New Jersey News


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


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

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

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

What We're Reading...  

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


A Closer Look: New Jersey's Tax Deal Increases Overall Taxes on Middle-Income New Jerseyans


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With the announcement that New Jersey leaders have finally struck a deal to modernize the state's badly outdated gas tax, work can soon finally resume to repair and maintain the state’s roads and bridges.

Unfortunately, as a New Jersey Policy Perspective (NJPP) report reveals, the deal leaves the state’s tax code in need of major repairs. Lawmakers approved a package that slashes about as much revenue as it raises while shifting taxes from the state’s wealthiest individuals to lower-income families.

The gas tax increase, which amounts to 23 cents per gallon, raises an estimated $1.2 to $1.4 billion per year. But the final package includes major tax cuts that add up to nearly as much. The package ultimately eliminates the estate tax, cuts the sales tax by 3/8 of a cent, expands an existing tax break for upper-middle-income retirees (though this expansion was reportedly scaled back Wednesday in committee), creates a new exemption for veterans, and increases the Earned Income Tax Credit for low- and middle-income working families.

An Institute on Taxation and Economic Policy analysis summarized in the NJPP report shows that, even without the estate tax cut that affects only about 3,500 of the wealthiest families each year, the package is regressive, raising taxes most on lower-middle- and middle-income New Jerseyans with incomes between $25,000 and $79,000.

And overall, if approved by the legislature Friday as expected, the package will cut about as much revenue out of the General Fund as it raises for the Transportation Trust Fund (TTF). This means that New Jersey lawmakers are effectively paying for transportation infrastructure with money taken from other areas of the budget such as schools, health care, and public servants’ pensions.

You wouldn’t tear down a school building to fill potholes with the rubble, but by shifting taxes from the General Fund (and higher-income New Jerseyans) to the TTF (and lower-income New Jerseyans), New Jersey leaders are damaging one part of their tax code to prop up another. Read the full NJPP report here.


State Rundown 8/24: Tax News in New Jersey, Minnesota, Illinois, California, Colorado


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This week we are highlighting tax and budget news in New Jersey, Minnesota, Illinois, California and Colorado. Be sure to check out the What We’re Reading section for the latest on marijuana laws, state film tax credits, and a new income equality report. Thanks for reading the Rundown!

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

  • The refusal to raise gas taxes to fund road and bridge construction, maintenance, and repair in New Jersey will now start harming other services in the state  sinceGov. Christie has issued an executive order that will divert general fund dollars away from other state priorities to keep the roads department from shutting down.
  • Hopes for a special session to address tax, bonding, and transportation bills in Minnesota were put to bed by Gov. Dayton last week due to failed negotiations over a light rail transit line. Expect to see all of these issues again during the 2017 legislative session.
  • Illinois became the third state this year to repeal sales taxes on feminine hygiene products. Lawmakers in California  approved similar legislation last week, the fate of which will be decided by Gov. Jerry Brown.
  • A proposed constitutional amendment to raise the Colorado cigarette tax has been approved for the November ballot, putting the decision to increase the tax from $0.84 to $2.59 per pack in the hands of voters.

What We're Reading...

  • As more jurisdictions consider liberalizing their marijuana laws, the co-director of the RAND Drug Policy Research Center explains the importance of adopting tax structures that can flexibly respond to lessons learned through the implementation of this new tax.
  • A new report from the University of Southern California reiterates the failure of state film tax credits to bring about meaning economic return.
  • A new income inequality report from CBO looks at the uneven distribution of wealth across the country.

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


State Rundown 7/27: Stalemates and Tax Cut Talk


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This week’s Rundown features an ongoing stalemate in New Jersey, talk of new tax cuts in Arkansas, "tampon taxes," and the taxation of fantasy sports. Be sure to check out the What We’re Reading section for new research on public attitudes toward tax and budget issues. Thanks for reading the Rundown!

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

  • The gas tax stalemate continues in New Jersey after Gov. Chris Christie voiced his disapproval on Monday of a tax package supported by the leaders of the state's Senate and Assembly. While Gov. Christie's opposition is focused mainly on the gas tax increase contained in the package, New Jersey Policy Perspective (NJPP) has voiced its disapproval of a different component: the "financially reckless" proposal to repeal the state's estate tax. As the debate over transportation funding drags on, some observers are now speculating that by canceling construction projects, the state may be opening itself up to breach-of-contract lawsuits.
  • Gov. Asa Hutchison hopes to lead Arkansas in another round of income tax cuts. This week the governor suggested that cutting the state's top tax rate to 5 percent would make the state "competitive," despite considerable evidence to the contrary. In reality, the most likely practical effect of such a change would be to increase the regressivity of the Arkansas tax code.
  • New York Gov. Andrew Cuomo signed a bill into law last week that will repeal the state's so-called "tampon tax," thereby joining five other states in extending sales tax exemptions for feminine hygiene products. Removing these items from the state's sales tax base is estimated to reduce New York tax receipts by $10 million per year. Lawmakers in Florida and Illinois, among other states, have also contemplated similar exemptions in recent months.
  • Without a broad-based income tax, Tennessee sometimes finds itself looking for revenue in unusual places. To that end, the state's new fantasy sports privilege tax took effect this month. The tax sets clear rules for the taxation of daily fantasy sports sites like DraftKings and FanDuel. While five other states also took action this year to regulate and/or tax fantasy sports websites, the topic remains a gray area in most states for the time being.

What We're Reading... 

  • The Oklahoma Policy Institute released a two-part report this week that outlines proposals to improve the state's fiscal policies and expand economic opportunity in the Sooner State.
  • The Washington Post reports on a new study revealing public attitudes on how to fund transportation improvements.
  • A new poll shows that Utah voters are willing pay more income taxes to better fund public education.
  • The OECD calls on the G20 to lead reforms that will create more socially equitable tax systems.

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


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


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

— Meg Wiehe, ITEP State Policy Director, @megwiehe  

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

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

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

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

 What We're Reading...   

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

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

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

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

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


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

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

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

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

 What We're Reading...

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

State Rundown 6/29: State Budgets Come Down to the Wire


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We've got a jam-packed Rundown for you with legislative action coming down to the fiscal year wire. Read about tax happenings in New Jersey, North Carolina, Pennsylvania, California, and Wisconsin. Thanks for reading the State Rundown!

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

  •  New Jersey lawmakers are coming up against a hard deadline at the end of the month to raise the state’s gas tax and shore up its Transportation Trust Fund (TTF), but continue to insist on pairing it with cuts in other taxes. They appear to have abandoned the weird mix of tax policies they were considering last week, but the new plan backed by Gov. Christie and Assembly leadership is even more destructive. The plan would slash the state sales tax rate from 7 percent to 6 percent and quintuple an existing tax break for retirement income, and is a net revenue loss for the state as a whole, draining the General Fund of more than $17 billion over 10 years.

  • The North Carolina Senate gave final approval on Tuesday to its radical measure to enshrine in the state constitution a 5.5 percent cap on the personal income tax rate.  If the House signs off, the fate of the state's ability to fairly and adequately fund vital public services will be in the hands of voters in November.   As our guest blogger Cedric Johnson wrote earlier in the month, 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. 
  • Up against tomorrow's budget deadline, Pennsylvania lawmakers are charging ahead with a budget bill. The bill passed the House Tuesday evening and now moves to the Senate where it will likely face scrutiny over whether it is truly balanced. The $31.6 billion budget includes a dollar per pack increase to the cigarette tax, revenue gains from changes to liquor laws, expanded casino gambling, and a one-time tax amnesty program.
  • California Gov. Jerry Brown signed the FY17 budget bill on Monday, which includes added investments in higher education and child care, an additional $3 billion for the state's rainy day fund, and a $1.75 billion cushion to account for lower-than-expected revenues or higher-than-expected costs. While in good standing this year, the state faces a $4 billion deficit if higher income tax rates for the wealthy aren't extended in November.

  • Deficits, delays, and more short-term borrowing appear to be Wisconsin Gov. Scott Walker's continued approach to the state's transportation funding crisis. The governor recently reiterated his opposition to raising the gas tax or vehicle registration fees without an equal cut elsewhere when advising agencies on their 2017-2019 budget requests, signaling that the long-term transportation funding solution lawmakers have been working for over the past several years is likely still a ways off. 

What We're Reading...

  • The Washington Post on a growing trend among states to explore mileage taxes to address inadequate gas tax revenues.
  • With growing income inequality, the Institute for Policy Studies identifies significant tax reform campaigns to watch.
  • Mayors grapple with new economy player Airbnb and how to respond to disruption of hospitality industry tax collections.
  • The annual KIDS COUNT Data Book identifies the EITC as one of the best policies to encourage work while improving the lives of children in low- to middle-income families.
  • Check out ITEP’s updated policy brief on state corporate tax disclosure. 

Five States Change their Gas Tax Rates on Friday; Will New Jersey Join Them?


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UPDATE: New Jersey did not increase its gas tax on July 1 because of disagreement over tax cuts that many legislators wanted to tie to the gas tax increase.  Lawmakers continue to search for a solution to the state’s infrastructure funding shortfall.

Independence Day weekend isn’t the only thing arriving this Friday.  Most states will be starting new fiscal years on July 1, and a handful of them will be adjusting their gas tax rates to mark the occasion.  And depending on the actions of New Jersey lawmakers over the coming days, it’s possible that the Garden State could overshadow the rest by implementing the largest gas tax increase in recent memory—and the state’s first in 26 years.

Aside from New Jersey, the rest of the 21 states that have waited a decade or more since last raising their gas tax rates will continue to hobble along as their transportation revenues stagnate.  In total, nineteen states will witness gas tax “anniversaries” on Friday when their gas tax rates will officially become a full year older.  Of that group, Tennessee’s 27 years of inaction leads the pack.  The Volunteer State has been collecting the same 20 cents in tax per gallon of gas since July 1, 1989—a few months prior to the fall of the Berlin Wall.

Gas Tax Increases

For the moment, Washington State has the largest gas tax change scheduled for this Friday.  There, the tax rate on gasoline and diesel fuel will rise by 4.9 cents per gallon, bringing the state’s overall rate to 49.4 cents.  This is the second and final stage of an 11.9 cent increase enacted last year to fund improvements to the state’s transportation network.

Meanwhile, Maryland’s gas tax rate will rise by just under a penny per gallon (0.9 cents).  This represents the final stage of a reform signed by then-Gov. Martin O’Malley in 2013, though the state’s tax rate will continue to vary in the years ahead alongside both inflation and fuel prices.

Given the enormous economic importance of our transportation network, both of these increases are steps forward for these states.  But both would also pale in comparison to the 23 cent increase under consideration in New Jersey.  For years, lawmakers in the Garden State have struggled to fund their state’s infrastructure with a meager 14.5 cent per gallon gas tax, ranked second lowest in the nation behind only Alaska.  Boosting that rate to 37.5 cents per gallon would allow for enormous improvements to the state’s infrastructure while still leaving its rate below that of its two largest neighbors—New York and Pennsylvania.  But the cuts to general fund taxes (including income, sales, and estate taxes) that key lawmakers are insisting must accompany a gas tax hike would result in a major erosion of funding for education, health care, and the state’s notoriously underfunded pension system.

Gas Tax Cuts

Three states will see their transportation funding situations deteriorate later this week when gas tax rate cuts take effect.

In California, the 2.2 cent per gallon cut taking effect on Friday represents the third cut in as many years.  Altogether, this series of reductions has pushed the Golden State’s gas tax rate 11.7 cents lower than where it stood in the summer of 2013.

In Nebraska, the situation is somewhat better as the state’s more modest 1 cent per gallon cut is bookended by an increase that took effect in January and another increase expected to take effect next January.  But even so, the state’s gas tax rate is still lower than it was a decade ago.

And finally, the 1 cent per gallon gas tax cut taking place in North Carolina actually represents a smaller decline than was originally scheduled.  Last year, lawmakers intervened to curb reductions in the gas tax rate triggered by low gas prices.  At the same time, they also implemented a new formula that will allow the state’s tax rate to grow alongside its population starting this January.

Given how gas prices have declined as of late, it is remarkable that more states aren’t cutting gas tax rates on Friday.  Kentucky, Vermont, and Virginia all have gas tax rates linked to fuel prices that often undergo automatic adjustments on July 1, but the tax rates in each of these states have already fallen so low that they’ve reached the minimum, or “floor,” level specified in law.  Similarly, had Georgia not reformed its gas tax last year, it’s possible that a gas tax cut would have taken effect there as well.

