion, any tax increase large enough to fully cover the cost of repealing the business personal property tax has a hard road ahead of it. In all likelihood, lawmakers will be tempted to raid existing revenue streams, thereby forcing even deeper cuts on top of those already enacted.

Before going that route, it would be a good idea for the anti-tax true believers in Lansing to take a step back, and ask whether the state will actually gain anything by granting businesses yet another tax cut.


State Governments Rush to Squander Improved Revenue Outlook


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California, Delaware, Michigan, New Jersey, Oregon, and Wisconsin have all experienced better than expected revenue growth over the past few months.  This is unambiguously good news, but for many lawmakers it’s unfortunately an excuse to ditch any restraint on tax-cutting.

California

In California, stronger-than-expected revenue growth has made the GOP even more vocal in opposing efforts to extend a variety of temporary income, sales, and vehicle tax increases.  Governor Jerry Brown’s continued push to extend these tax hikes is very sensible given that the unanticipated revenue boost was still quite small compared to the state’s total budget.  

Brown has behaved much less sensibly, however, in deciding to abandon efforts to end a variety of business tax credits.  As Jean Ross of the California Budget Project points out, “One of the virtues of the original budget was that there was some level of shared sacrifice.  But now, some businesses are going to come out ahead of where they were last year.”

Delaware

In Delaware, a surprise bump in revenue collections has inspired the state’s Democratic Governor, and a number of Republican legislators, to begin pushing for tax cuts.  

Specifically, the Governor has proposed cutting taxes for banks, businesses, and individuals with taxable incomes of over $60,000.  

In reference to the windfall that banks would receive under the Governor’s plan, Rep. John Kowalko argues that "They do pretty damn well with the federal handouts … I want to see a return on the investment before I will blindly vote on that."

Michigan

In Michigan, better-than-expected revenue growth in the current fiscal year may be used to reduce cuts in school spending that are currently under consideration.  

Any unexpected revenue growth in subsequent fiscal years, however, will be swallowed up by the massive business tax cuts that Michigan’s legislature passed last week.

New Jersey

In New Jersey, unanticipated revenue growth is expected to be used by Governor Chris Christie as yet another excuse for doling out billions in corporate tax breaks.
 
As New Jersey Policy Perspective points out, however, “the state remains stuck in a very deep hole … even with that growth, the state’s revenue collections would still be $3.4 billion less than was collected in FY2008, the year prior to the recession … the state must choose to invest these revenues wisely, using the money to restore the devastating cuts made to services and to pay into the state pension system.”

Oregon

In Oregon, unexpected revenue growth will likely be used to restore cuts to human services and public safety, at least in the short term.  By 2013, however, the state’s “kicker” law will probably require that some amount of revenue growth be dedicated to tax cuts.  

As Rep. Phil Barnhart points out, "Because this budget is so bad, we don't take care of schoolchildren, basic health issues and maintaining prisons — and we have a kicker at the end … We are stuck with this kicker law when we really need to spend some of this money on the budget."

Wisconsin

Finally, in Wisconsin, Governor Scott Walker has stubbornly refused to adapt to changing conditions on the ground.   If Walker gets his way, $1 billion will still be slashed from public schools, despite the state’s recently improved revenue picture.

Last week we told you about Michigan Governor Rick Snyder’s plan to cut Michigan business taxes by nearly $2 billion annually, and to pay for it on the backs of seniors and low-income families.  In an update to that story, ITEP crunched the numbers on the tax fairness impact of Snyder's proposed income tax hikes earlier this week, and unfortunately, the results weren’t very surprising.

The ITEP analysis was first published by the Michigan League for Human Services (MILHS), and was later picked up by the Associated Press, among others.  That analysis shows that the personal income tax increases contained in Snyder’s plan would require low-income families to pay 1.1 percent more of their income in tax, while requiring the state’s wealthiest taxpayers to pay less than one-tenth that amount, relative to their income.  The most notable components of Snyder’s plan include eliminating the state Earned Income Tax Credit (EITC) and fully taxing pensions and other retirement income.

Snyder’s plan is particularly objectionable because none of the additional revenue raised via the personal income tax would be used to save vital state services from the budget axe.  Rather, all of the money would be channeled into massive tax cuts for Michigan businesses.  It seems odd, to say the least, that Snyder would prioritize large business tax cuts so highly despite Michigan’s sizeable budget gap.  But even if Snyder refuses to give up on his quest to slash business taxes, the ITEP analysis at least makes clear that he needs to find a better way of paying for those cuts.


Debates Heating Up Over Broadening the Income Tax Base to Include Retirement Income


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We've written before that state governments provide a wide array of tax breaks for their elderly residents. Almost every state levying an income tax now allows some form of exemption or credit for its over-65 citizens that is unavailable to non-elderly taxpayers. But many states have enacted poorly-targeted, unnecessarily expensive elderly tax breaks that make state tax systems less sustainable and less fair. These breaks are being reconsidered in Illinois, Michigan, and Hawaii.

One of the most egregious examples of the special treatment retirees receive is the Illinois income tax exemption for all retirement income. But this exemption is getting more and more attention. Senate President John Cullerton recently said, “It would just be a matter of fairness” to tax this income.

The Chicago Tribune joins us in applauding Cullerton for raising this issue. “Illinois needs a talk about revising tax policies and rethinking exemptions," the Tribune editorializes. "Not to grab more from taxpayers, but to broaden the tax base as a matter of fairness. Why should the working family making $50,000 a year pay a tax that the retiree getting $100,000 a year avoids? Credit Cullerton for thinking creatively — and out loud. ”

Eliminating senior tax preferences is also receiving attention in Michigan, where Governor Rick Snyder has proposed scrapping the state’s generous exemptions for pensions, annuities, and various other types of retirement income.  Unfortunately, Snyder has paired this change with an elimination of the state’s EITC — a proposal that has contributed greatly to the overall regressivity of Snyder’s personal income tax changes.  Retaining the EITC and means-testing Michigan’s pension breaks, rather than eliminating them entirely, could greatly reduce the regressivity of Snyder’s plan. 
 
Finally, in Hawaii, a proposal to tax pensions earned by taxpayers with incomes over $100,000 (or $200,000 for married filers) recently passed the House.  Unlike in Michigan, this plan both includes protections for low-income retirees, and uses the revenue it would generate in order to close the state’s budget gap.


Michigan Governor Wants the Elderly and Poor to Pay Much More, so that Businesses Can Pay Much Less


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Michigan Governor Rick Snyder has taken a lot of heat for his budget plan over the last week or so, and for very good reason.  Snyder is currently seeking to raise individual income taxes — primarily on elderly and poor Michiganders — by some $1.7 billion per year.  Rather than using this money to help close the state’s budget deficit, Snyder is asking some of Michigan’s most vulnerable families to hand all this money over to businesses, in the form of a roughly $1.8 billion business tax cut.

Snyder would like to replace the state’s much maligned Michigan Business Tax (MBT) — a sort of hybrid between a corporate income tax and a sales tax — with a true corporate income tax.  The basic idea isn’t necessarily a bad one, but the corporate income tax Snyder has in mind is much too modest.  Overall, the swap would raise $1.8 billion less per year than current law.

In order to make up this difference during such tight budgetary times, Snyder has proposed a variety of personal income tax increases on Michigan families.  The most notable increases include eliminating the state’s generous pension tax breaks (a change opposed by 53% of state residents) and scrapping the state’s Earned Income Tax Credit (EITC) (a change opposed by 58% of the state).  Snyder is also seeking to eliminate extra exemptions available to elderly taxpayers and families with children.

Overall, the Michigan League for Human Services (MILHS) found that individual income tax bills would rise by 31% under Snyder’s plan, while the state’s businesses would receive a staggering 86% tax cut.  So much for shared sacrifice.


Will Michigan Cut Its EITC to Help Pay for Tax Cuts for Businesses?


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The battle pitting Michigan’s low-income families against big business is heating up.  Governor Rick Snyder is unabashedly supporting an elimination of the state’s Earned Income Tax Credit (EITC) to help pay for his $1.5 billion annual cut in state business taxes.  Snyder wants to replace the Michigan Business Tax with a 6 percent corporate income tax which will exempt most small businesses from paying any business taxes.   

Michigan, however, is not flush with cash to pay for such a cut. It has a $1.8 billion budget gap to close this year.  So, Snyder and other state lawmakers have turned to their state’s most vulnerable residents and are asking them to “share in the pain” to help plug the even larger budget gap that would result if the business tax cut plan is enacted. 

This week, State Senator Roger Kahn officially introduced a bill to eliminate the EITC because, he says, state residents "don't need it."

Michigan’s EITC costs around $350 million a year, which is around 20 percent of the cost of the business tax cut, and provides affordable, effective, and targeted assistance to more than 700,000 low- and moderate-income Michiganders.   These are the working families hit hardest by the economic downturn and who are also feeling the impact of several years of budget cuts to education and health services. 

The Michigan League of Human Services’ CEO released a statement on the proposal saying, “While we recognize the desire for everybody in the state to share in the sacrifice, poor people are being asked to be the sacrificial lambs. The Michigan Earned Income Tax Credit, which helps low- and moderate-income working households, should not be the first credit considered among Michigan’s $34 billion list of tax expenditures, including tax breaks for big corporations.”


State-Based Coalitions Fight for Budget Fairness


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Faced with huge budget deficits, many state lawmakers are eyeing dangerous short-sighted budget cuts that threaten to gut essential services and state infrastructure.  In response, dedicated advocacy organizations, service providers, religious communities, concerned citizens, and professional associations have formed coalitions in more than 35 states to battle for smart fiscal policies that will protect core services and ensure that states have the resources to meet current and future needs. 