Decades of Procrastination

Sometimes, inaction can be just as significant as actual changes in policy.  In total, nineteen states will see gas tax “anniversaries” arrive on Friday.  Unless New Jersey lawmakers act, for example, the state’s 14.5 cent per gallon fuel tax rate will have been frozen in time for exactly 26 years come Friday.  The last time the state’s tax rate on fuel went up was on July 1, 1990 when the four cent Petroleum Products Gross Receipts Tax took effect.

Other states where gas tax rates officially become one year older on Friday include Tennessee (27 years), New Mexico (23 years), Montana (22 years), Arkansas (15 years), Kansas (13 years), North Dakota (11 years), and Ohio (11 years).  At the other end of the spectrum, states such as Idaho and Rhode Island saw their gas tax rates increase exactly one year ago under reforms recently enacted by those states’ lawmakers.

As we explain in a newly updated brief identifying the number of years that have elapsed since each state last raised its gas tax rate:

If the gas tax is going to provide an adequate amount of revenue to fund transportation in the medium- and long-term, the tax rate needs to be periodically adjusted to at least keep pace with the rate of growth in the cost of infrastructure maintenance and construction. State gas tax rates that have gone ten to twenty years, or more, without an increase clearly do not live up to this bare minimum test of sustainability.

Read the brief 


Weird New Jersey Tax Debates Continue


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Since 1989, a magazine published in New Jersey called Weird N.J. has chronicled all things quirky, strange, unusual, and absurd in the Garden State. Weird N.J. could do an entire issue about the bizarre mix of tax policies floated in New Jersey this year.

The New Jersey Legislature is considering a proposal to increase the state’s gas tax but at the same time some lawmakers are insisting that that tax increase be paired with tax cuts for the wealthiest New Jerseyans. Perhaps most bizarre is that the state is considering providing a tax cut for retirement and pension income (a move that would benefit the best-off state residents) while also weighing cuts to the revenue that funds state pensions.

Gas Tax Increase?

New Jersey's antiquated gas tax has been frozen since 1990 and at 14.5 cents per gallon is the second lowest state gas tax rate in the nation. Meanwhile, cars have gotten more fuel efficient and inflation has increased the cost of building and maintaining roads and bridges. As a result, the state’s Transportation Trust Fund (TTF) is facing a serious funding shortage and lawmakers are scrambling to replenish it by finally updating the gas tax.

A proposed gas tax update would raise $1.4 billion annually to replenish the TFF and boost transportation funding. The update would add about 23 cents per gallon to the rate paid at the pump, and include a mechanism to adjust that rate in future years to always hit the $1.4 billion target by increasing the rate when fuel prices and consumption are down, or decreasing it when they are up.

Tax Cut Ideas Galore

Yes, it's absurd that the Garden State's gas tax has been locked for almost 30 years, but the even bigger absurdity is the insistence by some lawmakers that the need for additional gas tax revenue to shore up the TTF is an occasion for massively cutting other taxes and revenues. At least one lawmaker said he would only consider proposals that are “revenue neutral or better,” meaning he will only support revenue-raising proposals that do not raise revenue.

Most policymakers have not gone that far, but in all, lawmakers are weighing about $850 million worth of tax cuts, more than half the size of the revenue raised through the gas tax increase in the first place. This would be a major blow to the state's General Fund, which does not receive any gas tax revenues and has to fund important state investments such as education and health care. The current package of tax cuts being discussed includes eliminating the estate tax, increasing tax benefits for retirees, creating a new deduction for charitable contributions, and increasing the state's Earned Income Tax Credit (EITC). More on some of these individual items below:

Tax Cuts for the Wealthy

Many in New Jersey have continued to adhere to the nonsensical notion that any increase in the gas tax – which lands most heavily on low- and middle-income families – must be paired with tax cuts for the wealthiest New Jerseyans in the name of “tax fairness.” Gov. Christie has focused particularly on eliminating the state’s estate tax, which would cost the state $540 million per year and benefit only a very small number of very wealthy estates.

Give to Pensioners with One Hand, Take Away from Them with the Other

Yet another oddity in the mix is a major increase in the state’s tax benefits for retirement and pension income. This tax cut would cost about $130 million per year and does essentially nothing for the low- and middle-income New Jerseyans who will be most affected by the gas tax increase. But what’s particularly strange about this is that it targets retirees and pensioners for tax breaks while simultaneously cutting the very revenues that go toward the state’s notoriously underfunded pension fund for its retirees.

EITC

In this bizarre landscape of outlandish tax ideas, one component stands out for being so normal it’s weird: lawmakers are also discussing increasing the state’s Earned Income Tax Credit. Increasing the state EITC is a perfectly sensible way of offsetting the gas tax increase for those low-income working families who will be most affected, and it comes at a reasonable cost that does not undo a significant share of the revenue gain achieved. In fact, an ITEP analysis shows that increasing the EITC to 40 percent of the federal credit, as proposed, would on average fully offset the gas tax increase for the lowest-income fifth of New Jerseyans, while reducing the overall revenue gain by only about $130 million of the $1.4 billion total.

New Jersey legislators should embrace their sensible side this time: raise the gas tax to shore up the TTF, expand the EITC to keep their tax structure from falling even harder on low-income families than it already does, and leave the absurdities to the experts at Weird N.J.


State Rundown 6/23: Budget and Tax Happenings


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

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

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

What We're Reading...

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

State Rundown 6/16: 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.


State Rundown 5/16: EITCs and Estate Taxes


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Thanks for reading the State Rundown! Here's a sneak peek: New Jersey legislative leaders support pairing a gas tax increase with a boost to the EITC. An Oklahoma coalition urges lawmakers to protect state tax credits for working families in possible budget deal. Vermont legislators end their session with a package of tax and fee increases. New CBPP report shows that state estate taxes reduce inequality and support broad prosperity.

-- Carl Davis, ITEP Research Director


 

New Jersey leaders are finally considering an update to the state's decades-old gasoline excise tax rate to pay for needed infrastructure improvements.  But while an update to the gas tax is sorely needed, an increased gas tax will disproportionately impact lower- and moderate income families who spend a significant share of their incomes refueling their vehicles.  To deal with this reality, State Senate President Steve Sweeney and Assembly Speaker Vincent Prieto have proposed boosting the state’s Earned Income Tax Credit (EITC) from 30 to 40 percent of the federal credit to offset some of the impact that higher fuel taxes would have on these families. The development comes after Prieto broke with Sweeney and Gov. Chris Christie on a plan to pair a gas tax increase with a repeal of the state's estate tax. Combining a gas tax increase with enhancements to low-income refundable credits like the EITC is a model worthy of close attention from lawmakers across the country.  This pairing could allow for economically crucial infrastructure projects to move forward without having to pay for them on the backs of working families.

A coalition of clergy and progressive organizations urged Oklahoma lawmakers last week to protect tax credits that benefit over 400,000 working families and seniors in the state. Over the past few months legislators have considered reductions and/or elimination of a variety of tax credits and exemptions in order to close the state's budget gap, including the state's EITC, Sales Tax Relief Credit, and Child Care/Child Tax Credit. Low-income families with children can receive benefits from these credits in amounts as high as $300 or more. While scaling back these credits would have a real impact on the ability of vulnerable families to make ends meet, the proposals under consideration would only reduce the state's current $1.3 billion budget gap by about $76 million. Notably, state legislators have thus far been unable to rein in tax credits and incentives for corporations.

Vermont legislators recently ended their session and passed a $49 million revenue package that relies largely on fees to raise money for home weatherization, increased Medicaid costs, and public sector employee contracts. The package includes a new fee on the registration of mutual funds in the state, which is expected to raise $20.8 million. The package contains a few tax changes as well, including a 3.3 percent tax on ambulance providers and the conversion of the tax on heating oil, kerosene and propane to an excise tax of 2 cents per gallon of fuel. The move from a price-based tax to one based on consumption is meant to offset the effect record low fuel prices. Lawmakers also expanded the state's lodging tax to include Airbnb and similar companies.

A new report from the Center on Budget and Policy Priorities (CBPP) makes the case for state estate taxes, arguing that they are "a key tool for reducing inequality and building broadly shared prosperity." CBPP Senior Fellow Elizabeth McNichol notes that only the wealthiest households are subject to the tax – the top 2.56 percent of estates on average in states where the tax is levied. Currently, just 18 states and the District of Columbia tax inherited wealth. You can read the full report here.

 

If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@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.

 


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


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

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

 Part 2: Revenue Surpluses May Prompt Tax Cut Proposals

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

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

Part 3: Revenue Shortfalls Create Opportunities for Meaningful Tax Reform

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

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

Part 4: Tax Shifts in All Shapes and Sizes

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

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

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

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

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

Part 6: Overdue Increases in Transportation Funding

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

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


State Rundown 10/30: Spooky Appointments, Phantom Tax Increases


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New Jersey Gov. Chris Christie, clearly not a regular reader of this blog, nominated Art Laffer acolyte Ford Scudder to be state treasurer. Scudder is chief operating officer of Laffer Associates and an analyst at Laffer Investments. If appointed to the position, Scudder would be responsible for crafting the state budget and overseeing state investments, pensions and benefits, state debts and lottery revenue. Senate President Stephen Sweeney was not impressed by the governor’s move: "The so-called Laffer curve came to embody the trickle-down economic policies that were discredited because they favored the wealthy at the expense of everyone else. New Jersey is not the place to reintroduce the policies that caused so much lasting damage to the economy.” This is not the first time a Laffer associate has served in state government. Donna Arduin, a partner in Laffer’s consulting firm, recently left a high-profile position in Illinois (which remains mired in a budget standoff) and Laffer himself was a prominent architect of Sam Brownback’s failed tax experiment.

Louisiana voters decided on four constitutional amendments with implications for the state’s fiscal health this past weekend. Voters rejected Amendment 1, a proposal to weaken the state’s rainy day fund to benefit transportation projects, and Amendment 3, which would have loosened the rules around which bills could be offered during the fiscal legislative sessions held in odd-numbered years. Voters approved Amendment 2, a proposal that gives the state treasurer the option of investing funds in the state infrastructure bank, by a slim margin. The infrastructure bank allows local governments to borrow money at favorable rates for infrastructure projects. Voters also approved Amendment 4, which allows local governments to collect property taxes on properties owned by state and local governments outside of Louisiana.

A Maryland environmental group is challenging one jurisdiction’s plan to phase out a stormwater fee – also derided as a “rain tax” – without first spelling out an alternative way of paying for required environmental projects. The Chesapeake Bay Foundation argues that Baltimore County, which plans to eliminate the stormwater fee over two years, must first specify how it will pay for state-mandated projects designed to reduce water pollution. In 2012, the state legislature required urban and suburban districts to collect the stormwater fees to reduce runoff; under newly-elected Gov. Larry Hogan, the law was revised to allow jurisdictions to drop the fee if they dedicate another source of money to the required projects.

A bill that will fix an unintended feature of a recently-enacted tax cut passed the Ohio legislature this week and will now go to Gov. Kasich for his signature. In June, lawmakers passed a tax cut that allows business owners to deduct up to 75 percent of their first $250,000 in business income this tax year, and 100 percent of that amount in 2016. Any income in excess of $250,000 would then be subject to a flat tax of 3 percent in both years. However, as the law was originally enacted, the 2015 exemption only covered 75 percent of the first $250,000 and the other 25 percent (as well as any income over $250,000) would have been subject to a 3 percent flat tax.  For some taxpayers, this would have resulted in a tax increase since the state’s current graduated income tax system includes rates as low as 0.528% on low levels of income. Essentially, the tax cut included an accidental tax increase. The recently passed measure fixes the oversight, though it’s worth noting Ohio would have avoided $81 million in revenue losses next fiscal year if no correction was made. 


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 9/24: Money for Schools, Money for Roads


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Progressive activists in California introduced a new ballot proposal this week that would make permanent temporary income tax increases on the state’s highest earners included in Proposition 30, which passed in 2012 and expires in 2018. Under the measure California couples making more than $580,000 annually would pay higher rates on their income. The new measure would also implement a higher income tax rate on couples earning more than $2 million annually. If enacted, the proposal would increase state revenues by about $10 billion each year, with the money going to K-12 education, healthcare subsidies for low-income citizens, and early childhood development. Last week, a coalition of labor unions endorsed their own version of a Proposition 30 replacement. That measure would extend all of the income tax increases under Proposition 30 through 2030, raising $7 to $9 billion in new revenue earmarked to K-12 funding. Neither of the new proposals would extend the sales tax increase in Proposition 30 past its 2016 expiration.

Arizona Rep. Charlene Fernandez is taking on the state’s controversial income tax credits for private school tuition, saying the program has “existed within a system that lacks transparency and accountability” for almost 20 years. Fernandez points out that, even though fewer students attend private schools in Arizona now than when the credits were created, more state revenue is being spent on private school tuition. An investigation by The Arizona Republic found that while legislative staff estimated the credits would cost the state just $4.5 million annually in 1997, today they cost $140 million every year. Worse, over $80 million in state money has paid administrative fees for scholarship organizations since 1998 instead of supporting students. Rep. Fernandez wants stricter oversight of the program, but partisan resistance has blocked her efforts.

Wallethub recently put out a 50-state study that combines their survey data with ITEP’s distributional data from Who Pays? to compare public perception of state and local tax fairness with the reality on the ground. According to the results of Wallethub’s survey, both Democrats and Republicans support progressive taxation at the state level, despite every state having an upside down and regressive tax system. Though the survey data is useful in pointing out that the majority of Americans support progressive taxation, it’s best to stick to ITEP’s distributional analysis as the best measure of fairness since in some cases perception can distort reality.

New Jersey lawmakers could support an increase in the state’s gas tax, which hasn’t been raised since 1988, to address a huge backlog of transportation maintenance and construction projects. However, some legislators, including Assembly Minority Leader Jon Bramnick, want to couple any gas tax increase with a decrease in New Jersey’s estate tax. Currently, the estate tax is levied on estates valued at more than $675,000; raising the threshold to the federal level of $5.34 million, as some advocate, could cost New Jersey $300 million in lost revenue. Worse, the benefits of an estate tax cuts would accrue to just over 3,300 wealthy households, making an estate tax cut an especially poor offset for increased gas taxes, which would disproportionately affect low-income and middle-class households. Bramnick has also suggested a gas tax increase could be avoided if the state were the cut $1 billion from its in education budget.

A big property tax cut championed by Iowa Gov. Terry Branstad has failed to pan out as predicted. Two years ago, legislators limited the growth rate for property tax assessments on residential and agricultural properties, reduced the assessment threshold for commercial and industrial properties and provided tax credits to businesses and individuals. Proponents argued that the package would stimulate the economy. But, as The Associated Press reports, “it is difficult to assess exactly how many jobs have been created or businesses enhanced because of the tax cut. The state’s unemployment rate has declined over the past year, but the tax cut can’t be directly credited with that.” Today, the tax cuts are a big drag on the state budget, costing $260 million in this fiscal year alone. Much of that money was earmarked as state aid to local municipalities, who were hit hard by lost property tax revenue. 


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.  

 

This is the second installment of our three part series on 2015 state tax trends.  The first article focused on tax shifts and tax cuts, and the final article will discuss transportation funding initiatives.

finishline.jpgJuly 1 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 1 (Illinois, New Hampshire, North Carolina, and Pennsylvania.  Alabama has until October to reach a budget agreement).  

While every state’s tax system is regressive, some states chipped away at this problem by enacting new tax policies to support working families. Most commonly, states adopted or strengthened their Earned Income Tax Credits (EITCs). But a number of proposals to enact or improve tax credits for working families stalled, including bills in Mississippi, Louisiana and Nebraska. There is still a chance that Illinois could improve its state EITC before the end of its legislative session.

In addition to policies supporting working families, a number of states, facing deep budget deficits, discussed or enacted revenue-raising plans this year. These plans will also help the public by supporting crucial services.

Check out the detailed lists after the jump to see which states created new tax policies to support working families and which states increased taxes to raise needed revenue.

 

Wins for Working Families

California (Enacted): Lawmakers reached a deal with Gov. Jerry Brown, passing a $115.4 billion budget that includes a new EITC for working families. This new EITC is worth approximately $380 million and is expected to help 2 million Californians. 

Hawaii (Still Active): Assuming Gov. David Ige signs a bill approved by the state’s legislature, most low-income families receiving the state’s refundable food tax credit will see their credit grow somewhat starting in 2016.  The credit is designed to offset highly regressive sales taxes on food in a state that ITEP has ranked as having higher taxes on the poor than anywhere except Washington State.

Massachusetts (Enacted): Massachusetts lawmakers included an increase in the state’s refundable EITC from 15 to 23 percent of the federal credit in their final budget agreement.

New Jersey (Enacted): The legislature increased the state EITC to 30 percent of the federal credit after a surprise endorsement from Gov. Chris Christie. As New Jersey Policy Perspective notes, the increase will help more than 500,000 working families and boost the state economy: “It’s been estimated…that the EITC has a multiplier effect of 1.5 to 2 in local economies – in other words, every dollar of tax credit paid ends up generating $1.50 to $2 in local economic activity.”

Rhode Island (Enacted): As part of the budget deal, Rhode Island lawmakers approved an increase in the state’s refundable EITC from 10 to 12.5 percent of the federal credit. 

Maine (Enacted): The final budget package approved by lawmakers converted the state’s nonrefundable 5 percent EITC to a refundable credit and introduced a new refundable sales tax fairness rebate, which will help to offset the impact of higher sales tax rates also included with the budget.

New York (Enacted):  Gov. Andrew Cuomo, the Assembly, and the Senate all proposed separate versions of a refundable property tax credit this session – some more targeted than others.  In the closing days of the session, lawmakers agreed to a compromise credit that is a sliding scale percentage of homeowners’ STAR property tax exemption, with benefits targeted to low- and moderate-income homeowners.  The credit is unavailable to homeowners with income above $275,000, and those residing in New York City or other jurisdictions that do not comply with the state’s property tax cap.  Unfortunately, the final agreement did not include any support for renters.

 

Significant Revenue Raising:

Alabama (Still Active): Lawmakers left their regular legislative session without a budget—or a needed revenue raising plan—in place (their fiscal year starts Oct. 1, so they are working on borrowed time).  Gov. Robert Bentley proposed a $541 million revenue package earlier in the year, including a higher cigarette tax, higher sales taxes on car purchases, and enacting combined reporting under the corporate income tax.  Unable to reach agreement on which taxes to raise and by how much to raise them, lawmakers sent the governor a budget with no new revenues, which he swiftly vetoed.  Lawmakers reconvened briefly on July 13 to receive Gov. Bentley’s latest revenue raising proposal that would raise more than $300 million: eliminating a state deduction for social security payroll taxes (only taken by lawmakers), a 25-cent cigarette tax increase, and a few small business tax changes.  His proclamation also suggested lawmakers could consider a soda tax as an alternative to eliminating the payroll deduction.  Lawmakers are expected to review the revenue changes over the next three weeks and will meet again on August 3 to vote on the proposal.

Connecticut (Partially Enacted): Connecticut lawmakers passed a budget with more than $1 billion in new revenue to plug a budget gap and ensure the state has resources to make needed investments in education, transportation, and health care.  In late June, lawmakers were called back to the capital for a special session after Gov. Dannel Malloy caved to the behest of corporate lobbyists. At issue was an increase in the state’s sales tax on computer and data processing services from 1 to 3 percent, as well as new combined reporting rules for businesses operating in Connecticut. The legislature backed down on those changes after corporations decried the measures and leaned heavily on the governor. The new deal maintains the sales tax rate on computer and data processing and delays the start of combined reporting by one year.  The close to $1 billion revenue package also includes higher personal income taxes for very wealthy households, the elimination of an exemption on clothing under $50, cuts to a property tax credit, and a cap on car taxes paid in some districts.  

Illinois (Still Active): Gov. Bruce Rauner and lawmakers face a reckoning of their own making; the state could be headed toward a shutdown without a resolution. Rauner wants to address the state’s $6.1 billion budget gap with massive spending cuts to healthcare, education and other public services in a budget proposal denounced as “morally reprehensible” by critics in the state. The legislature and the Governor are at a standstill.

Louisiana (Enacted): State leaders grappled with how to close a $1.6 billion budget gap all session long. Eventually, they passed a package of eleven bills that will raise about $660 million in revenue. The package increases the state cigarette tax by 32 cents per pack, scales back business subsidies, and decreases many of the state’s existing tax breaks through a 20 percent across-the-board cut. Most of the new revenue raised by the package of bills will go toward preventing deep cuts to higher education and healthcare programs. To win approval from Gov. Bobby Jindal, lawmakers were forced to adopt a convoluted plan with a fake fee and fake tax credit as a smokescreen for raising revenue so that the governor could keep his promise to Grover Norquist not to raise taxes.

Vermont (Enacted): In order to address a revenue shortfall, Vermont lawmakers enacted a handful of tax increases this year.  Most notably, they broadened the income tax base by capping itemized deductions (mostly used by upper-income taxpayers) at just 2.5 times the value of the state’s standard deduction.  Sensibly, lawmakers also eliminated the ability to deduct Vermont state income tax from, well, Vermont state income tax.  They also expanded the state’s sales tax base to include all purchases of soda beverages.

 


State Rundown 7/1: Fiscal Year Blues


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The budget showdown between Pennsylvania Gov. Tom Wolf and the state legislature continues. Republican lawmakers want to close a large budget gap without new taxes, while the governor has proposed a property tax reform measure and a new tax on natural gas extraction. Wolf has threatened to veto a budget with no tax increases. With the fiscal year ending today, pressure is on for leaders to make a deal. If that deadline is passes without a resolution, most observers expect business to continue as usual for state workers in the short term.

Washington state legislators reached an agreement on transportation spending that includes an increase in the state’s gas excise tax. The $15 billion package will increase the tax by 11.9 cents-per-gallon over three years. Gov. Jay Inslee previously pledged to sign any deal between the House and Senate, making enactment of this deal likely.

New Jersey is poised to increase the state EITC to 30 percent of the federal credit after a surprise endorsement from Gov. Chris Christie. As New Jersey Policy Perspective notes, the increase will help over 500,000 working families and boost the state economy: “It’s been estimated…that the EITC has a multiplier effect of 1.5 to 2 in local economies – in other words, every dollar of tax credit paid ends up generating $1.50 to $2 in local economic activity.”

Connecticut lawmakers reached a deal on the budget in a special session after Gov. Dannel Malloy called lawmakers back to the capital at the behest of corporate lobbyists. At issue was an increase in the state’s sales tax on computer and data processing services from 1 to 3 percent, as well as new combined reporting rules for businesses operating in Connecticut. The legislature backed down on those changes after corporations decried the measures and leaned heavily on the governor. The new deal maintains the sales tax rate on computer and data processing and delays the start of combined reporting by one year.  To make up the lost revenue from those changes, lawmakers reduced Medicaid spending by $12.5 million, reduced a scheduled state employee pay increase by .5%, partially delayed a transfer of sales tax revenue to transportation projects, and delayed some new municipal revenue sharing.  

Oregon will launch a new experiment this month that aims to change the way we fund road construction and repair. The program, called OReGO, will charge 5,000 volunteer drivers a 1.5 cent-per-mile road usage charge, also known as a vehicle miles traveled (VMT) tax, rather than the traditional state gas excise tax at the pump. The program is meant to address declining revenues from the gas tax, as vehicles become more fuel-efficient and the maintenance needs of aging infrastructure skyrocket. While some observers are optimistic that VMT taxes could prove to be a more sustainable revenue source, there is reason to be more skeptical. As ITEP’s Carl Davis points out in a new report, “[Oregon’s] new VMT tax is an unsustainable revenue source because it contains the same design flaw that has plagued the state’s gasoline tax for almost a century—a stagnant, fixed tax rate that is incapable of keeping pace with inflation.” Davis suggests indexing current state gas excise tax rates to inflation before beginning to experiment with entirely new funding mechanisms.

 

States Still In Legislative Session:
Alabama
Illinois
Maine
Massachusetts
Michigan
New Hampshire
North Carolina
Oregon
Pennsylvania
Washington
Wisconsin

 


State Rundown 6/24: High-End Boats and Low-End Credits


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In a textbook example of a silver lining, working families in Colorado could see an Earned Income Tax Credit (EITC) enacted this year thanks in part to the state’s Taxpayer’s Bill of Rights (TABOR). Enacted in 1992, TABOR limits the amount of revenue that the state and local governments can collect and spend. Any revenue over the TABOR limit must be sent back to taxpayers through a complex set of formulas. While TABOR is inflexible and prevents the state government from responding effectively to crises, in this case it has worked to the benefit of Coloradans near the bottom of the income scale. Once the state EITC is triggered as a TABOR rebate, it becomes a permanent tax credit set at 10 percent of the federal level. The EITC will benefit 300,000 working families in the state and boost 75,000 individuals – half of them children – out of poverty.