Here’s a brief overview of the newest of these coalitions:

In Georgia, the coalition 2020 Georgia officially launched on January 18th to promote a balanced approach to their budget that adequately addresses the long-term needs of the state instead of pursuing damaging cuts to services that can hurt the state’s economy.  The coalition consists of a wide variety of partners, including AARP, the League of Women Voters of Georgia, and the Georgia Public Health Association.  2020 Georgia hopes to maintain smart investments in education, public safety, health, and the environment.

In Texas, a wide coalition of organizations have created Texas Forward, a group that hopes to spur continued investment in vital public services instead of devastating budget cuts.  Texas Forward believes that smart investment now can prevent future generations from shouldering the burden of the lasting damage caused by disinvesting in services during this time of financial need.  Recently, Texas Forward urged state lawmakers to seek new revenue sources and federal funding to minimize the impact of the projected $24 billion deficit.

In Iowa, the Coalition for a Better Iowa was formed with the express mission “to maintain and strengthen high quality public services and structures that promote thriving communities and prosperity for all Iowans.”  The Coalition for a Better Iowa includes organizations representing children, seniors, human service providers, environmental organizations, and politically engaged citizens.  The coalition is committed to creating a balanced solution to the budget shortfalls while protecting vital services and investing sustainably in the state’s future.

In Montana, a group called the Partnership for Montana’s Future offers an extensive list of revenue-raising mechanisms to solve the state’s budge crisis.  The list has many specific proposals, generally categorized as collecting new revenue through improved tax compliance, closing tax loopholes, targeted tax increases, and other miscellaneous options.  The coalition consists of a wide variety of health, education, environmental, labor, and policy organizations.

In Pennsylvania, Better Choices for Pennsylvania is a coalition of health, education, labor, and religious organizations that recognize that all Pennsylvanians benefit from the services and infrastructure provided by state government.  Like the other coalitions featured, Better Choices for Pennsylvania refutes the proposition that deep tax cuts can solve the state’s budget problems.  Instead, BCP is pushing for closing special tax breaks and loopholes.  The coalition believes that helping working families through hard times will put the state in a better position towards long-term financial stability.

In Michigan, the revenue coalition, A Better Michigan Future recently issued a press release reviewing Governor Snyder’s budget proposal.  The group supports smart revenue-raising tactics like eliminating redundant and wasteful loopholes and modernizing the state sales tax to reflect the changing marketplace.

While not a new coalition, North Carolina’s revenue coalition, Together NC, recently launched a web ad.  The ad is meant to remind North Carolinians about the smart budget choices the state has made in the past that allowed it to prosper and spur citizens to take action to protect their state from falling behind (or, as the ad says, to keep North Carolina from becoming its neighbor to the south).


Bad and Less Bad: Business Tax Cuts vs. Grocery Tax Cuts


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Some politicians in state capitals across the U.S. seem convinced that tax cuts for businesses and the wealthy are the best way to accelerate economic recovery. In two states, governors are proposing instead to cut taxes on groceries, which is a more effective, though not exactly flawless, way to help ordinary families. The tradeoff to any tax cut, of course, is unaffordable cuts to essential services including education, public safety, and health care.

In Wisconsin, state lawmakers agreed on a business tax cut that would add about $50 million to the budget deficit.  The Republican controlled legislature and newly elected Governor Scott Walker believe that the tax cuts will leave everybody with more money and leave the state with an improved economy.  Incredibly, Walker’s proposal rests on the assumption that the tax cuts will lure businesses away from Illinois, which recently saw an increase in its income tax, rather than fostering young, developing businesses. 

In Iowa, where a similar $300 million business tax cut is being discussed, critics of Governor Terry Branstad point out that essential social services are being axed in favor of pro-business policies.

In Arizona, Governor Jan Brewer is proposing to cut taxes on high-wage industries while further reducing funding for Medicaid, universities, community colleges, and K-12 education.  

Similar tax cuts are being proposed in New York, Washington, Michigan, Minnesota, and South Carolina. All of these plans prioritize tax breaks for business over providing essential services to those most affected by the economic downturn.  

The Governors of West Virginia and Arkansas have arrived at an entirely different tax-cutting proposal: reducing the sales tax on groceries.  Like lawmakers who support business tax cuts, Governors Tomblin and Beebe believe their brand of tax cuts will circulate quickly throughout the economy, providing necessary relief to the taxpaying public while stimulating the economy. 

Governor Mike Beebe of Arkansas wants to cut the sales tax on groceries by a half-cent and has said it is the only tax cut he will consider this year.  In West Virginia, Governor Earl Ray Tomblin wants to reduce the grocery sales tax from 3 to 2 cents and would ultimately like to see it eliminated entirely.

While the proposals to cut the sales tax on groceries are a welcome development compared to proposed tax cuts for businesses and the wealthy, there are still two problems with them. 

First and foremost, states are in dire need of revenue this year as they face the most significant budget challenge yet since the start of the recession.  Every dollar lost to a tax cut will have to be made up by an even deeper cut in spending. 

Second, reducing the sales tax on groceries is not the most targeted approach available to state leaders looking to support working families.  The poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries. 

Enacting or increasing a refundable state Earned Income Tax Credit (EITC) or other low-income refundable credit would be a more affordable and better targeted alternative to ensure that tax cuts reach low- and middle-income working families.  Tax cuts that directly benefit low-wage workers are especially beneficial to the general economy because low-wage workers immediately spend their refunds out of necessity.  By pumping the money back into the economy, the tax cut goes further in stimulating the economy than tax cuts for the wealthy or businesses.

Instead of pursuing tax cuts for businesses and wealthy individuals, state lawmakers should be working to alleviate hardship on the most vulnerable.  Indeed, the governors in West Virginia and Arkansas may end up being much more efficient at helping their state economies rebound than the “business friendly" governors in Wisconsin and Iowa.


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.


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.


Tax News in Gubernatorial Races Across the Country


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Many gubernatorial candidates campaign on a platform of tax cuts, and few, outside of Minnesota Gubernatorial Candidate Mark Dayton, promote tax increases.  In such a political climate, perhaps the best that voters can hope for are candidates that promise to maintain progressive tax structures. 

California

One such candidate, California gubernatorial candidate Jerry Brown, recently hammered his opponent, Meg Whitman, for supporting a regressive tax cut that would benefit only taxpayers who have capital gains income.

In 2008, 93% of taxpayers who paid capital gains taxes in California earned over $200,000.  While other gubernatorial candidates fight over who will cut taxes more, it is refreshing to see a candidate like Brown refuse to endanger the state's budget by cutting taxes for the wealthiest.

Illinois

Illinois current Governor Pat Quinn is having it out against Republican Bill Brady to see who will move into the Governor's Mansion next year. Brady proposes to eliminate the state's estate tax and the sales tax on gasoline, saying that this will send a message to business that  "Illinois is open again for business and we're here to stay for the long term." Quinn, on the other hand, supports an increase in the state's income tax to help solve the state's enormous fiscal woes.

Maryland

While fiscal prudence may call for hard decisions, campaigning calls for easy sound bites.  Former Governor and current Republican candidate for Maryland Governor Robert Ehrlich wants to repeal Governor O’Malley’s 2007 sales tax increase.  Ehrlich’s proposal would cost the state treasury over $600 million. While Ehrlich himself raised taxes during his tenure, the former Governor is trying to re-brand himself as the anti-tax candidate

Like Ehrlich, current Governor O’Malley is also seeking to distance himself from his past constructive and successful tax policies.  However, O’Malley refuses to rule out future tax increases, signaling that he has not forgotten how he expanded health coverage and increased education funding these last four years.

Michigan

The “Michigan Business Tax” has fallen out of grace with Michigan’s gubernatorial candidates.  Both Democrat Virg Bernero and Republican Rick Snyder favor eliminating the business tax and replacing it with some other revenue source. Synder’s plan would partially offset the revenue loss from the business tax cuts by instituting a flat 6% corporate income tax.  Still, Synder recognized the plan would remove $1.5 billion from the state’s coffers. 

Bernero’s plan does little more to make up for the lost revenue.  His proposal includes collecting taxes on internet sales, although he refuses to commit to any gas or service tax increase. Instead, Bernero also seeks to cut state programs and lower costs.  While it is disappointing to see both candidates propose tax and funding cuts, Bernero has pledged to support state funding for anti-poverty and unemployment programs.

Pennsylvania

Despite massive state budget shortfalls in Pennsylvania, both gubernatorial candidates, Republican Tom Corbett and Democrat Dan Onorato pledged, abstractly, not to raise taxes. Neither candidate seems to be sticking to such a pledge. Onorato was gutsy enough to suggest imposing a new tax on shale severance.  Onorato’s proposed tax would allow the state to remain competitive with neighboring states.  Onorato’s Republican counterpart, Tom Corbett, has maintained that he will not raise taxes, but he is reportedly open to increasing payroll taxes. So apparently, Corbett’s pledge only applies to big business.

South Carolina

South Carolina voters are guaranteed to see a new Governor in Columbia that is going to slash budgets instead of raising revenue. Both the major candidates, Democrat Vincent Sheheen and Republican Nikki Haley, are saying that they won't raise taxes despite the fact that the budget is in disarray (falling to mid-1990's levels) and the federal government can't be relied on for more stimulus money to help prop the state up. Sheheen has said, "We can't keep funding everything at the levels of two or three years ago. We can't keep funding everything, period."