States all along the East Coast are competing for a slice of the yacht business through hefty sales tax breaks, as reported in The Washington Post. New York recently passed a law limiting sales taxes on yacht purchases to $20,000 to counter Florida’s 2010 sales tax limit of $18,000. (For context, an owner purchasing a $2 million yacht would save $150,000 in taxes under New York law.) Florida struck back at New York by adopting a $60,000 sales tax limit on yacht repairs, and New Jersey copied their rival to the north by adopting the same $20,000 limit on purchases. While such sales tax breaks are usually justified as protecting the jobs of yacht builders, in reality the primary beneficiaries are yacht owners. As ITEP’s Matt Gardner notes in the article, "It's just a deluded approach to tax policy to say that you have to exempt these transactions or else they will move elsewhere." 

Lawmakers in Washington are facing a budget impasse ahead of their July 1 deadline. Initially, House lawmakers sought to levy a state capital gains tax on investors who earn more than $25,000 a year from investments. But the House dropped that plan this week when the state Senate refused to pass a new tax but indicated a willingness to get rid of some tax exemptions. Lawmakers have a little over a week left to agree on the budget before the state government begins a partial shutdown.

California lawmakers reached a deal with Gov. Jerry Brown, passing a $115.4 billion budget that includes a new EITC for working families. This new EITC is worth approximately $380 million and is expected to help 2 million Californians. 

 


State Rundown 6/18: Promising Gas Tax Developments, Pandering Tax Cuts


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Wisconsin lawmakers are considering eliminating the state’s Alternative Minimum Tax (AMT), a move that would send tax breaks to the rich and nothing to more than 80 percent of Wisconsinites. The AMT is meant to ensure that wealthy individuals pay a minimum level of income tax, and is therefore assessed at higher incomes. Ironically, as state lawmakers and Gov. Scott Walker slashed top marginal income tax rates for the wealthy, more of these taxpayers were subjected to the AMT. The proposal to eliminate the tax would cost more than $27 million annually in lost revenue.

The Rhode Island House of Representatives unanimously approved the 2016 budget deal on Tuesday night, sending the measure to the Senate Finance Committee for consideration. The unanimous approval cleared the House by 7:30pm, and has been touted as the quickest budget vote in at least 30 years. The $8.7 billion bill exempts Social Security income from the personal income tax for Rhode Islanders over 65 if their income is below $80,000 (single) or $100,000 (married) – a change that will benefit mostly wealthy retirees, as we’ve argued before. The plan also phases out sales taxes on utility bills for non-manufacturing businesses. On a positive note, the budget increases the states refundable Earned Income Tax Credit (EITC), a tax break for working families, from 10 to 12.5 percent.

The Florida Legislature approved a $400 million package of tax cuts on Monday, and Gov. Rick Scott is expected to sign the measure even though it reduces taxes by less than he wanted. Passage of the measure comes 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 what Scott proposed was reduced by almost half in order to cover healthcare costs. The package of cuts includes tax cuts for cellphone purchases and cable bills, college textbooks, and sailboat repairs that cost more than $60,000.

As the summer travel season heats up, lawmakers in states across the country are mulling gas tax increases as a way to boost road construction and maintenance budgets. Tennessee Gov. Bill Haslam plans to barnstorm the state to stress the need for more transportation funding, though he’s stopped short of endorsing a gas tax increase. Tennessee’s gas tax hasn’t risen in decades, and the average motorist there is paying a third less per mile for roads than a generation ago. An editorial in The New York Times, meanwhile, argues that New Jersey lawmakers must raise their state gas tax to pay for crumbling roads. At 14.5 cents a gallon, the state tax is less than a third of New York’s tax and trails Pennsylvania and Connecticut by similar margins. Meanwhile, New Jersey has 577 structurally deficient bridges and 300,000 potholes. Efforts to increase state gas taxes also received a boost from a recent study that finds gas tax increases do not result in penny-to-penny increases in the price that motorists pay at the pump.

A Delaware House committee will consider a bill that would make their income tax rate structure more progressive. Currently, the top personal income tax rate is 6.6 percent for income above $60,000. The new proposal would institute a rate of 7.1 percent for income between $125,000 and $250,000, and a rate of 7.85 percent for income above $250,000. State officials say the changes would increase revenue by $97.5 million over the next two years. 


State Rundown 4/10: Positive Developments


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

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

 

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

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

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

 


State Rundown 4/7: Bad Ideas Die Hard


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

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

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

 

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

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

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

 

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

 

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


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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 1/16: Kumbaya Caucus


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Newly-elected Arkansas Gov. Asa Hutchinson continued a well-established tradition in the Natural State by beginning the legislative session with a proposed tax cut. Hutchinson’s plan would cut personal income tax rates by one percent for those making $21,000 to $75,000 a year, and would cost $137.8 million once fully implemented (according to Hutchinson's office). The governor has yet to outline how he will pay for his tax cut. His plan will offer virtually no relief to the 40 percent of Arkansans who make less than $22,600 and currently pay a percentage of their income in state in local taxes that is twice as high as that paid by the wealthiest Arkansans, according to the most recent edition of ITEP’s Who Pays report. Legislators predicted that the cuts would receive broad bipartisan support.

North Carolina lawmakers began their legislative session yesterday with the usual pledges of bipartisanship meant to muffle the sharpening of knives. The state’s Republican legislature could face a showdown with Gov. Pat McCrory over Medicaid expansion, a policy that the governor now says he is open to considering. At their traditional press conference, the leaders of the House and Senate reiterated their opposition to expanding Medicaid to cover 500,000 additional North Carolinians, but were non-committal on other issues likely to dominate the session – business incentives, teacher pay and local taxes, among others. Senate President Pro Tem Phil Berger defended previously enacted corporate and personal income tax cuts, saying they are contributing to an improving economic environment despite revenue collections falling $190 million below state projections. This is after state projections were already adjusted downward by close to the same amount last year, so the state is actually bringing in $400 million less than originally anticipated.

Georgia Gov. Nathan Deal urged lawmakers to find money to invest in the state’s transportation system, saying $1 billion was needed to simply maintain the current system. While the governor did not specify where the funding should from, he highlighted the inadequacy of the state’s gasoline excise tax, signaling his openness to a tax increase. Georgia’s excise tax has not increased since 1971, while fuel efficiency has almost doubled. The prospect of a transportation plan passing the legislature is dicey; Republicans are likely to oppose increasing taxes or fees, while Democrats could balk at a plan that doesn’t include funding for mass transit. Democrats enjoy leverage on the issue since their votes could be necessary to overcome Republican opposition.

 

Following Up:

Arizona – A judge ordered lawyers for the Legislature, governor and Arizona public schools to enter into settlement talks over a lawsuit brought by the schools against the state. Gov. Ducey previously called for a resolution in his State of the State address.

New Jersey – Gov. Chris Christie’s State of the State address received mixed reviews for being light on details (the governor did not mention his state’s transportation crisis and punted on unfunded pension liabilities) and targeted toward a national audience. Christie did, however offer dissonant platitudes about the need to make investments and also cut taxes. Perhaps next he will boldly declare his intention to rub his tummy and pat his head at the same time.

Nebraska – The Nebraska Cattlemen Association is monitoring the property tax cut proposals emerging in the legislature after Gov. Pete Rickett’s pledge to offer Nebraskans property tax relief in his State of the State address. They have shown particular interest in Sen. Al Davis’ plan to pay for property tax relief through new local income taxes.

Tennessee – As predicted, plenty of legislators hate Gov. Bill Haslam’s plan to expand Medicaid coverage to 200,000 Tennesseans. House Republican leader Gerald McCormick is particularly unenthused, saying he would sponsor the governor’s bill but only because it’s his job (cue heavy sighing and eye-rolling).

 

Things We Missed: 

New Mexico’s Legislative Finance Committee and Gov. Susana Martinez both released their budget proposals this week. State revenues are expected to continue sliding due to falling oil prices, and less generous spending is expected. (Thanks to Ellen Pinnes for the tip!) 


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


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

 

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

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

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

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

 

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

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

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


Two of Every Kind of Tax Giveaway


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Kentucky is the land of bourbon, horse racing, and – now – dubious tax cuts. Last week, The Courier-Journal reported that Ark Encounter, LLC, a company planning to build a facsimile of Noah’s Ark to biblical specifications as the centerpiece of an amusement park, may lose $18 million in state tax incentives due to religious discrimination. State officials are concerned by a job position posted by Ark Encounter that requires “applicants to provide salvation testimony, a creation belief statement, and agreement with the "Statement of Faith" of Ark Encounter's parent organization, Answers in Genesis,” the organization behind Kentucky’s Creationism Museum

2693323099_85a9e67631.jpg

Earth, five thousand years ago

Since the beginning, the Noah’s Ark theme park has been mired in controversy. Originally slated to cost $173 million, the project was scaled back to a $78 million first phase after funding failed to materialize and junk bonds remained unsold. In a remarkable failure to appreciate irony, the second phase of the theme park will include a replica Tower of Babel, widely understood as a cautionary tale against hubris and ill-conceived megaprojects.

Religious discrimination in hiring is, of course, illegal, so Kentucky’s willingness to bankroll this project in the name of “tourism promotion” is especially egregious. Gov. Steve Beshear (D) is a long-time supporter of Ark Encounter, to the chagrin of some state political observers. But religious objections aside, Beshear is not so different from virtually every other governor in the country in being all too eager to throw public money at private companies.

Take Gov. Brian Sandoval (R) of Nevada, who recently pledged $1.25 billion in tax cuts to Tesla Motors for a billion-dollar battery factory, at a cost of almost $200,000 per anticipated job created. Meanwhile, the state ranks 49th in per-pupil K-12 education spending and has cut higher education spending by hundreds of millions of dollars, forcing staff layoffs and rising tuition bills.  

Or take Gov. Jay Inslee (D) of Washington, who signed an $8.7 billion incentives package for Boeing, “the single largest tax break any state has ever given to a single company.” Gov. Inslee and state lawmakers agreed to the package to keep production of the 777X jet in Puget Sound, but that didn’t stop Boeing from announcing that it would move thousands of engineering jobs and hundreds of manufacturing jobs to Oklahoma City and St. Louis. Now, some observers are grumbling that politicians “essentially gave [Boeing] a blank check.” 

And please take Gov. Chris Christie (R) of New Jersey, who doubled down on $261 million in tax incentives for Revel, a casino and resort in Atlantic City, only to watch the $2.4 billion project go bankrupt. Even worse, the private market had already given up on the casino; Morgan Stanley was set to take a $1 billion loss rather than throw good money after bad in completing the project. Garden State residents can take solace in the fact that the tax incentives promised to Revel require that the casino make a profit, so they’re off the hook in that sense. But that didn’t stop the governor from investing $300 million in state pension funds with the hedge fund that owns 28 percent of the troubled casino. According to New Jersey Policy Perspective, Gov. Christie has spent over three times as much on business incentives since 2010 ($4 billion) as the state of New Jersey spent in the previous decade ($1.2 billion).

c0325424-2b97-11df-92cb-001cc4c002e0.image.jpgWho knew building a casino during a recession wasn't such a great idea? Oh yeah, everyone involved.

So Kentucky may seem like an outlier, but it’s in good company. Politicians in every state selfishly put their desire to claim job creation or business bona fides above the priorities that would really spur economic development for their constituents – investments in education, support for working families, and improvements for vital infrastructure. As long as our leaders keep falling all over themselves to give corporations huge tax breaks disguised as “economic incentives,” we’ll fail to make the tough choices that will really put our economy on the path to prosperity. 


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.


 


State News Quick Hits: Kansas Budget Woes, Absurd Ohio Tax Cuts


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In an astonishing shift, Kansas Gov. Sam Brownback has moved beyond calling his tax cuts a great “real live experiment” and is instead likening the state to a medical patient, saying, "It's like going through surgery. It takes a while to heal and get growing afterwards.” Clearly the Governor is feeling the heat of passing two years of regressive and expensive tax cuts. Here’s a great piece from the Wichita Eagle highlighting the state’s fiscal drama.

File this under absurd. Ohio Gov. John Kasich signed his most recent tax cut bill at a food bank touting tax cuts to low-income taxpayers included in the legislation, but in reality the bill actually doesn’t do much to help low-income taxpayers. In fact, the poorest 20 percent of Ohioans will see an average tax cut of a measly $4, hardly enough to buy a box of cereal, while the wealthy will be showered with big tax breaks.

Faced with a giant budgetary hole, New Jersey lawmakers are being offered two very different solutions: State Sen. Stephen Sweeney’s proposed “millionaire tax” and Gov. Chris Christie’s plan to renege on earlier promises to adequately fund the state’s beleaguered pension system. Critics of the governor’s plan argue that Christie is failing to honor the state’s promise to make bigger payments to the pension fund as part of a 2010 agreement, which also required beneficiaries to contribute more in an effort to shore up the fund. Sweeney would instead impose higher tax rates on those earning more than $500,000 to bridge the gap - a proposal that Christie already has vetoed several times but is supported by a majority of voters.