Perhaps it comes as no surprise, but Haley does have some pet projects she'd like to see improved despite claiming that South Carolina must live within its means. She says, "When your revenues are down, the last thing you cut is your advertising, so we need to make sure the Commerce Department is strong. We need to strengthen our technical colleges." No matter who wins this election, it's going to be difficult to improve technical colleges and the Commerce Department when money is so tight and lawmakers aren't leaving many options.

Tennessee

Tennessee politicians realize the state has serious budget shortfalls.  Unfortunately, the only question facing Tennessee voters this November will be how much to cut state programs and who to reward with tax cuts.

Last week, the current Democratic Governor Phil Bredesen announced plans to cut next year’s state budget by up to $160 million.  Democratic gubernatorial candidate Mike McWherter lauded the plan, while Republican gubernatorial candidate Bill Haslam criticized the cuts for not being large enough

However, the candidates do have differing ideas about creating jobs through tax cuts.  McWherter proposed a $50 million state tax break for small businesses that would reward qualifying companies for creating the next 20,000 jobs.  In contrast, Haslam proposed creating regional economic development centers.  McWherter’s plan is based on a similar program in Illinois, which Democratic Governor Pat Quinn instituted and Republican gubernatorial candidate Bill Brady would like to expand.


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.


Bad Tax Ideas from Five Gubernatorial Races


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In an attempt to win votes, lots of gubernatorial candidates have been promising lots of tax cuts — despite the fact that many of their states face very bleak budgetary outlooks.  Here are examples from five states:

Rhode Island — John Robitaille won the Republican nomination for governor this past Tuesday on a platform that includes amending the state constitution to cap property tax increases at 2.5 percent per year.  Massachusetts's experience with a similar cap indicates that this proposal could have a very negative impact on local government services.

Wisconsin — Scott Walker was the winner of Wisconsin's Republican primary on Tuesday.  Walker is also running on an anti-tax platform, including a property tax "freeze" that would only allow revenue growth to the extent that new construction occurs.  Democrat Tom Barrett is also running on a campaign that heavily emphasizes cutting government spending, and enacting so-called "targeted" business tax cuts to create jobs.

Michigan — Republican gubernatorial candidate Rick Snyder's proposal to cut taxes on Michigan corporations by $1.5 billion received some attention in the media this week.  Specifically, Snyder would repeal the Michigan Business Tax and replace it with a much smaller corporate tax.  Recent polling indicates that Snyder holds a substantial lead over Democrat Virg Bernero.

Florida — Some of the most absurd tax proposals we've seen in a gubernatorial race this year have come from Florida Republican Rick Scott.  In his very first year in office, Scott wants to slash both school property taxes and the corporate income tax — to the tune of $2.1 billion total in tax cuts.  Unspecified cuts in government spending would then be made to keep Florida's budget in balance.  After this, Scott claims he would focus his energy on eliminating Florida's corporate income tax entirely. Thankfully, Democrat Alex Sink is opposed to cutting the corporate income tax, though she has jumped on the job-creation tax credit bandwagon.

Maine — Both Democrat Libby Mitchell and Republican Paul LePage are running on anti-tax platforms in Maine.  Neither is open to the idea of using tax increases to balance the state's budget.  Mitchell claims that "Maine's income tax is too high and I will continue the effort to lower it."  LePage has stated that "Reducing the overall tax burden for all Maine citizens and small businesses is my vision for tax reform."

Film tax credits have received a lot of attention in recent days.  Just as Virginia Governor Bob McDonnell was signing the state’s first film tax credit into law, stories out of Iowa and New Jersey, as well as a New York Times article about film credits in Michigan, Texas, Pennsylvania and Utah, provided quite a few good reasons to be skeptical of these credits.

On Monday, Virginia Gov. Bob McDonnell excitedly signed into law the state’s new film tax credit, with sitcom star Tim Reid (from “WKRP in Cincinnati,” “Sister Sister,” and “That 70’s Show”) there to celebrate.  In order to justify enacting this giveaway for the film industry while Virginians are having to make due with reduced state services, Gov. McDonnell made the asinine claim the credit would produce a 1400% return on investment.  Economists everywhere have no doubt been laughing ever since.

Meanwhile, in New Jersey, fellow 2009 gubernatorial election winner Chris Christie took exactly the opposite approach in vowing to eliminate the state’s film credit in order to help balance the state’s budget.  While Christie clearly had his priorities dead wrong in choosing not to extend the state’s income tax surcharge on millionaires (61% of voters favor the surcharge), he has certainly hit the nail on the head when it comes to this wasteful giveaway.  Not even the cast of “Law and Order: Special Victims Unit” appears to have been able to sway him.

Stories this week from the Des Moines Register and New York Times provide some very timely evidence regarding the wisdom of Christie’s approach, as well as the folly of McDonnell’s.  In Iowa, the Register reports that new criminal charges have been filed in the state’s ongoing film tax credit scandal.  Specifically, three moviemakers have been charged with inflating the value of their expenses in order to increase their take from the state’s film credit program.  A $225 broom, $900 stepladder, and 16,000% markup on lighting equipment are among the bogus expenses claimed by the filmmakers. 

The steady drumbeat of discouraging news surrounding Iowa’s film tax credit makes clear that Virginia is facing an uphill battle when it comes to policing this program.

The New York Times this week explored a more specific attribute of state film tax credits: the steps states are taking to prevent movies they dislike from receiving taxpayer dollars.  In Michigan, a sequel to a cannibalism-themed horror movie that was supported by state film tax credits was rejected for subsidy this time around because the state’s film commissioner determined that “this film is unlikely to promote tourism in Michigan or to present or reflect Michigan in a positive light.”  Michigan is by no means alone in enforcing this standard.  Films made in Pennsylvania can be denied tax credits if the movie in question does not “tend to foster a positive image” of the state. 

Texas possesses a similar requirement, which apparently was used to prevent the makers of a film about the Waco raid from even applying for film tax credits. 

And in Utah, the state’s Film Commission director admitted to withholding credits from films that he wouldn’t feel comfortable taking the governor to see. Whether or not this rule of thumb varies with the theatrical tastes of the governor in office at the time remains to be seen.  Upon reading the Times story, one blogger with the Baltimore Sun went so far as to argue that these provisions show that “states want propaganda from filmmakers.”  They certainly beg the question: If state taxpayers subsidize the film industry, is it inevitable that state governments will censor movies before they're made?


Yoga Lobby Tries to Block Tax Fairness Initiative


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ITEP, CTJ, and dozens if not hundreds of other organizations have argued for years that a well-designed sales tax should apply to nearly all retail sales, including both goods and services. We have shifted over the years from an economy in which most people sell goods to an economy in which most people sell services. Taxing only the sale of goods is an antiquated and inadequate approach for any state or local government to take.

So why don't all states with sales taxes expand them to apply to services? The answer has nothing to do with what's good policy and has everything to do with politics. Pretty much every business that provides a service can conjure up some argument as to why this particular service is vital to the health and happiness of the state's residents, and from there will argue that a tax (no matter how minimal) will destroy their ability to provide this service.

The most recent example comes from Washington, DC. The DC yoga lobby flexed their political muscle yesterday, urging yoga consumers (apparently known as yogis) across the District of Columbia to oppose expanding the District’s sales tax base to include yoga services and gym memberships.  The “DC Yogis Against the Yoga Tax” — which appears to be a coalition of yoga studios, teachers, and consumers — argues in their boilerplate letter to the Council that “most yogis and gym members are middle income-ers who've simply made it a priority to invest in their health and well-being.  The DC Council should reward their behavior, and encourage more people to take responsibility similarly for their own well-being.” 

Their plea then subtly attempts to downplay the revenue that could be gained by a tax on yoga, implying that such a tax would encourage people to abandon yoga, and therefore result in losses in productivity, self-reliance, and basic human functioning — all of which would adversely impact DC’s coffers.

If you live in the District of Columbia, we suggest that you write to your council member to tell them you support this tax proposal, which is essentially just an attempt to expand the base of the sales tax.

For more information, the DC Fair Budget coalition has additional details on the proposed sales tax base expansion, as well as on fiscal 2011 revenue options more broadly.  Also see the DC Fiscal Policy Institute’s take on sales tax base expansion, and on the recent outcry from the yoga community.

DC's yoga lobby is not unique. Maryland’s recent attempt to tax a handful of services met similar obstacles.  After proposing a list of perfectly sensible expansions of the sales tax base, industry lobbyists skillfully removed their clients from the list, one-by-one, until only the computer services industry remained (and of course, in time, the computer services industry was eventually able to avoid taxation as well). 

During all of this, the circling of the Annapolis capital building by lawn care trucks provided one of the most memorable and oft-cited examples of the influence that special-interests can have in a tax policy debate. 

For more on the importance of taxing services, be sure to read this recent op-ed by Sharon Parks of the Michigan League for Human Services.  In it she explains the history and merits of taxing services in Michigan, and advocates strongly for the proposal put forth by Michigan Governor Jennifer Granholm to expand the state’s sales tax base to include a host of new services, and to return some of the revenue gained to Michiganders via a 0.5 percentage point decrease in the sales tax rate.


States Seek to Increase Sales Tax Revenue Without Changing their Tax Rates


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Across the nation, state lawmakers wary of further increasing their general sales tax rates are looking (sensibly) for ways of broadening the tax base in order to maximize their "bang for the buck" from the existing tax rates. As a recent New York Times survey documents, half a dozen states are thinking seriously about expanding their sales tax to include previously untaxed services, from haircuts to hot-air-balloon rides.