The three Republican candidates running to replace Arizona Gov. Jan Brewer (she is not running due to term limits) are campaigning on promises to eliminate the state’s income tax. But, Gov. Brewer has made it clear she does not support such extreme ideas. From the Arizona Daily Star: “I think that you need a balance,” she said in an interview with Capitol Media Services. Beyond that, Brewer said it’s an illusion to sell the idea that eliminating the state income tax somehow would mean overall lower taxes. She said the needs remain: “It’s going to come from all of us, one way or the other.”

 


State News Quick Hits: Governors Misguidedly Oppose Progressive Taxes


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New Jersey Governor Chris Christie signed a FY15 budget on Monday after nixing Democratic bills which would have fully funded the state’s promised pension payments through a new “millionaire’s tax.” The effects of the governor’s decision to forgo making the full payments required under his much-lauded 2011 pension reform law are yet to be seen - Standard & Poor’s has threatened to downgrade the state’s debt again while a judge could still reverse Christie’s decision and require the payments to be made.

Indiana Governor Mike Pence pledged to make tax reform a priority during the next legislative session at a conference last week attended by infamous supply siders Arthur Laffer and Grover Norquist, and former Bush administration economic advisor Glenn Hubbard. Pence claims that the tax code must be simplified in order to create a better environment for economic growth, but Indiana House Minority Leader Scott Pelath argues that the language of “simplification” is really just a ruse to disguise the objective of reducing the progressive personal income tax.

Rhode Island and Indiana saw drops in their corporate tax rates Tuesday, a misguided tactic used by states to promote job creation with little proof of success. Rhode Island will drop its rate from 9 to 7 percent, while Indiana’s rate will gradually be reduced to 4.9 percent (this is on top of a gradual reduction from 8.5 to 6.5 percent enacted a few years ago).  However, at least Rhode Island lawmakers sensibly coupled the corporate rate drop with base broadening policies including mandatory combined reporting  which requires a multi-state corporation to add together the profits of all of its subsidiaries, regardless of their location, into one report.

Kansas’s June revenue collections came in $28 million under projections, according to officials. The state ends the fiscal year $338 million short of total projected revenue amid concerns that Governor Brownback’s income tax cut package is causing more bleeding than initially anticipated. Concerned that the state may be spiraling into a budget crisis, House Democratic leader Paul Davis has proposed postponing the next phase of the governor’s tax cuts.


State News Quick Hits: Regressive Tax Cuts Taking Toll on State Budgets


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In an astonishing shift, Kansas Gov. Sam Brownback has moved beyond calling his tax cuts a great “real live experiment” and is instead likening the state to a medical patient, saying, "It's like going through surgery. It takes a while to heal and get growing afterwards.” Clearly the Governor is feeling the heat of passing two years of regressive and expensive tax cuts. Here’s a great piece from the Wichita Eagle highlighting the state’s fiscal drama.

File this under absurd. Ohio Gov. John Kasich signed his most recent tax cut bill at a food bank touting tax cuts to low-income taxpayers included in the legislation, but in reality the bill actually doesn’t do much to help low income taxpayers. In fact, the poorest 20 percent of Ohioans will see an average tax cut of a measly $4, hardly enough to buy a box of cereal, while the wealthy will be showered with big tax breaks.

Faced with a giant budgetary hole, New Jersey lawmakers are being offered two very different solutions: State Sen. Stephen Sweeney’s proposed “millionaire tax” and Gov. Chris Christie’s plan to renege on earlier promises to adequately fund the state’s beleaguered pension system. Critics of the governor’s plan argue that Christie is failing to honor the state’s promise to make bigger payments to the pension fund as part of a 2010 agreement, which also required beneficiaries to contribute more in an effort to shore up the fund. Sweeney would instead impose higher tax rates on those earning more than $500,000 to bridge the gap - a proposal which Christie has vetoed several times in the past but which is supported by a majority of voters.

The three Republican candidates running to replace Arizona Gov. Jan Brewer (she is not running due to term limits) are campaigning on promises to eliminate the state’s income tax.  But, Gov. Brewer has made it clear she does not support such extreme ideas.  From the Arizona Daily Star:  “I think that you need a balance,” she said in an interview with Capitol Media Services.  Beyond that, Brewer said it’s an illusion to sell the idea that eliminating the state income tax somehow would mean overall lower taxes. She said the needs remain: “It’s going to come from all of us, one way or the other.”

Continuing a welcome trend, lawmakers in a number of states are showing interest in dealing with chronic transportation shortfalls. New Hampshire Gov. Maggie Hassan signed a 4-cent gas tax increase into law, South Dakota Governor Dennis Daugaard announced that he is now open to a gas tax increase, and a Michigan Senate committee passed a bill that would increase and reform their state’s gas tax.

Gov. Christie’s administration recently announced two plans for addressing New Jersey’s $875-million budget gap in the current fiscal year as well as next year’s projected shortfall. Rather than increasing income taxes on millionaires, as some Democrats proposed, Christie said he will reduce the amount of two state pension payments scheduled for June of the current year and 2015. The administration will also push back $400 million of property tax relief due this August until May of 2015. The legally questionable pension payment plan faces a potential lawsuit from state labor unions.

The New York Times recently reported that Madison Square Garden (MSG) has enjoyed an indefinite property tax exemption for the past 32 years, a generous arrangement no other property in the city is afforded. The deal with New York City made in 1982,  which then-Mayor Edward Koch thought would last only 10 years, is set to save the MSG’s owners about $54 million in the next fiscal year.

On Wednesday, the North Carolina state Senate voted to give preliminary approval to a bill that prohibits municipalities from collecting privilege taxes from businesses. Signed by Gov. Pat McCrory on Friday, the legislation is set to cost local governments $62 million in fiscal year 2016 if leaders don’t find a revenue replacement. Large cities like Raleigh, which may lose $8 million as a result of the bill, would be particularly hard-hit and may have to resort to raising property taxes.


 


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


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.


Tax Policy Roundup for the 2013 Election


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Despite being an off-year election, there were a few significant tax policy issues at stake in the elections held this week in Colorado, Minnesota, New Jersey, Ohio, Texas, Virginia, and New York City.

Ballot Measures

Colorado voters rejected Amendment 66, which would have raised $950 million in new tax revenues for education each year by converting the state’s flat rate income tax into a more progressive, graduated rate tax.

Colorado voters approved Proposition AA, imposing a 25 percent sales and excise tax rate on recreational marijuana, which voters legalized one year ago.  This 25 percent tax will be stacked on top of the 2.9 percent statewide sales tax and any local sales taxes (which average 3.2 percent).

Texas voters approved three very narrowly tailored tax breaks.  Those breaks will benefit disabled veterans, surviving spouses of military members, and manufacturers of aircraft parts.

While residents of Minnesota and Ohio didn’t vote on any statewide ballot measures this week, most of the local school tax levies on the ballot in those two states were approved by voters.

Major Candidates with Tax Plans

New Jersey residents voted to keep Governor Chris Christie in the governor’s mansion, rather than replace him with Democrat Barbara Buono.  Buono’s tax platform included raising taxes on incomes over $1 million and reversing the cut in the state’s Earned Income Tax Credit (EITC) that Christie signed in 2010.  Christie, by contrast, has said he wants to cut income taxes across the board.

Virginia voters chose Democrat Terry McAuliffe over Republican Ken Cuccinelli to be their state’s next governor.  Both candidates ran on a platform of reducing or eliminating local business taxes, though neither specified how to offset the resulting revenue loss.  Cuccinelli also said that, if elected, he would have pushed for regressive personal and corporate income tax cuts, as well as a spending cap similar to Colorado’s TABOR law.

New York City residents elected Democrat Bill de Blasio over Republican Joe Lhota in the city’s mayoral race.  De Blasio wants to expand pre-K education in the city by raising taxes on incomes over $500,000, but it’s not clear whether Governor Cuomo—whose approval would be needed for the tax increase—will support such a change.


Will New Jersey Re-elect the Fiscally Reckless Chris Christie?


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In his reelection campaign, New Jersey Governor Chris Christie has been touting his record as a self-proclaimed fiscal conservative, bragging that “not one tax has been raised since I’ve been governor.” Many low-income New Jersey families would disagree. That is because Christie cut the state’s property and earned income tax credits, two critical anti-poverty measures for low-income workers, during his first term.

On property taxes, Christie boasts that he “successfully implemented a 2-percent property tax cap.” But many low- and moderate-income homeowners actually pay more now in property taxes than before the cap took effect. That is because he reduced funding for the Homestead Benefit and Senior Freeze programs, costing working families hundreds of millions of dollars. That is one reason why the public’s view of Christie’s handling of the property tax issue is so low.

On income taxes, Christie reduced the state’s EITC by 20 percent in 2010, costing 1.5 million workers a total of $100 million in tax credits over the last two years. The governor then refused to restore the cuts unless he got his way on an across-the-board income tax cut. In fact, he twice vetoed legislation that would restore the EITC, effectively holding low-income New Jersey workers hostage to his demands.

In contrast, Christie’s opponent, Barbara Buono, has promised to “restore New Jersey’s Earned Income Tax Credit and protect property tax relief for the families who need it most.” At the same time, Buono is supporting a millionaire’s tax that Governor Christie rejected (vetoing it three times) in order to fill in revenues needed for education in particular, which has been severely cut during Christie’s tenure.

A candidate for governor who says, as Buono does, that tax credits and incentives work best when targeted is one who better understands the role of taxes in the economy and budget than one committed to across-the-board income tax cuts (which do zero for a state’s economy and always benefit the wealthiest instead of taxpayers who actually need relief).   


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.


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.

Governor Christie Budget Plan Panned as Gimmick, His Tax Talk Called Puffery


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Conspicuously absent from New Jersey Governor Chris Christie’s new 2014 fiscal year spending plan were the across-the-board personal income tax cuts he defended so vehemently just last year.  Governor Christie now wants Garden State residents to believe Democrats in the legislature are to blame for the lack of promised tax relief.  But, the facts are that the state cannot afford a tax cut this year any more than it could last year, the Governor’s overly optimistic revenue growth projections notwithstanding.  

A new editorial from the New Jersey Star Ledger calls Governor Christie’s rhetoric “pure fantasy” and lays out the facts:

Gov. Chris Christie knows that New Jersey can’t afford a tax cut right now, so he didn’t include one in his budget plan.

But he also knows he can’t admit this if he wants to win a Republican presidential primary in 2016. So he made clear during his budget address Tuesday that he intends to campaign on the merits of an income tax cut this year anyway.

“I am content to let the voters decide this in November,” he warned Democratic legislators.

Here we go again. The governor even promised Democrats that if they agree to cut taxes this year, he will find a way to pay for it.

That’s a remarkable claim. Because he says he can’t afford to rescind the tax hike he imposed on the working poor, or restore the funding for the six Planned Parenthood clinics he shut down. He can’t afford to restore property tax rebates, as promised. He can’t afford to provide adequate funding for state colleges and universities, among the most starved in the nation. And he can’t replenish the fund for open-space purchases…

So the governor’s suggestion that he has a secret vault with enough money to finance a tax cut is pure fantasy. The income-tax cut he proposed would cost $1.4 billion a year when phased in, with the wealthiest 1 percent claiming almost half the benefit.

If the governor really campaigns on this, understand that is pure show. It is a pitch designed for national TV, where gullible hosts who don’t know New Jersey will no doubt bobble their heads some more. It is an act for the national audience, and New Jersey is his prop…”

If an unexpected revenue bump does come along, Christie’s tax cuts for the wealthiest cannot be where it gets spent. Instead, it should be used to reverse the Governor’s previous cuts to the Earned Income Tax Credit, to restore property tax rebates he gutted and generally reinvest in programs that have been revenue starved since the Great Recession began.

In reference to Indiana Governor Mike Pence’s proposed tax plan, The South Bend Tribune urges lawmakers to “pass on this tax cut” and cites data (PDF) from our partner organization, the Institute on Taxation and Economic Policy (ITEP), to makes its case.  As the Tribune explains, “Needs of poor children, the elderly and mentally ill aren't being met … now is not the time to further stem income tax revenue. Gasoline tax revenue is down. Corporate taxes have been trimmed. The inheritance tax is being phased out. And then there's the Institute on Taxation and Economic Policy's analysis of Pence's across-the-board tax cut plan which concluded it would mostly benefit the wealthiest taxpayers. The poorest Hoosiers, who devote more of their household budgets to state and local taxes than any other income group, would be helped little, if at all.”