From a policy perspective, this approach is a slam dunk: a good first principle for sales tax design is that your sales tax liability should depend only on how much you spend — not on what you buy. However, proposals to tax services in Maryland and Michigan have recently run aground because of politics, not policy.

But there is a much more straightforward (and more politically viable) sales tax base broadening strategy that virtually every state can tap right now. Interestingly, even the Wall Street Journal found it difficult to argue against a growing effort by states to enforce collection of their "use tax" (a companion to the sales tax that is designed to apply to goods and services purchased in other states).

From a policy perspective, this is every bit as sensible as taxing services: if you buy a book, the sales tax should be the same whether you buy it in a store or on-line. But the politics are substantially more promising in this case: among the parties most aggrieved by the use tax loophole are small, "bricks and mortar" businesses that collect sales taxes on all their purchases and face a clear tax-based disadvantage compared to Amazon.com and other Internet-based retailers.

In the wake of recently passed legislation in Colorado designed to encourage more taxpayers to pay the use tax on their own, more states will likely seek to replicate Colorado's approach.

 

 


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.


Tax Fairness By Any Standard & Michigan's Generosity


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There isn't much in the world of state tax policy on which folks can agree, but surely most would say that someone's age shouldn't determine tax liability to the extent that it does in states like Michigan, which offers an exclusion upwards of $86,000 for married couples with qualifying pension and retirement income. All retired public employees (including teachers and government workers) enjoy a full income tax exclusion on those retirement benefits too. But the violation of horizontal equity is especially egregious when you consider that elderly workers earning wages actually have to pay taxes on their income.

Estimates are that ending this disparity could bring in about $700 million in revenue annually. The Michigan League for Human Services has been talking about these elderly preferences for awhile, asking the question, "Can Michigan afford such generosity?" As the state continues to grapple with budget shortfalls into the foreseeable future, the answer is an unequivocal no.


Growing Momentum for Income Tax Reform Among Gubernatorial Candidates


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Michigan gubernatorial candidate State Representative Alma Wheeler Smith is calling for the restructuring of the state's tax structure. Michigan is one of a handful of states with a flat income tax, and its fiscal woes are infamous. Rep. Smith feels that now is the time for a complete restructuring of the state's tax system, including making Michigan's income tax graduated and lowering the state's sales tax rate while extending the sales tax base to include more services.

Representative Smith isn't the only person running for Governor who is turning to income tax reform in these difficult times. Both Democratic gubernatorial candidates in Illinois have also called for significant changes to the Illinois tax structure, including reforming their state's flat rate income tax. For more on Illinois Governor Pat Quinn and Comptroller Dan Hynes' tax reform plans, see ITEP's report. Progressive income taxes are an important tool for states struggling in this current economic downturn. Read more about the benefits in ITEP's Policy Brief on progressive income taxes.


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.

Read ITEP's New Report: Who Pays? A Distributional Analysis of Tax Systems in All 50 States

By an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy, according to a new study by the Institute on Taxation & Economic Policy (ITEP).

“In the coming months, lawmakers across the nation will be forced to make difficult decisions about budget-balancing tax changes—which makes it vital to understand who is hit hardest by state and local taxes right now,” said Matthew Gardner, lead author of the study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. “The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income.”

Nationwide, the study found that middle- and low-income non-elderly families pay much higher shares of their income in state and local taxes than do the very well-off:

-- The average state and local tax rate on the best-off one percent of families is 6.4 percent before accounting for the tax savings from federal itemized deductions. After the federal offset, the effective tax rate on the best off one percent is a mere 5.2 percent.

-- The average tax rate on families in the middle 20 percent of the income spectrum is 9.7 percent before the federal offset and 9.4 percent after—almost twice the effective rate that the richest people pay.

-- The average tax rate on the poorest 20 percent of families is the highest of all. At 10.9 percent, it is more than double the effective rate on the very wealthy.

“Fairness is in the eye of the beholder.” noted Gardner. “But virtually anyone would agree that this upside-down approach to state and local taxes is astonishingly inequitable.”



The “Terrible Ten” Most Regressive Tax Systems

Ten states—Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada, and Alabama—are particularly regressive. These “Terrible Ten” states ask poor families—those in the bottom 20% of the income scale—to pay almost six times as much of their earnings in taxes as do the wealthy. Middle income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families. “Virtually every state has a regressive tax system,” noted Gardner. “But these ten states stand out for the extraordinary degree to which they have shifted the cost of funding public investments to their very poorest residents.”

The report identifies several factors that make these states more regressive than others:

-- The most regressive states generally either do not levy an income tax, or levy the tax at a flat rate;

-- These states typically have an especially high reliance on regressive sales and excise taxes;

-- These states usually do not allow targeted low-income tax credits such as the Earned Income Tax Credit; these tax credits are especially effective in reducing state tax unfairness.

“For lawmakers seeking to make their tax systems less unfair, there is an obvious strategy available,” noted Gardner. “Shifting state and local revenues away from sales and excise taxes, and towards the progressive personal income tax, will make tax systems fairer for low- and middle income families. Conversely, states that choose to balance their budgets by further increasing the general sales tax or cigarette taxes will make their tax systems even more unbalanced and unfair.”

Implications for State Budget Battles in 2010

“In the coming months, many states’ lawmakers will convene to deal with fiscal shortfalls even worse than those they faced last year,” Gardner said. “Lawmakers may choose to close these budget gaps in the same way that they have done all too often in the past—through regressive tax hikes. Or they may decide instead to ask wealthier families to pay tax rates more commensurate with their incomes. In either case, the path that states choose in the upcoming year will have a major impact on the wellbeing of their citizens—and on the fairness of state and local taxes.”


Michigan Budget Update: EITC Woes and Tax Equity for Non-Elderly Taxpayers


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Michigan lawmakers are currently operating under a temporary budget that should last until the end of the month. But K-12 education funding wasn't included in this temporary measure and Michigan's budget director said that a K-12 budget had to be signed by tomorrow if the state was going to make payments to local school districts. The state's Department of Education released a statement Monday saying that without a state budget, they can't get federal funds that help pay for special education and programs that benefit students living in low-income districts.

At around midnight on Thursday, lawmakers approved a K-12 education budget that reduces spending by $165 per pupil rather than the proposed $218. The Senate voted to pay for the increased education spending by freezing the state's Earned Income Tax Credit (EITC) at 10 percent of the federal credit (the credit was scheduled to increase to 20%) and reducing the state's film tax credit. The Governor is expected to sign the K-12 budget into law. But the fate of these revenue raising provisions isn't certain in the House, which won't meet again until Tuesday.

Instead of chopping away at one of the most successful anti-poverty programs in the country during a recession, the EITC, lawmakers should turn to eliminating some of the special tax breaks that Michiganders over the age of 65 enjoy. Late last week Brian Dickerson, a columnist for the Detroit Free Press, wrote, "I'm not convinced that Michigan needs to start kicking senior citizens out of their hospital beds. But we should certainly tax some of them more heavily, especially if we want their grandchildren to inherit a viable state."

The Michigan League of Human Services recently released a brief which raised the insightful question: Can the state really afford the generosity offered the elderly through the state's tax code? Read the brief here. Estimates are that preferences cost the state well over $650 million annually and the cost will likely increase as the population ages.


State Film Tax Credits: Next on the Cutting Room Floor?


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If you’re a state legislator, chances are good that you’ve spent the better part of the last twelve to eighteen months struggling to find options for bringing your state’s budget into balance.  Chances are equally good that, while you’d like to stop thinking about the subject, circumstances won’t allow it.  After all, some thirty-six states are expected to face budget deficits in fiscal year 2011, even after forty-eight states closed budget gaps totaling $168 billion for the current fiscal year.

In this context, then, state legislators will be forced to evaluate even more stringently each program funded by the public, whether through the regular appropriations process or via foregone tax collections.  One good place to start would be to reconsider the wisdom of offering subsidies through the tax code for the purposes of film, television, and other media productions.  As the Los Angeles Times reports this week, more than 40 states now provide tax credits or other tax reductions for such purposes, often at a very high cost to the state’s budget and just as frequently with little to no understanding of whether they are producing any real benefits for the state’s economy. 

For instance, Michigan is home to one of the most generous such subsidies in the nation: a credit equal to 42 percent of filmmakers’ production expenses, which could cost the state as much as $150 million next year.  Yet, as one Michigan Senator admitted to the Times, “We are still not sure what exactly our tax dollars are being spent on with these films…If we don’t know that, how can we justify it?”

Those states that do examine the uses to which scarce tax dollars are being put may not like what they find.  In Iowa this past week, three state officials – the Director and Deputy Director of the Department of Economic Development, as well as the manager of the Iowa Film Office – either resigned or were fired in the wake of reports that the state’s tax credit program was subject to serious abuses, including the purchase of two luxury automobiles that were not actually used in making in a movie but instead went to film executives.  Governor Chet Culver has temporarily suspended the program, which, by some estimates, could pay out more than $300 million in tax subsidies if it resumes.  For more on Iowa’s film tax credit and the need for greater transparency, visit the Iowa Fiscal Partnership.