New Jersey’s expiring film tax credit is still paying out big bucks for TV shows and movies filmed years ago – even though these credits are billed as incentives. The state Economic Development Authority just handed the makers of Law & Order SVU $10.2 million of New Jersey taxpayers’ dollars for work done on the 2009-10 season of the show.  Hopefully New Jersey’s credit won’t be resurrected after 2015, given that studies have repeatedly shown them to be a poor use of taxpayer dollars.

Kudos to Wisconsin’s Transportation Finance and Policy Commission which will recommend to the legislature that the state increases its gas tax by five cents. This would be the first increase in the state’s gas tax since 2006. In more gas tax news, Washington State Senate Majority Leader Rodney Tom recently said that he would support an increase in the state’s gas tax. For more on the vital role that state gas taxes play in funding transportation needs across the state (and why states should raise theirs) read ITEP’s  Building a Better Gas Tax Report.

And in housekeeping news… We’ve done lots of behinds the scenes work to improve your experience when visiting the Institute on Taxation and Economic Policy (www.itep.org) and Citizens for Tax Justice’s (www.ctj.org) websites. Please take a minute and check out our slightly reorganized (and improved) site!


Convention Speaker Profile: Governor Chris Christie (R-NJ)


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Both Republicans and Democrats are featuring governors at their national nominating conventions. Because convention speakers are chosen as the parties’ ambassadors to new audiences during these TV spectacles, the state policy team at the Institute on Taxation and Economic Policy are providing quick sketches of current governors from both parties who have been leaders – for better and for worse – in state tax policy.

[UPDATE 8/30/12: The good people at FactCheck.org reviewed Governor Christie's RNC speech and call it a Fact Free Keynote. Read why here.]

Tonight, America will hear from New Jersey's Governor Chris Christie, a man known for his bombastic, no-apologies approach and who we crowned "Fiscal Drama Queen" in our 2012 gubernatorial yearbook.

Since taking the reigns as the Garden State’s leader in January 2010, Governor Christie’s fiscal agenda has done “serious damage to virtually every constituency imaginable in this state – except for corporations and the super-rich.”  Christie raised taxes on the working poor and on fixed-income seniors while at the same time insisting on tax cuts that disproportionately benefit the wealthiest New Jerseyans.  He has thrice vetoed a temporary millionaire’s tax (impacting a mere .2 percent of the state’s taxpayers, temporarily!) that would have prevented hundreds of millions of dollars in spending cuts to schools, health care for working families and legal assistance for low-income individuals, to name just a few programs impacted by Christie’s priorities. 

And now, Governor Christie wants a significant income tax cut so much that he continues to swear by a fantastical revenue forecast despite consensus among nonpartisan experts that 2013 revenues are likely to fall a staggering $1.3 billion below that projection, (much like the last fiscal year, which ended with $542 million less in the bank than predicted).

An ideologue with political ambitions who fails to serve his constituents, Christie is nonetheless the keynote darling of the 2012 GOP.

 


Quick Hits in State News: Business Tax Credits Don't Measure Up, and More


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  • The Boston Globe covers an important new report finding that: “Over the past 16 years [Massachusetts] has more than doubled the amount of tax breaks it provides businesses to spur economic development but has only a vague idea whether the incentives are worthwhile.”  The full report, from the Massachusetts Budget and Policy Center, has more data on the large and growing cost of these breaks, and urges the state to thoroughly evaluate whether these so-called “incentives” are the best use of Massachusetts taxpayers’ dollars.
  • The value of Louisiana’s film tax credit is being seriously questionedAccording to the Louisiana Budget Project (LBP), the cost of the credit has ballooned in recent years, while producing little in the way of long-term benefits.  LBP finds that the state is paying a steep price of $60,000 for each job created by the credit, despite many of those jobs being only temporary.
  • Low-income Garden Staters are feeling the pinch from Governor Christie cutting back the state’s Earned Income Tax Credit (PDF) – an effective, targeted tax reduction for low- and moderate-income workers.  According to a New Jersey Policy Perspectives analysis, at a time when the number of New Jersey families living below the poverty line has increased by 25 percent, the reduced EITC has meant that nearly 500,000 families have lost on average $200 a year.  State lawmakers have attempted to restore the credit to 25 percent of the federal version (Christie cut it to 20 percent in 2010) and even the governor included a restoration in his original budget proposal this year.  However, politics got in the way and Christie vetoed legislation to restore the EITC until lawmakers agree to his expensive tax cut plan that benefits the wealthiest New Jersey residents.

Photo of Chris Christie via David Shankbone Creative Commons Attribution License 2.0


Quick Hits in State News: Florida's Tax Mess, Chris Christie's Hubris


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The Orlando Sentinel’s editorial board explains the “slow-motion disaster” that is Florida’s tax system, cataloging the lack of sales taxes on services (PDF) and online shopping taxes (PDF), and gasoline tax shortfalls (PDF), among others.

Special tax breaks for businesses frequently reward behavior that would have occurred anyway.  The most recent examples come from Florida, where Publix, CSX, TECO Energy, NextEra Energy, and Mosaic Co. are seeking millions in tax breaks for capital spending they were already planning to undertake.

Online shopping in the DC-Metro area is about to become more expensive, according to this Washington Post article.  Here’s why that’s a good thing for tax fairness, the Marketplace Fairness Act and state coffers.

Advocates for increasing the Arkansas severance tax rate on natural gas from 5 to 7 percent and eliminating exemptions turned in nearly 70,000 signatures on Friday. If the Secretary of State verifies enough signatures, the long overdue rate increase worth $250 million in annual revenues will be put on the November ballot. 

Check out New Jersey Governor’s Chris Christie talk at the Brookings Institution today on “Restoring Fiscal Integrity and Accountability”.  Christie used the first several minutes to give his view on the current tax cut standoff in the Garden State, claiming Democrats were playing politics by holding up his tax cut proposal (when in fact what they’re doing is the right thing).


Chris Christie, Drama Queen


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Seems New Jersey Governor Chris Christie will do or say just about anything to deliver on his reckless promise to cut personal income taxes.  His latest strategy is grandstanding in a very public spotlight (he’s enjoying all sorts of media appearances this week and more speculation of a VP nod) in an effort to get his way, and get it now, at the expense of the poorest New Jerseyans.

Here’s a sketch of how the New Jersey tax cut debate drama has played out in recent months:

Despite early and legitimate criticism from some lawmakers that Christie’s budget depends on overly optimistic revenue projections, and despite legitimate concerns that the state cannot afford any tax cut this year, the Assembly and Senate both got on board with the tax-cutting governor. Specifically, each chamber offered up plans to cut property taxes for households with incomes under $250,000, and the Assembly included a millionaire’s tax to help fund their more generous property tax credit program.

At first, Governor Christie dismissed these alternative proposals (particularly the common sense and highly popular millionaire’s tax component, saying he’d rather “rearrange his sock drawer” than talk about it).  But eventually he embraced the Senate version (which at this point had become his best chance to claim some victory on tax cuts) and struck a tentative compromise in May to deliver property tax cuts to households with incomes below $400,000.

Once again, though, revenue reality got in Christie’s way. Days later, the nonpartisan New Jersey Office of Legislative Services (OLS) estimated that New Jersey revenues would come in $1.3 billion behind the governor’s projections.  This revelation gave Senate and Assembly Democrats pause and left many unsure, again, about supporting any tax cuts. Stories in the New York Times and Wall Street Journal  explain Democrats’ concerns: Christie is banking on revenues to increase by 7.3 percent next year, yet average state revenue growth nationwide is only 4.1 percent, and, the Garden State’s current year revenues continue to lag.

Due to these concerns, the Senate and Assembly went around the Senate leader’s deal with the Governor and sent Christie a  budget with a $183 million earmark for a tax cut, contingent on the state meeting revenue projections later in the year.  The budget also includes restoring the state Earned Income Tax Credit (EITC), a tax break (PDF) for low- and moderate-income working families, from 20 back to 25 percent of the federal credit.

Governor Christie bristled at this (very sensible) plan. He vetoed the EITC increase and called lawmakers back to Trenton the week of July 4 and presented his so-called compromise – give him his expensive tax cut and he’ll give back a modest tax credit for the working poor.

In a smart and comprehensive editorial on Christie’s latest demands, the Newark Star-Ledger wrote:

He is holding the working poor families of this state hostage by refusing to restore the tax credit he took away from them two years ago unless Democrats yield.

The credit is worth about $50 million a year, a pittance in a budget of nearly $32 billion. But for a single mom with a few kids and a job working as a cashier, the state credit is worth about $500 a year. Combined with a federal credit five times that large, it makes a meaningful difference…

He will restore the credit, he says, only if Democrats agree to take the blind leap and commit to his larger tax cut now, before the revenue numbers come in. Be reckless, he says, or he will shoot the hostages.

His predictions for revenue growth are the most optimistic in the nation, despite the fact the state economy is lagging behind other states. No one but his own obedient Department of Treasury believes this nonsense, including the nonpartisan Office of Legislative Services and the Wall Street bond rating agencies.

So why not wait and see? If the tax cut isn’t scheduled to take effect until 2013 anyway, what does that simple prudence cost?

Just one thing: It would deny Christie a political win in advance of the party convention in August…. Christie scores a few political points. And the working poor absorbed one more of his blows.

The experts at New Jersey Policy Perspective also endorse patience and explain that the state is already moving money around and deficit-spending to make the already frayed ends meet.  They conclude that when the numbers are finally in, lawmakers should have a serious debate on the crucial question of whether any tax cuts should be enacted or whether the state should “invest the $1.5 billion to put New Jersey back on the path to good jobs, long-term economic growth, and middle-class tax relief.”

This is the kind of grown-up thinking New Jersey needs. But until and unless Chris Christie gets over his ideological commitment to slashing taxes and his personal commitment to climbing the political ladder, his constituents are in for a lot more theater and a lot less fiscal sanity.

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

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

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

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

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

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

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


From Atlantic City to Cincinnati: Legalized Gambling No Jackpot for States


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New Jersey and Ohio don’t have much in common when it comes to their gambling industries.  New Jersey’s Atlantic City is home to a dozen different casinos, the oldest of which has been in operation for over three decades.  Ohio, on the other hand, only legalized casino gambling in 2009, and its first two casinos opened barely a month ago.

But despite their differing backgrounds, all signs from both states are pointing to the same thing: legalized gambling isn’t the revenue miracle that lawmakers often promise.

In New Jersey, a brand new mega-casino called Revel is already a disappointment.  Even with the opening of Revel’s 2,500 slot machines, 120 table games, 1,800 rooms, and 14 restaurants, Atlantic City’s gambling revenues are down nearly 10 percent overall compared to a year ago.

And the explanation from gambling industry analysts (and anyone else who’s been paying attention)? Market saturation. With casinos popping up across the country, gamblers no longer need to travel to distant gambling destinations, and states that rely on casino revenue are increasingly raising that money from their own residents rather than pulling in the coveted out-of-state dollar.

In Ohio, meanwhile, recent reports indicate that the state’s new casinos will cut deeply into the casino revenues in Indiana, Michigan, Pennsylvania, and West Virginia.  Even so, a recent survey by the Cincinnati Enquirer found little optimism among Ohio’s local governments when it comes to the gambling revenues they expect to collect. “Everybody thinks it’s going to fix the world, and it isn’t … I have a hard time believing we have so many people around there that have this kind of money to throw into casinos,” says one county official. According to another, “This is all a big shell game … We’re not really getting anything. All the new money we’re getting is going to be offset by cuts in [state aid].” And in Ohio, the state cuts to cities and counties continue to mount.

For more on the empty promise of gambling revenue, read this policy brief (PDF) from the Institute on Taxation and Economic Policy (ITEP).

 

  • When the richest woman in Wisconsin (and the governor’s biggest donor) pays no income tax to the state in 2010, it gets people asking about loopholes in the tax code.
  • We aren’t the only think tank taking issue with the Kansas tax bill recently signed into law.  The fiscally conservative Tax Foundation recently issued a report which says that provisions in the bill to exempt “pass through” business income are “problematic” and an invitation to tax avoidance.  
  • With summer road tripping underway, it’s bad news for Iowans that the state’s Department of Transportation appears to be more than $200 million short. Governor Branstad was right to say the state gas tax should be increased next year (as should almost every state’s).

Photo of Governor Christie via Bob Jagendorf Creative Commons Attribution License 2.0


Reality Shatters Chris Christie's Rose-Colored Glasses


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The nonpartisan New Jersey Office of Legislative Services (OLS) released estimates on Wednesday predicting that New Jersey revenues will fall a staggering $1.3 billion short of Governor Chris Christie’s previous estimate through fiscal year 2013. The estimated revenue shortfall is bad news for Christie because it makes his ten percent across the board income tax cut proposal appear that much more reckless.  Even the bean counters at Moody’s and Standard and Poor’s are worried.

The discrepancy between Christie’s previous revenue predictions and the estimated shortfall is due to the wildly unrealistic revenue estimate put out by the Christie administration in March, which an analysis by the New Jersey Star Ledger found to be the most optimistic in the country. In fact, Christie’s promised 7.4 percent in revenue growth was more than 2.5 times the national average of 2.8 percent.

For the moment, Christie is standing by his income tax cut plans, saying that the budget gap is actually only $676 million – and he is proposing to fill it by cutting $295 million in transportation funding next year. The Governor’s reduced gap estimate is derived from his faith in the millions in tax breaks his administration has given to the state’s wealthiest residents and corporations already being at work, unleashing unprecedented economic growth. This is what he’s been calling the “New Jersey Comeback.” Unfortunately, his predictions are based on the same old myths that have proven to be wrong time and again across the country.

The failure of Christie’s approach is borne out by New Jersey’s wobbly economy. As New Jersey Policy Perspective points out, the reality is the state is actually lagging behind the rest of the country, with its unemployment rate increasing slightly, to 9.1 percent in April 2012, higher than the regional rate of 7.9 percent. Rather than helping drive a recovery, it looks like Christie’s policy of favoring expensive tax breaks over critical government services has actually driven up joblessness by putting tens of thousands of public sector employees out of work.

The Governor is doubling down on tax breaks and service cuts when he should instead protect New Jersey’s basic quality of life and embrace, rather than veto, a millionaire’s tax -- which his constituents love, his Assembly passed, and would generate $500 million in desperately needed revenues for the Garden State.

Making matters worse, the Democratic Senate President Stephen Sweeney continues pushing his caucus to pass a compromise tax cut he says is for the middle class. For interested readers, there's a politics to all of it.

 

(Photo courtesy of Center for American Progress.)


New Jersey Governor Chris Christie Promotes Same Old Tired Arguments for Cutting Taxes


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Last month, New Jersey Governor Chris Christie made a bold and reckless promise to cut personal income taxes across the board. 

Christie used his annual budget address this week to spout conservative talking points to justify his tax cut plan.  There are two claims in particular we take issue with: the idea that high tax rates harm economic growth; and that high tax rates cause families to flee states.

From Christie’s speech:

First, any job growth plan for New Jersey has to start with cutting taxesSo, to the naysayers, I say this. We have been down the road of high taxation. It didn’t work. The result was high unemployment, high taxes and low growth. The result was families leaving New Jersey.  The old way was a dead end for New Jersey. High taxes and excessive spending left us stranded in a world of declining growth, declining prospects and a diminished ability to compete as a state.”

Christie’s claim that cutting taxes will lead to job growth is one of the most frequently repeated talking points used by conservative lawmakers seeking to reduce or eliminate state personal income taxes. 

Two new reports from ITEP clearly dispel this conservative tenet. “'High Rate’ Income Tax States Are Outperforming No-Tax States” explains that the nine states with the highest top marginal tax rates (New Jersey included) are outperforming the nine states without income taxes, in terms of both growth in economic output per person and median income levels. 

Between 2001-2010, New Jersey beat six out of nine states with no-personal income tax in terms of lowest unemployment rate.  And over the same time period, New Jersey topped four out of nine no-tax states in terms of economic growth per-capita.

A second report, “Athur Laffer Regression Analysis is Fundamentally Flawed, Offers No Support for Economic Growth Claims” shows that an analysis on which tax-cutters like Christie rely, that predicts huge economic gains as a result of cutting state personal income taxes, is fundamentally flawed. 

The conclusion of both reports: there is simply no evidence that state income tax rates harm state economies (or the national economy, but that’s another matter).

Then Christie invoked the millionaire-migration canard:

“Our tax rates, and our overall tax burden, were also the worst in the region. And the effects were being felt: a study by scholars at Boston College found that $70 billion of wealth had left the state in the prior five years. That exodus hurt jobs, economic growth and yes, even state tax revenues…”

This claim – that high taxes will (and have) force wealthy New Jerseyans to flee the state – is yet another unfounded conservative myth

In fact, as ITEP has pointed out in the past, the Boston College study Christie referenced made no mention of taxes at all, let alone in New Jersey families’ migration decisions.  A second study that actually looked at the role of taxes in New Jersey migration decisions (which Christie did not mention), found the impact of the state’s “half-millionaires’ tax” on New Jersey’s high-income earners was “small,” and that the change in the net out-migration rate following the enactment of the tax was “negligible.”  The researchers for this second study also review Census Bureau interviews that show that while people gave a lot of reasons for leaving the state – retirement, new jobs, family needs – none reported they were leaving because of tax rates. 

Photo of Governor Chris Christie via  Bob Jagendorf Creative Commons Attribution License 2.0


Chris Christie Playing Shell Game With Tax Cuts


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New Jersey Governor Chris Christie made a bold and reckless promise in his January State of the State address: a personal income tax cut for all.  His plan is to gradually reduce income tax rates by 10 percent across the board, at a cost of $1 billion a year once fully implemented.

Democratic lawmakers and public interest advocates were quick to point out one very big problem with Christie’s plan: the state simply cannot afford it.  The Governor has yet to say how he would pay for it, yet the likely scenario is more cuts to education spending and local aid which would, in turn, force local governments to increase property taxes to make up the difference.  As Senate President Stephen Sweeny said, “it’s taking money out of one pocket and putting it in another.

And, now thanks to an analysis by the nonpartisan NJ Office of Legislative Services (OLS), we know exactly which pockets will be fuller as a result of Christie’s grand plan.  It’s no surprise given Christie’s past allegiance to millionaires that the wealthiest New Jerseyans stand to gain the most from a billion dollar cut in one tax (personal income) that will likely force an increase in another (property). 

Even if property taxes are not increased as a result of Christie’s proposals, New Jersey families are already paying more in property taxes in recent years thanks to Christie’s reductions in property tax credits and rebates (all of which could be restored for a smaller price tag than the proposed personal income tax cut).

OLS’s findings are consistent with the Institute on Taxation and Economic Policy’s (ITEP) research on the share of income New Jerseyans pay in state and local taxes.  Both OLS and ITEP agree – low and middle-income families spend a greater share of their income on property taxes than on income taxes.  The reverse is true for New Jersey’s wealthiest families, which is why a cut in income taxes, accompanied by an increase in property taxes, will make an unfair situation even worse.

Rather than a “tax cut,” Christie’s plan is more accurately characterized as a “tax swap.”  New Jersey Policy Perspective’s Deborah Howlett called the plan “a gimmick."  Indeed. The plan is based on projected revenues which may or may not materialize. The Governor said that if they do, however, this tax cut will be at the top of his list of ways to spend whatever extra money trickles in. There are more important things at the top of a lot of his constituents’ lists, however, including restoring those property tax credits.

Photo of Governor Chris Christie via Bob Jagendorf Creative Commons Attribution License 2.0


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


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

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

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

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

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

Example:


Governor Christie's Snooki Situation


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Unlikely as it seems, reality show star Snooki of “Jersey Shore” has found herself at the center of two important tax policy debates. The first was last year when Snooki criticized President Barack Obama for the 10% tanning tax contained in the healthcare reform bill. Now there’s a controversial tax credit in her name – the Snooki Subsidy. 

The producers of “Jersey Shore” had been eligible for the Snooki Subsidy as part of a film tax credit program for filming in the Garden State in 2009. The program, however, was suspended in 2010 by  Governor Chris Christie as part of the effort to close the state’s budget deficit.

Putting aside the merits of the “Jersey Shore” itself, film and television tax credits are a poor use of taxpayer money, a view shared by tax policy experts across the political spectrum. As the Center on Budget and Policy Priorities explains, such subsidies reward companies for production they would have done anyway, rarely create jobs, and could be redirected toward more productive purposes. In fact, the Massachusetts Department of Revenue conducted the most thorough study on film subsidies and found that every dollar of state revenue spent this way generated only 69 cents in income for Massachusetts residents.

New Jersey is not alone in having supported economically inefficient and politically embarrassing film and television tax incentives. The Tax Foundation found that 40 states offered $1.4 billion in such credits in 2010 alone, and some $6 billion in the last decade.

The non-partisan think tank, New Jersey Policy Perspective, notes that the outcry over the Jersey Shore subsidy is somewhat ironic considering the relative silence about a far more ludicrous $82 million subsidy given to Pearson, Inc., simply to move its jobs from one New Jersey city to another.

Subsidy in hand, Pearson now plans to move one third of its existing workforce to New York City and pick up another subsidy there.

The no-longer-potential-president Christie was wise to gut the film tax credit, but someone should be throwing a Snooki tantrum over the Pearson giveaway.

 

New York and New Jersey Governors Favor Unpopular Toll Increases, But Oppose Popular Tax Increases


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Last week, Republican New Jersey Governor Chris Christie and Democratic New York Governor Andrew Cuomo together approved a substantial increase in the toll rate paid to cross bridges and tunnels between New York and New Jersey.  The increase of $1.50 on EZ pass users (or $2 for cash payers) will go into effect next month.  This will be followed by four consecutive increases of 75 cents each annually from 2012 through 2015, for a total hike of at least $4.50 over five years.

Both governors supported the toll increases, saying that the dire fiscal situation facing the Port Authority, which is reliant on toll revenue, means that the “increase cannot be avoided.” The governors’ willingness to shore up revenue for the Port Authority through toll increases stands in sharp contrast to their reputations as “anti-tax” governors who have relentlessly refused to increase any taxes to deal with their states’ current fiscal disparities.

As the Institute on Taxation and Economic Policy explains, increases in tolls or other “user fees” are often used by politicians to increase revenue while avoiding having to enact anything that could be called a “tax increase.”

Josh McMahon, writing for the New Jersey News Room, argues that Christie is just playing “a game of semantics” so that he can continue the “charade that he’s not raising any taxes.”

The move by the governors is proving relatively unpopular with New Jersey voters, 54% of whom oppose the increases, according to a recent poll.

In contrast, 72% of New Jersey voters and 64% of New York voters support ‘millionaires tax’ proposals, which would help counterbalance some of the regressive features of both the New Jersey and New York tax systems. Both Cuomo and Christie went out of their way to torpedo these proposals in recent months.

Voters in both states can’t be blamed for wondering whose interests their governors are protecting.

Photos via Gisele 13 Creative Commons Attribution License 2.0


Chris Christie's Veto Pen - Mightier (and Meaner) Than Any Sword


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New Jersey Governor Chris Christie used his line-item veto power to rip the legislature-approved budget to shreds earlier this month.  New Jersey Policy Perspective put it best when stating that Christie’s numerous vetoes “did serious damage to virtually every constituency imaginable in this state – except for corporations and the super-rich.”

As expected, he shot down a proposed tax on New Jersey millionaires who make up only .2 percent of all taxpayers in the state.  At the same time, he refused to restore the state’s Earned Income Tax Credit to previous levels, which, at a cost of only $50 million, was no-brainer strategy to provide much needed assistance to struggling low-income working families.

He also stripped away hundreds of millions of dollars for schools, aid to local governments, health care for working families, legal assistance for low-income individuals, and other critical programs. 

New Jersey Senate Democrats are meeting this week to attempt to override Christie’s spending cuts, however, they have been unsuccessful in gaining enough Republicans to join them and so far the vetoes stand.  They have yet to tackle the millionaires’ tax and Earned Income Tax Credit, but given that members are sticking to party lines, there is no realistic chance of restoring either of them.

The New Jersey Assembly Democrats are taking a different approach.  They first announced a plan to hold a series of hearings over the summer on Christie’s vetoes and wait to schedule override votes until the fall, hoping to gain some Republican support along the way.  But, by law, if an override vote fails in the Senate, the Assembly cannot take up a vote on that same issue.   

Despite the fact they are essentially powerless now in overturning Christie’s vetoes, Assembly Democrats are still planning to hold hearings starting next week on the impact of the cuts on children’s programs.  In a statement announcing the hearings, Assembly Budget Chair Lou Greenwald said, “The impact of these cuts demand immediate attention, and we’re committed to trying to find a way to make sure these programs continue to serve children suffering through horrific cases of abuse, illness and poverty.”


New Jersey Gov. Christie Vows to Veto Widely Popular Millionaires' Tax


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With just a few days left before the end of the fiscal year, Democratic lawmakers who control the legislature released an alternative to Governor Christie’s budget that the good people over at New Jersey Policy Perspective call a “this is what we stand for budget.”