Michigan Governor's Proposed Budget Slashes EITC and Raises Regressive Taxes to Address Budget Gap


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For a governor who claims to support progressive taxation, Michigan Governor Jennifer Granholm sure has a funny way of showing it.  Her recently released budget proposal would raise revenue by slashing the EITC while hiking taxes on tobacco, liquor licenses, and bottled water.  Her budget would also prevent the personal exemption from increasing as a result of inflation indexing, would levy a tax on vending machine purchases, would (very modestly) scale back the state's film tax credit, and would attempt to expand the sales tax to include a few more services -- such as live events and landscaping.  And to top things off, the Governor would use some of the money raised by these hikes to lower taxes paid by business -- specifically, by phasing out the Michigan Business Tax surcharge.

Overall, this package of tax changes is almost guaranteed to be grossly regressive.  Admittedly, the Governor is working within some pretty restrictive guidelines, established both by her own short-sighted campaign promises, and by the state's constitutional prohibition on creating a graduated rate income tax.  But a look at the types of solutions proposed by the Michigan League for Human Services (MILHS) is enough to show that there are better approaches to addressing Michigan’s recurring budget deficits.  Take a look at this recent statement from the MILHS outlining the ways in which "vulnerable people and the working poor are being asked to sacrifice to balance the budget" under Governor Granholm's proposal.

It's one thing for the federal government to allow a one-time amnesty for Americans who've hid their income from the IRS in offshore accounts. (See related story.) The "stick" is effective (prison) and the "carrot" is not overly generous (since these Americans will pay taxes, interest, and penalties).

But lately several states are providing their own tax amnesties that are very different and very misguided. According to a recent article in State Tax Notes (subscription required), the thirteen state tax amnesties already conducted or promised this year ties the 2002 record for most amnesties offered in one year.  Assuming that DC Mayor Adrian Fenty signs the budget (which contains a tax amnesty) that was recently passed by the DC Council, that record will be broken.  Pennsylvania and Michigan, however, still have a chance to avoid adding to the list of states enacting these short-sighted measures. Amnesties have been proposed within each state's legislature.

As we've argued before, allowing delinquent taxpayers to pay the taxes they owe with little or no penalty is unfair to those diligent taxpayers who paid their taxes on time.

This unfairness is compounded greatly if the interest owed on the late tax bill is reduced, or even waived entirely, as was done this year in Delaware.  Waiving the interest owed on late tax bills essentially means that delinquent taxpayers are granted an interest-free loan by the state, for no reason other than the fact that the state is now desperately in need of money. Had all taxpayers been aware of the possibility of this interest-free loan, the rate of noncompliance would undoubtedly have skyrocketed. 

Repeatedly offering amnesties, as is increasingly becoming the norm, harms the ability of states to enforce their tax laws.  With record numbers of tax amnesties having been offered in the last seven years, delinquent taxpayers can usually assume that they'll be offered an easy way out eventually -- if only they're patient enough.  As one revenue official from Kansas recently put it, "if you have amnesties too often, you're literally training taxpayers not to pay."


OUTRAGE IN MICHIGAN: Governor Proposes Cutting State's EITC


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Last Thursday, as an economic consulting firm released a report finding that the Michigan Earned Income Tax Credit (EITC) "generates positive benefits for residents in Michigan," sources close to the state's governor revealed that she had decided to cut that very tax credit.

The federal EITC was created in 1975 and expanded several times since then, including in 1986 by President Reagan, who called it the “the best anti-poverty, the best pro-family, the best job-creation measure to come out of Congress.” Over the years, many states have created their own EITCs to supplement the federal one, and a great deal of research shows that these state EITCs are a good investment.

Governor Jennifer Granholm's proposal to balance the state's budget includes a reduction in the state's EITC from 20 to 15 percent of the federal credit. This proposal can't even be described as penny wise and pound foolish, because it's going to cause unnecessary pain immediately. The new report from Anderson Economic Group finds that "the Michigan EITC reduces poverty and increases income by an average of 3% for those who receive the tax credit...the EITC generates positive economic benefits for residents in Michigan." The report goes on to say that if monies used to fund the state EITC were used elsewhere, the funds "would not be distributed so widely in the state or used as productively as putting money into the hands of families that then spend this money in their communities."

The EITC cut is only one component of the Governor's proposal. She would also solve the state's budget shortfall by expanding the sales tax base to entertainment services including tickets to concerts and athletic events, increasing the state's cigarette tax, and levying a penny sales tax on the purchase of bottled water. Expanding the state's sales tax to include more services is a smart plan, but cutting the EITC at a time when many Michigan families are struggling is a terrible one.


Tax Base Broadening on the Agenda in Michigan, California, and North Carolina


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A broad base is an essential element of a good tax system. Fulfilling the principles of "horizontal equity," and "economic neutrality," both depend upon the use of a broad tax base. Unfortunately, the temptation to carve out special tax breaks for politically popular causes, or for powerful constituencies, if often irresistible to lawmakers.

But efforts are currently underway in Michigan to undo some of these special tax breaks, and a tax reform commission in California is at least pretending to consider a reform that would help pave the way for a careful reconsideration of many of that state's tax breaks. Furthermore, policymakers in North Carolina have expressed a strong desire to return to the task of base-broadening this fall, even as efforts to include base-broadening revenue-raisers in this year's budget agreement seem to have failed.

Earlier this month, Michigan Governor Jennifer Granholm stated her desire to eliminate between $500 million and $1 billion in special tax breaks as a way to reduce the state's looming deficit. While accomplishing such a feat will inevitably involve an uphill political battle, Michiganders should be grateful that the Michigan League for Human Services (MLHS) is closely following the action. MLHS Chairman Lynn Jondahl hit the nail on the head when he urged lawmakers to ask themselves, in reference to the state's film tax credit, "Would you be willing to appropriate $6 million to MGM, say, to make this film in Michigan? We're paying you to do something in lieu of filling pot holes or funding mental health treatment. Which do we value more?"

In California, a tax reform commission that so far has shown interest mostly in cutting the progressive income tax is at least listening politely to a different idea. The so-called "blue proposal" currently before the commission, presented as a less regressive alternative to the much-ballyhooed flat-tax proposal supported by Governor Schwarzenegger, would require special tax breaks to be presented in the Governor's budget, saddled with a "sunset" provision, and evaluated based on their effectiveness in achieving their stated objectives. Of course, adopting this approach will amount to rearranging deck chairs on the Titanic if the commission acts on its apparent zeal for moving away from income taxes and towards regressive consumption taxes. And the "blue proposal" has its warts as well: provisions that would impose a spending cap and create a new "net receipts" tax in lieu of the current corporate income tax have progressives feeling, well, blue. But the tax-expenditure element of the "blue proposal" is a welcome dose of thoughtful policy at a time when California surely needs it.

Finally, in a recent development out of North Carolina, base-broadening appears to be off the agenda for the immediate future, though policymakers have expressed a strong interest in returning to the issue this fall. When they do return to the issue, they would be wise to review these recommendations, recently released from the North Carolina Budget and Tax Center, explaining how to broaden the state's tax base while simultaneously offsetting any potentially harmful effects on low- and moderate-income families.


Transportation Funding in the News


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Last week brought with it a flurry of news stories discussing the issue of how to pay for transportation infrastructure. This topic is never too far from the agenda in statehouses across the country, in large part because most states fund their infrastructures primarily with a fixed-rate gasoline tax (levied as a specific number of cents per gallon) which inevitably becomes inadequate over time as inflation erodes the value of that tax rate. What's more, with fuel efficiency becoming an increasingly important criterion in Americans' car-buying decisions, drivers are able to travel the same distance while purchasing less gasoline, and paying less in gasoline taxes.

With all this in mind, Mississippi's top transportation official last week publicly stated that the state's lawmakers need to increase their flat 18.5 cent per gallon gas tax rate. As evidence of this need, the official also noted that 25% of the state's bridges are deficient.

In a similar vein, one recent op-ed in Michigan called for increasing the state's gas tax and restructuring it to prevent it from continually losing its value due to inflation. Another op-ed ran in the same paper that day, this one written by the President of the Michigan Petroleum Association, insisting that the state eliminate the gas tax altogether and pay for the lost revenue with increased sales taxes. The most obvious flaw with this plan is that it would shift the responsibility for paying taxes away from long-distance commuters and those owners of heavier (and generally less fuel-efficient) vehicles -- despite the fact that these are precisely the people who benefit most from the government's provision of roads.

More news coverage of the transportation issue came out of South Dakota last week, where a committee of legislators is currently in search of additional revenue to plug the hole created by predictably sluggish gas tax revenues. While some have expressed an interest in raising the gas tax, others have suggested replacing it entirely with hugely increased licensing fees. But licensing fees are not as capable as the gas tax in charging frequent and long-distance drivers for the roads they use.

The best way to ensure that those drivers pay for the roads they use, however, is to simply levy a tax on each mile they drive (known as a "vehicle miles traveled" tax, or VMT). While the idea has yet to be implemented in practice in the U.S., recent coverage of a pilot project involving 1,500 drivers in New Mexico shows that such a tax is a very real possibility in the future. Basically, a small computer is installed in each car which keeps track of the number of miles driven. That information is then reported to the tax collection agency, and the driver is sent a bill.

This method avoids the scenario in which drivers of vehicles of similar weights (which produce similar wear-and-tear on any given road) can end up with vastly different gas tax bills due differences in fuel efficiency. Interestingly, this new study is examining a system that would allow the computer to know which state somebody is driving in, so that the correct amount of tax can be paid to the correct state. Unsurprisingly, despite the public finance appeal of this method, privacy concerns remain a major obstacle to implementation.

New numbers out of Michigan show that sixty percent of registered voters support ditching the state's 4.35% flat rate income tax, and moving toward a graduated rate system that imposes higher tax rates on wealthier Michiganians. These numbers are virtually unchanged from when a similar poll was conducted two years ago. As the Michigan League for Human Services (MLHS) recently noted, enacting this popular reform would do much to remedy the state's structural deficit since the current flat rate system is incapable of "capturing the growth in income that has been occurring among the state's higher income taxpayers". Unfortunately, since Michigan unwisely enshrined the flat tax standard in its constitution, such a reform would require a constitutional amendment. These recent polls make clear, however, that such an amendment would be well received.

Other good news from Michigan comes in the form of a recent flurry of interest in reforming the state's numerous costly and ineffective tax breaks for businesses. This discussion comes on the heels of a lengthy report, commissioned by the Michigan Education Association and the National Education Association, which analyzes in detail a number of these special tax breaks. This report represents a positive first step forward in implementing a better system for keeping track of these hidden giveaways. As the report notes, "unfortunately, there exists no comprehensive assessment of the effectiveness of Michigan's tax incentive programs." In the future, having government itself undertake such studies could pay enormous dividends in the form of enhanced transparency.

Unsurprisingly, the report found a number of these programs to be wildly ineffective. Chief among the most wasteful programs is the state's film tax credit, recently lambasted in this op-ed. Unfortunately, the same poll mentioned above also found significant support among Michiganians for this program. Hopefully with the release of this new study, residents will take the time to give that opinion a second thought.


Michigan Governor Backs Graduated Rate Income Tax


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In search of a revenue stream to pay for replacing the increasingly unpopular surcharge on the Michigan Business Tax, Governor Granholm last week came out in support of a more progressive, graduated rate income tax. Moving away from the state's flat tax would require a constitutional amendment, and probably a fierce battle, but it would be well worth the fight. As the ITEP Policy Brief on progressive income taxation explains, this change would add sustainability, as well as progressivity, to Michigan's tax code.


It's Official: Michigan Infrastructure Needs More Tax Revenue


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The state of Michigan continues to fall on hard times economically. The Center on Budget and Policy Priorities estimates that the state's budget gap for FY 2009 is $472 million (nearly 5 percent of the state's general revenue fund), the automobile industry is on the verge of bankruptcy and the state's infrastructure isn't adequate to support the needs of Michigan residents. Last week the infrastructure issue was addressed head-on by the release of the Transportation Funding Task Force's report.

The blunt report sums up Michigan's infrastructure problems this way: "Michigan is approaching a crisis of infrastructure funding caused by steady erosion of purchasing power, continued inflation in materials costs, and a decline in fuel-tax revenues due to spikes in gas prices, reduced travel and a slow economy. The decline in revenues, and a corresponding increase in demand for travel alternatives, has exposed the inherent structural problems with the current means of transportation finance."

The Task Force outlined a menu of funding alternatives available including: increasing registration fees, adjusting the motor fuel tax, increasing the sales tax, and increasing the aviation fuel tax. Look here for the complete list. Anti-tax lawmakers will naturally balk at some of these options, but many others will be prodded by the budget crisis to consider options that had previously seemed politically difficult. They should delve deep into this report and focus on investing in Michigan's infrastructure. Task Force members rightly caution, "The one choice we cannot afford is to do nothing."


Business Taxation: Always an Issue in Michigan


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As was discussed in the Digest last week, despite (or perhaps because of) all the recent changes that have been made to the Michigan Business Tax (MBT), many businesses in the state are still unhappy with their tax bills. That frustration most recently materialized in the state senate in the form of two bills: one seeking to reduce, and one seeking to eliminate entirely, the annual surcharge imposed on the MBT. Both bills passed last Thursday. The surcharge was originally enacted to help fill the gap created by the repeal of the services tax.

Because of the fervor with which Michigan businesses have been voicing their displeasure with the surcharge, policymakers are now clamoring to appease them. But given the importance of government services to Michiganders, especially during these difficult economic times, it seems indisputable that the state should not begin cutting business taxes until other revenue streams are secured. Fortunately, Governor Granholm has said that she would only support reducing the surcharge on the condition that the lost revenues are offset with higher revenues from elsewhere.

Of course, a variety of good options exist for raising additional revenues in Michigan. At the top of that list should be an enhancement of the progressivity of the state's income tax, so that the rest of the state can begin to share in the enormous gains wealthy Michiganders have enjoyed in recent decades. Aside from that, a good starting point for policymakers would be a careful examination of this list, put together by the Michigan League for Human Services, of questionable tax exemptions, deductions, and credits.


Michigan Business Taxes: What's a Legislator to Do?


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For several years Michigan businesses lobbied hard for the elimination of the state's corporate tax and they ultimately proved victorious. Their efforts were so successful that the elimination of the Single Business Tax (SBT) was accelerated and the tax was eliminated two years early, despite the enormous two billion dollar hole that this would leave in the state's budget. When the SBT was on the chopping block business groups celebrated, but now some businesses are unhappy with the amount of taxes they pay even under the new Michigan Business Tax (MBT).

The legislative fight over a replacement tax was hard fought, but even many in the business community were realistic that the revenue had to be replaced. The Detroit Chamber of Commerce outlined guiding principles for the creation of a new revenue stream including these: "The state should proceed in a thoughtful and deliberate way. The state legislature and Governor must build consensus within the business community before adopting a new form of business taxation. Any replacement tax should not generate more business tax revenue than business taxes being replaced."

In July 2007, Governor Granholm signed legislation enacting the MBT, which includes a tax based on modified gross receipts and business income. While the Michigan Chamber of Commerce opposed the legislation, the Detroit Chamber ultimately endorsed the MBT. In 2007, Sarah Hubbard, vice president of government relations for the Detroit Regional Chamber, said the chamber supports the legislation and while the new MBT may not be perfect, "it provides the stability and certainty we need for economic development. I think philosophically this is a good bill. It rewards investment in Michigan."

Now fast forward. According to a survey by the Michigan Chamber of Commerce, businesses are up in arms about the MBT and nearly one-third of responding businesses saw their taxes more than double. What is a policymaker to do? The tax that businesses desperately wanted off the books is gone, the replacement tax that was endorsed by at least some businesses is on the books, and yet many still aren't satisfied. Perhaps this shows that businesses and legislators were too quick to accelerate the repeal of the SBT, especially given that a carefully studied alternative wasn't in place.


ITEP Op-Ed: Property Tax Relief Made Simple


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Property tax assessment limitations (caps on how much your home's value can increase for tax purposes in any given year) are again frustrating and confusing many homeowners. we've heard complaints in the past about such limits creating vastly different tax bills between neighbors, or about those limits creating inefficient incentives that discourage moving. Now we're beginning to hear complaints about those same limits resulting in tax increases even when home values are plummeting. An ITEP editorial published this week in The Detroit News explains why this new phenomenon is a predictable component of these limits, why ending the occurrence of tax increases in down-years (as has been proposed in Michigan) is a bad idea, and what states should do instead to provide a more reasoned and straightforward brand of property tax relief.

Fortunately, there are some Michigan legislators that are already ahead of the curve when it comes to this issue. Two bills have been proposed this year with the goal of improving the state's circuit-breaker, though both have yet to advance.

Read the editorial.


Michigan: Property Tax Relief So Complicated That Even Its Sponsors Don't Understand It


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As has been explained in previous Digest articles, Michigan property taxes are, on their face, behaving a bit strangely right now. Despite home values being on the decline in many parts of the state, property tax bills are actually increasing. This is one of many side-effects of the state's decade-old cap on increases in a home's taxable value.

This phenomenon has led both to a good deal of dissatisfaction among Michiganders, and to a proposal by two Michigan legislators that is intended to fix this problem. But despite the claims of the bill's sponsors (and the uncritical acceptance of those claims by the media), their proposal would do much more than simply "make sure that if a home's market value decreases, the property's taxable value will not increase". To understand why, it's necessary to look deeper into the mechanics of how Michigan's fairly convoluted property tax cap works.

Under the existing cap, if in any given year a home's assessed (market) value increases by more than the inflation rate or 5% (whichever is lower), then the lower of those two alternative measures is used in calculating the amount by which the home's taxable value can increase in that year. In short, this limitation is meant to ensure that property tax bills never jump by "too much" as a result of a leap in housing prices.

Until recently, home prices have been increasing much faster than limits set by the cap, meaning that the taxable value of many homes has been suppressed to a level far below their actual market values. But with the recent housing downturn, taxable values under Michigan's capped system are now being allowed to catch-up with the actual values of residents' homes, despite declines in those actual values.

Effectively, the agreement established by this cap says that, "We won't increase your tax bills very much in any given year, but this means we may in some cases end up increasing them by a little bit every year, regardless of what's going on with your property's actual value". The bill proposed in Michigan, ostensibly designed to block tax increases when home values decrease, would actually eliminate the second half of this agreement entirely -- "catch-up" periods in which your taxable value increases by more than your assessed value did would no longer be allowed. Instead, taxable value can never increase by more than assessed value in any given year, and if assessed value decreases, so does taxable value, regardless of how far below assessed value it currently stands.

Aside from starving state and local coffers, ending the "catch-up" component of the cap would further divorce the Michigan property tax from being a tax on the actual value of property, as all attempts to align taxable and market values would come to an end.

Got all that? If not, it's probably not your fault. Assessment caps are a notoriously complicated and side-effect plagued type of property tax relief. What makes more sense, as a large number of states already recognize, is enacting a property tax circuit-breaker that gives property tax relief to those whose incomes are lowest relative to their tax bills. This can provide a much simpler, less expensive, and more progressive solution. Michigan already has a circuit-breaker, and if lawmakers are interested in reducing their constituents' property taxes, divvying out relief through that program would be much preferable.


Regressive Tax Proposals on the Ballot This November


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It's that time again. Right-wing activists, unable to convince lawmakers to gut their tax systems, are asking voters to do it themselves through the ballot. This update explains that ballot initiatives to enact regressive tax policies died in Michigan and Montana, but survived to secure spots on the ballot in Arizona, Florida, Massachusetts and Oregon.

The Good News: Two Regressive Proposals Did Not Make It onto the Ballot

Michigan "Fair "Tax": The Michigan Fair Tax proposal, a highly regressive measure that was anything but fair, failed to make it onto the November ballot. The proposal would have eliminated both the Michigan Business Tax and the personal income tax, raised the state sales tax to 9.75% and expanded it to include services, food, prescription drugs and out-of-pocket health care expenses.

Montana Property Tax Limitations: CI-99, a measure that would have capped property tax increases at no more than 1.5% annually, fell short of landing a spot on the Montana ballot. In addition to the limits on tax hikes, the proposal would have ensured that homes can only be reappraised when sold (as opposed to every seven years). Sound familiar? It looks like, at least this year, Montana averted the disastrous path followed by California's Proposition 13.

The Bad News: Other Regressive Tax Proposals ARE on the Ballot in November

Arizona Sales Tax Hike: On June 27, the Digest described the Arizona sales tax initiative which will be on the ballot in November. The proposal would hike the sales tax by one cent. The increased revenues would be directed toward a faltering transportation system. Arizona already has sales taxes bordering on 10% and a nearly flat income tax. As a result, its tax policy is already highly regressive and this initiative would make it more so.

Florida Tax Swap: In November voters will decide on Amendment 5, a 25% property tax cut and a 1 cent sales tax hike. The property tax cut would hit Florida's schools, already in shambles, the hardest. The Amendment would come at a cost of $9 billion in lost revenue and the subsequent sales tax increase would only produce about $4 billion, plunging the Sunshine State even further into debt and shifting the tax burden to lower-income Floridians.

Abolishing Massachusetts' Income Tax: In Massachusetts, voters will have the opportunity to decide on an initiative that would eliminate the state's income tax. Such irresponsible policy would cost the state $12 billion in lost revenue -- a whopping 40% of its budget. The price would be paid with teacher layoffs, school closings, cuts to higher education, worker training programs and health care services, and delays of road and bridge repairs.

Cutting Oregon's Income Tax for the Rich: Oregon voters will have the opportunity to vote on a measure that would drastically cut income taxes for its wealthiest taxpayers. The proposal would create an unlimited deduction on the state income tax form for federal income taxes paid.The state's general fund would lose about $4 billion over four years from the proposal. The general fund is used primarily for education, public safety, the justice system, human services (including health care, care for seniors and child protective services) and state parks. Meanwhile, the average tax cut for the top one percent of Oregon earners would be about $15,000. Those who fall among the middle 20% of earners would receive about $1 on average.


Utah: Maybe Proposition 13 Isn't What We Need


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For once, there's some upbeat news when it comes to Proposition 13, though unfortunately it doesn't involve California. The Utah Revenue and Taxation Committee this week heard testimony on the merits of enacting a Proposition 13 style property tax cap in their state. With home values generally on the rise up until recently, Utahans have begun to express some frustration with the rising property tax bills coming out of their current fair-market-value assessment system. One knee-jerk way to prevent property tax bills from rising is to enact a law preventing taxable home values from increasing more than a certain amount in any year -- which one of the major provisions contained in Proposition 13 does. Unfortunately, the unintended consequences of such laws, including grave inequities between neighbors, huge windfalls for the rich, and the potential to slow the housing market, are less than desirable. These consequences have been discussed in more detail in earlier Digest pieces, and this ITEP policy brief.

Thankfully, the reaction to the idea in the Utah legislature has been notably unenthusiastic. But with the debate still very focused on concerns over the recent "sticker-shock" of rising property tax bills and the possibility of "taxing people out of their homes", at some point property tax reform is likely to come to the state. So far, that reform appears to be headed in the direction of forcing localities to vote any time the property tax is increased. Perhaps with some work on the part of policy advocates, a more progressive reform (such as a low-income property tax circuit-breaker) could arise out of the discontent in Utah.

Until then, Utahns can at least take comfort in the fact that with home values recently on the decline, their property tax bills can be expected to do the same. If the state were to enact a Proposition 13 style cap on assessment increases, that would by no means be guaranteed, as has been shown in Michigan.


Michigan Group Offers Creative Approach for Addressing Budget Shortfalls


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With state budget shortfalls having recently become so prevalent, it has been interesting to watch how different states have chosen to address their budgetary woes. Fortunately, a collection of influential groups in Michigan, including the Michigan League for Human Services, is seeking to fill their state's budget gap with a combination of policy changes much better thought-out than the regressive band-aid fixes proposed in New Hampshire (cigarette tax hikes) or California (lottery revenues). The plan, proposed by the Michigan League for Human Services and backed by a slew of influential groups, proposes to raise roughly $400 million through a series of relatively small changes, each of which already gained approval at some point from either the Governor or the legislature in the 2005 or 2007 legislative session.

Among the proposed list of reforms is the elimination of numerous unjustified sales tax exemptions. Vending machine snacks, international phone calls, and purchases made at prison stores are among the items that would be subject to the sales tax under the proposal. Another major component of the proposal would decouple state business depreciation rules from the federal rules, as was advocated in an earlier Digest piece.

While certainly not a comprehensive list of what could be done, the proposal is notable for its eclectic approach that simultaneously aims to improve efficiency and boost state revenues. States considering unimaginative hikes in consumption tax rates or damaging cuts in public services would do well to instead follow the lead of this proposal and seriously examine what kind of needed tweaks to their tax systems could boost revenues.


And Some People Still Think This Is a Good Idea?


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Not all property tax cuts are created equal. Though the intent is to shield homeowners from property tax hikes in times of strong growth in housing prices, it is the unintended consequences of caps on increases in a home's taxable value that have gained these measures attention in recent months.

By effectively limiting the amount by which one's tax bill can increase, these provisions primarily benefit those long-term residents whose taxable home values have been suppressed for the most years. Since this creates huge inequities in tax bills between neighbors who have lived in their homes for different amounts of time, Florida voters in January passed a "portability" measure that allows long-time homeowners to take their tax savings with them to a new home upon changing residences. This obviously does nothing to assist first-time homebuyers, or correct a host of other potential problems that states with such limits have been experiencing.

In Michigan, where housing prices have actually been on the decline, homeowners are continuing to see increases in their property taxes as previously suppressed "taxable values" are using the housing slump to catch up with actual "market values". This development, in addition to baffling and infuriating homeowners, provides an excellent illustration of exactly how convoluted these tax limits make the property tax system. In their poorly conceived attempt to keep property tax bills from getting "out of control", state legislators have created a system where the property tax barely resembles a tax on the actual value of property at all. Only under one of these ridiculous assessment-capped regimes could decreases in a home's market value lead to increases in a home's taxable value.


Attack of the 50 Foot Tax Breaks


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Conservative commentators frequently depict Hollywood as ridden with leftists, but the reality is that, when it comes to tax policy, the movie industry is no different from any other. Take recent legislative activity in Michigan and Georgia, for example. Michigan Governor Jennifer Granholm is on the verge of signing a bill that would, among other things, provide a refundable tax credit equal to 42 percent... 42 percent!... of a film production's costs. The Georgia Senate has adopted a measure - also expected to be signed into law - that will more than double that state's current film production credit.

Yet, as an important new report from the Massachusetts Department of Revenue (DoR) documents, states may receive precious little in return for these enormous investments. According to the report, Massachusetts will lose upwards of $140 million between 2006 and 2008 due to its film tax credit, but may receive only about $20 million in new revenue from the economic activity associated with the credit. What's more, as the report notes, "any estimate of the net economic and tax revenue impact of tax incentives needs to take into account the reduction in state government spending" associated with such credits. In such tight budgetary times, that "reduction in government spending" is sure to occur if policymakers keep trying to lure the latest blockbuster to their state.


Anti-Property Tax Sentiment More Popular Than Santa Claus


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All across the country property tax bills are coming due and outrage about the most unpopular tax is growing. Proposals for various types of property tax cuts, reforms, and relief abound.

In Michigan, legislators are proposing to limit property tax increases and make it easier for homeowners to appeal their assessments. In West Virginia lawmakers want to freeze property taxes for seniors, and also limit property tax increases for younger homeowners. Politicians in Utah are considering a broad range of options including changing school district funding from reliance on property taxes to sales taxes and increasing their state's circuit breaker credit. Property taxes tend to be the tax that everybody loves to hate. The tax comes due in a lump sum, it's usually difficult to understand, and often it's not based on one's ability to pay.

Lawmakers in these three states and others should investigate property tax credits that ensure that low-income folks aren't burdened by the tax. While it may be popular with constituents to discuss property tax cuts, it's vital that replacement revenue be identified as well.


Michigan Resolution: Repeal and Replace


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The Michigan service tax, a six-percent tax on select services, was repealed by the Michigan Legislature only hours after it look effect last weekend. The service tax was initially passed by the legislature because it was billed (and correctly so) as a way to modernize the state's tax structure; it was also intended to help to fill a multi-million dollar shortfall in the state's 2007-08 budget.

A number of issues led to the tax's untimely demise. The enacting legislation was passed very quickly without the planning necessary to ensure a quality bill; there were inconsistencies regarding which services were taxed (for example, skiing was taxed, but golf was not); and business-to-business services were included in the legislation (something most economists recommend against). The revenue hole from repealing the service tax will be filled by a surcharge on the Michigan Business Tax. Many state business interests preferred the business tax surcharge over the sales tax base expansion proposal. Clearly Michigan's path to sales tax base expansion was rocky, but as the bases for state economies continue to change from goods to services, it's inevitable that states looking for revenue will turn to expanding their sales tax base. There are important lessons to be learned from Michigan's attempt. For more read ITEP's policy brief.


Government Shutdown Avoided in Michigan


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Michigan lawmakers ended a four-hour partial government shutdown early Monday morning by enacting two bills designed to deal with a projected $1.75 billion deficit. House Bill 5194 includes an increase in the state's single income tax rate from 3.9 to 4.35 percent. The rate increase will be phased out between 2011 and 2015 and is expected to increase revenues by $765 million a year. The second revenue-raising bill (HB 5198) broadens the sales tax base to cover many services, including landscaping services, bail bond services, and even baby shoe bronzing services. This is expected to increase state revenues by $750 million. The budget also includes $440 million in spending cuts.

Michigan lawmakers deserve credit for making tough decisions to ensure that the state can work to adequately meet the needs of Michiganders. We expect other states will eventually follow Michigan's lead and expand their sales tax base as economies continue to change from goods-based to service-based. For more on sales tax base expansion options see ITEP's policy brief.


Countdown to Chaos in Michigan


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Michigan faces a massive budget shortfall of as much as $1.8 billion.Almost everyone agrees that something needs to be done to correct the situation, but the agreement ends there.A large coalition of "agencies representing universities, schools, police, fire, children, low-income residents, public employee labor unions and others" is worried that the projected fiscal crunch will necessitate massive cuts in public services andis advocating a tax increase. This would most likely take the form of a one-percent income tax increase or sales tax base expansion to help alleviate the projected shortfall.However, another group, the so-called Michigan Taxpayer's Alliance, has pledged to fight against any and all revenue enhancements to fix the problem. They maintain that the proper response is drastic cuts in spending, which they claim will be better for the state economy. The group has even outrageously threatened to attempt to recall any politicians who vote for any solution that includes a tax increase.

There is no reason for politicians to be moved by the anti-tax radicals.Local union leaders have pledged their support to politicians facing recall threats.State Rep. Mary Valentine, one of the lawmakers faced with a potential recall has pledged not to let the threat influence her decision, saying of the recall effort's leader,"He wants to intimidate people to do what he wants rather than what is best for my district [...] I will do what is best to do for my district."Michigan's fiscal future remains in doubt, but state residents can take heart that some lawmakers seem willing to stand up to right-wing demagoguery.


One Step Forward, One Step Back for State EITCs


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North Carolina took a large step forward towards tax fairness this week when both houses passed a new budget that includes a state Earned Income Tax Credit, or EITC.North Carolina now joins 20 other states that offer an EITC.These credits receive broad bipartisan support in so many states because of their proven track record of success.The EITC works by rewarding work, making sure that working low-income families aren't taxed further into poverty.Since the measure is targeted only at these families, it provides much more benefit per dollar of state revenue than almost any other anti-poverty program.

Despite all this, however, some legislators in Michigan want to delay the introduction of that state's EITC.Last year, the state passed an EITC for the first time.Now, proponents of delaying the EITC argue that, given the state's current business and fiscal problems, the government simply can't afford the tax break.Of course, many of these senators are the same ones who have been advocating against any new business taxes in the state to replace revenue lost with the repeal of the Single Business Tax.It's true that the state is not in good fiscal condition, but during economic downturns anti-poverty measures become more important, not less.Michigan voters should urge their lawmakers to keep their promise to the working poor.For more information on state EITCs, try this helpful website.For more information on how EITCs work, read this ITEP policy brief.


Alabama Could Learn Some Lessons From Michigan Study


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An extensive study of the Michigan Economic Growth Authority's (MEGA) business tax incentives that were distributed between 1996 and 2004 found that incentive programs frequently don't result in the job creation they promise. As the study explains, "since 1996, MEGA has put together 230 incentive agreements. Under these agreements, 127 projects should have produced 35,821 direct jobs by 2005. In fact, these deals have produced about 13,541 jobs, or 38 percent of original expectations. This represents roughly 0.3 percent of Michigan's total work force."

Perhaps Alabama lawmakers hadn't read the MEGA study because they are currently rejoicing in having won a new ThyssenKrup manufacturing facility. What will Alabama get in return? In the short-term, Alabama taxpayers have doled out $461 million in direct financial aid, including land acquisition, site preparation, worker training, and road improvements and an additional $350 million in "abatements of sales, property and utility taxes by state and local governments." But if results like those found in the MEGA study are replicated in Alabama, lawmakers and taxpayers may wish that they hadn't been so generous. For more on this topic, visit Good Jobs First.


Grossly Overrated


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Gross Receipts Tax Is Not a Cure-All for the States

Over the past few years, both Texas and Ohio have enacted major changes to their tax systems, choosing to replace existing business taxes with taxes based on companies' total receipts. This takes the form of a "margins" tax in Texas and the "commercial activity" tax in Ohio. Two other states, Illinois and Michigan, are also now considering whether to follow suit by implementing taxes based, at least in part, on gross receipts.

IL Gov Won't Raise Taxes on People, Just Taxes That Are Passed onto People

Despite Illinois Governor Rod Blagojevich coming before the Illinois House in a rare all-day hearing to promote his plan for implementing a gross receipts tax (GRT) his proposal was unanimously defeated by the Illinois House in a 107-0 vote. The Governor's proposal barely passed the Senate Executive Committee. Analyses by the Center on Budget and Policy Priorities and the Institute on Taxation and Economic Policy suggest that gross receipts taxes are generally passed on by businesses to consumers. The Governor, however, said in his address to the House, "I will not raise taxes on people. I won't do it today. I won't do it tomorrow. I won't do it next week, next month, next year." Ironically, the Governor also said that he would oppose any income or sales tax hike because "It's regressive, and people already are paying to much" but many experts think that the GRT is regressive and hits low- and middle-income people hardest.

Eliminating Revenue Source + No Plan to Replace Revenue = Government Shutdown

Since voting last year to repeal the state's Single Business Tax (SBT), which is set to expire on December 31, Michigan lawmakers have been in almost continuous debate regarding ways to replace this vital revenue source. Fearing a government shutdown, the Michigan House and Senate have passed very different tax proposals. The Senate-approved plan would not completely replace the revenue lost from the SBT, while the Governor-supported House plan will raise the same amount of revenue as the current SBT, but would allow for large tax credits for Michigan-based businesses. The House and Senate proposals both have a business income tax component, but the Senate plan relies more heavily on a gross receipts tax element. In the coming weeks, compromise is needed before Governor Granholm has the opportunity to sign this important yet contentious legislation.

Ignore Those Lobbyists Boring Holes into the Gross Receipts Tax

Part of the allure of gross receipts taxes - to hear proponents like Governor Blagojevich tell it, anyway - is that they don't have many of the same loopholes as corporate income taxes and will expand the base of economic activity and economic actors subject to taxation. The reality may prove quite different, however. Gross receipts type taxes have scarcely settled onto the pages of law books in Texas and Ohio, yet businesses in both states have already begun clamoring for - and will soon start receiving - concessions and special treatment. In Texas, the House of Representatives last week approved a bill that would double the exemption for small businesses under the margins tax, would lower the taxes paid by multistate financial services companies under the tax, and would attempt to prevent Sprint Nextel from passing the tax along to its customers.

In Ohio, a provision of the commercial activities tax designed to raise tax rates automatically - should the total amount of revenue generated by the tax begin to fall - will soon be eliminated, thus leaving the state without an important stopgap. These changes may not have a deleterious impact on the fiscal situation in either Texas or Ohio. The changes being debated in Texas would be offset by other revenue measures, for instance. Still, they should give policymakers in Michigan and Illinois pause. What they enact now may ultimately look quite different from what they envision.


A Delicate Balancing Act: Sales Tax Base Expansion


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There are several proposals in states across the country that would expand state sales tax bases to include services. These efforts aim to improve both states' financial stability and the fairness of their tax codes. It's probably not fair, for example, that in some states people who do their own laundry pay sales taxes when they buy a washer or dryer but people who have their clothes laundered by someone else pay no sales taxes at all.

One component of an overall tax proposal in Maine would expand the sales tax base to include a variety of personal and real property services. In Maryland, a state house committee on Wednesday debated House Bill 448, which would expand the sales tax base to include luxury services like interior decorating and other personal services. In Michigan, Governor Jennifer Granholm has also proposed a measure to expand the sales tax base. The political ramifications of taking on previously untaxed businesses may make some policymakers wary. Nonetheless, as states shift from manufacturing economies to service economies, it's essential that tax structures change too. For more on expanding the tax tax base, check out ITEP's 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.


Business Turning Against TABOR


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Kiplinger reports that business are expected "to mount pitched battles to defeat" TABOR-esque spending tax cap initiatives in Maine, Michigan, Montana, Nebraska, Nevada, and Oregon. In fact, there's a concerted effort forming in Oklahoma that is actually being lead by business groups. The Chairman of Tulsa's Chamber of Commerce was even quoted as saying that TABOR would be a "train wreck" for Oklahoma.

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

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