Most notably, the budget reintroduces a tax on millionaires which the governor vetoed last year.  The proposed “millionaires' tax” would raise around $500 million and help avoid damaging cuts to public education in a way that affects only the very wealthiest taxpayers. The proposed tax -- a 10.75 percent marginal rate -- would only apply to taxpayers with taxable income above $1 million, or about .2 percent of all households.  

Moreover, this plan would take back only a fraction of the huge federal income tax reductions accruing to these best-off taxpayers as a result of the recent extension of the Bush tax cuts.  According to an Institute on Taxation and Economic Policy analysis, these very same taxpayers are already enjoying an average $72,505 in federal tax savings in 2011.  It is entirely reasonable to ask the less than 1 percent of the state’s wealthiest households to pay more in state income taxes now, particularly as New Jersey continues to struggle with the consequences of the national recession.

Governor Christie wasted no time criticizing the alternative plan and is expected to veto any tax increase just as he did last year.

While the battle over the millionaires’ tax is in the spotlight, another tax change in the Democrats’ proposal is worthy of attention.  The alternative plan would also restore the single most effective anti-poverty tax strategy available to state lawmakers -- the Earned Income Tax Credit -- to its previous levels. The EITC provides targeted tax cuts to low-income working families, helping low-wage families to stay above the poverty line.

The decision of Governor Christie and the legislature to reduce the EITC from 25 to 20 percent of the federal credit last year directly pushed more families into the increasingly frayed safety net—a shortsighted and counterproductive decision that Democratic lawmakers are smart to propose reversing.

By law, New Jersey must have a budget in place for next fiscal year by the end of the day on Thursday, June 30th.  The alternative budget plan passed out of House and Senate committees on Monday and is expected to be approved in both chambers on Wednesday.  While it is all but certain that Governor Christie will use his line-item veto power to strike out portions of the Democrats’ plan, at this point it is unclear if the Democrats have enough Republican support to overturn the governor’s veto. Also not known is whether the governor’s allies in the legislature can afford to back him on an override vote: with 72 percent of the New Jersey voters supporting a millionaire’s tax, it won’t be easy for legislators to explain or justify their opposition.


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.


'Greetings from Asbury Park, NJ': Bruce Springsteen Letter Puts Gov. Christie in the 'Lion's Den'


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The Boss a Local Hero with Anti-Poverty and Children's Advocates

With a short letter to the editor of his hometown paper, the Asbury Park Press, Bruce Springsteen sided with anti-poverty and children’s advocates, teachers, and other New Jersey residents who oppose Gov. Christie’s cuts-only approach to the state’s budget gap.

The letter was a response to an article about rising poverty amidst budget cuts to the very programs that assist low- and moderate-income families in the state.  Springsteen praised the article for being “one of the few that highlights the contradictions between a policy of large tax cuts, on the one hand, and cuts in services to those in the most dire conditions, on the other.”

The letter has forced Governor Christie to spend the past week defending his cuts to critical and core services and his adamant objection to reinstating a tax on New Jersey millionaires. 

New Jersey Senate and Assembly Democrats support a plan to raise $600 million in revenue by instating a surcharge on households with taxable income of more than $1 million (the households impacted make up less than half of one percent of the state’s taxpayers). 

A similar policy was in place temporarily in 2009.  Democrats passed a bill to reinstate the surcharge last summer, but the governor vetoed the bill and has vowed to do the same this year. 

During the governor's ABC News interview this week, Diane Sawyer said that Springsteen "has written a letter in which he says that it's simply a contradiction between your large tax cuts including for really rich people and doing things that change education for the kids that affect teachers, cut the services to those in the most dire conditions.” 

Christie responded that Springsteen is a liberal who “believes that we should be raising taxes all the time on everyone to do all the things that he'd like to see government do.”

Reason to Believe in the Role of the State


Of course, Springsteen is right that in a time of economic distress, when demand for state-funded services has increased alongside growing poverty, states more than ever need to focus on education, assistance to families and communities in need, and keeping the public healthy and safe, which will in turn support economic recovery.  To do this, New Jersey must have adequate revenue.

Christie Stands Up for the Mansion on the Hill

Christie went on to suggest that it was the previous New Jersey governor, Jon Corzine, who cut taxes on millionaires, which is a completely false statement.  When Corzine was governor, he enacted a temporary increase on millionaire’s that expired after tax year 2009.  As previously noted, a bill passed the Senate and Assembly last year to reinstate the tax, but Christie vetoed it and continues to voice opposition to any tax on millionaires. 

When Sawyer pressed him more on the issue, Christie argued that the tax would “only raise $600 million.”  While $600 million may be only loose change to Christie, that money would go a long way to the hard-working New Jersey families struggling to make ends meet in the face of more and more cuts to the very services they depend on. 

The honest truth is that Christie would rather shrink government at the expense of the vast majority of New Jerseyans than ruffle the feathers of millionaires.


Authors of New York Study Claiming Millionaires Fleeing Reach New Low and Just Make Up Numbers


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In the past year, we've documented ad nauseum the lengths that anti-tax advocates will go to in order to convince lawmakers that the so-called "millionaire's tax" is prompting wealthy taxpayers to move to other states. In Maryland, New Jersey and Oregon, these groups have selectively presented data in order to "show" that resident millionaires are packing up their Lear Jets and moving to Florida. And in each case, we've shown that when the data are presented honestly and fully, there's simply no evidence that millionaires are voting with their feet.

But the latest such effort, by the Partnership for New York City, breaks new ground by simply making data up. For example, the report says that "Since the imposition of New York's surcharge in 2009, there has been a 9.4 percent decrease in the state's taxpayers who earn $1 million or more, decreasing from 381,786 in 2007 to 345,892 in 2009." Take a minute and read that quote again. What the Partnership is implying is that millionaires had the magical ability to see into the future and start moving out of New York in 2007 and 2008 as a result of a tax increase that hadn’t even happened yet.

Next, it’s worth taking a closer look at that 381,786 figure, the supposed amount of millionaires in New York in 2007. Interestingly enough there is state-by-state data available from the IRS which shows that there were actually only 375,265 returns with federal adjusted gross income over $200,000 in 2007. Of course, not all 375,265 returns were all millionaires. So the 381,786 figure sited by the Partnership is troubling to say the least.

What is even more troubling is that there isn’t actual data available (from New York or the federal government) for 2009 showing the number of tax returns by income group. Which leaves us with a very troubling question — where does the Partnerships earlier figure of 345,892 millionaires in 2009 actually come from?

The answer: they're using a forecast of the number of households in each state with wealth, not income, of $1 million or more. See the data. Released last September by a marketing firm, these estimates tell us a few interesting things. One is that between 2007 and 2009, the nation as a whole lost 13.9 percent of its net-worth "millionaires" between 2007 and 2009, which makes the 9.4 percent loss for New York seem not that impressive. Another is that 43 of the 50 states lost proportionally more of their net-worth "millionaires" over this period than did New York. So, leaving aside the minor detail that income taxes are based on income rather than wealth, which makes these marketing data utterly irrelevant to the point the Partnership is trying to make, any objective look at this data would suggest that New York is doing better than most other states.

For more on the many flaws of the Partnership’s paper, read this brief from the Fiscal Policy Institute. Suffice to say, the theory that New York millionaires are moving because of a targeted tax increase is based on deeply flawed (and perhaps even made up) data.


To States Trying to Lure Illinois Businesses: It's Not Just the Tax Rates, Stupid


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We recently brought you news of policymakers in Illinois voting to temporarily increase their corporate and personal income tax rates. The state’s flat rate income tax will increase from 3 to 5 percent until 2015. In 2015 the income tax rate will fall to 3.75 percent, and in 2025 the rate will fall to 3.25 percent. Corporate income taxes were also increased from 4.8 percent to 7 percent until 2015, when the rate will drop to 5.25 percent. In 2025, the corporate income tax rate will fall back to 4.8 percent.
 
For tax justice advocates and other folks worried about the state’s fiscal solvency (lawmakers passed the tax package in order to help deal with a $15 billion deficit) the tax increase was welcome news. In a bit of a twist, some public officials and lobbying groups from other states seem elated by the legislation too and hope that businesses will leave Illinois for their state.
 
In fact, Wisconsin Governor Scott Walker issued a statement saying, “Wisconsin is open for business.  In these challenging economic times while Illinois is raising taxes, we are lowering them.  On my first day in office I called a special session of the legislature, not in order to raise taxes, but to open Wisconsin for business.”

New Jersey Governor Chris Christie’s administration launched a campaign to lure Illinois businesses to the Garden State. An ad recently placed in the (Springfield) State Journal Register reads "Had enough of outrageous tax increases? We're committed to fiscal responsibility and lower taxes." And, according to the St. Louis Post Dispatch, the Missouri Chamber of Commerce and Industry's website says: "(We're) looking at ways to position Missouri to take advantage of our neighboring state's economic misfortune." There is even a movement afoot in Indiana to lower their state corporate income tax to lure Illinois businesses.

Illinois Governor Quinn’s response to Christie’s campaign was pretty direct. He recently said, “I don’t know why anybody would listen to him [Governor Christie]. New Jersey’s way of balancing the budget is not to pay their pension payment, not to deliver on property tax relief that was promised, to fire teachers, to take an infrastructure project — building a tunnel that had already been started — and end it and have to pay money back to the federal government.”
 
Despite these efforts to lure Illinois businesses we haven’t seen businesses packing up their computers and moving to other states. The reason is simple: There is much more to business location decisions than a state’s tax rate.

The overall business climate, education of the work force, quality infrastructure, and a variety of other factors determine a corporation’s location. Let’s not forget that revenue generated from the tax increase won’t just be flushed down the toilet — the money raised will help to fund the social and physical infrastructure that businesses need to thrive, including police, fire protection, and education.

As Paul O’Neill, former Bush Treasury Secretary and Alcoa executive, put it: “I never made an investment decision based on the tax code...” As the president of the Illinois Chamber of Commerce said, “I do not think there's going to be some immediate exodus to Missouri. Businesses don't operate that way.” States can bicker back and forth about whose state has the best business climate, but focusing only on corporate and personal income tax rates is silly and shortsighted.


Prioritizing Corporations Over People in New Jersey


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Although it is less than a month into the New Year, the battles over New Jersey’s budget are still going as strong as ever.

The so-called “Back to Work” package of bills has already passed the New Jersey legislature and is awaiting Governor Chris Christie’s signature.

As New Jersey Policy Perspective explained in their January 24th Monday Minute, six poorly conceived tax breaks constitute over $568 million of the package, including a change in the deduction of net operating losses, restoration of film tax credits, and tax credits for historic preservation.

One especially poorly conceived part of the package will shift the state to the "single sales factor" method of calculating multistate corporations' tax liabilities. This measure would result in an estimated $215 million loss of revenue while providing no benefit to corporations that do all their business in New Jersey. It would also create serious economic distortions resulting in many businesses in New Jersey facing higher tax rates.

While showering corporations with over $800 million in tax breaks, Christie is still resisting any effort to reinstate the ‘millionaire’s tax’, which would increase the marginal tax rate on income over $500,000 by 2%.

One needle of good news in the haystack of proposals by Christie is his decision to restore the state's property tax rebate. About 600,000 senior citizens and disabled individuals lost out when Christie decided to stop the rebate program last year. While details of the new proposal are still unclear, it apparently would restore credit to some of these taxpayers.

Although Christie extolled the virtues of cutting taxes for the wealthy and cutting spending during his State of the State Address, he largely failed to mention that his policies are already having devastating effects. Municipalities are finding it difficult to perform basic functions like snow removal. Massive service cuts are hitting cities like Camden, which was forced to slash half its police force.

As Charles Wowkanech, president of the New Jersey AFL-CIO put it, what Christie does not understand is that “cuts in school aid, municipal aid and property tax rebates” constitute a real “tax increase for working families.”


Flood of Bad Tax Ideas Coming from the States


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


State Transparency Report Card and Other Resources Released


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

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

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

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

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

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


New Jersey Think Tank Examines Governor Christie's Income Tax Returns


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New Jersey Policy Perspective (NJPP) released a timely examination of Governor Chris Christie’s income tax returns last week.  

The group used the Christies' tax return to illustrate an important, and often overlooked, point about the distinction between marginal rates (which apply only to taxable income over the amount where the tax bracket starts) and effective rates (which tell us what share of a taxpayer’s income goes to overall income tax).  While the Christie’s 2009 taxable income of $540,792 pushed them into a bracket (taxable income of $500,000 and above) with a marginal rate of 10.25%, only the last $40,792 of their taxable income was taxed at that top rate, not the entire amount as is most often assumed. 

Like every other household in New Jersey, the Christie family benefited from the state’s progressive graduated rate structure, which applies different rates at different levels of income for all taxpayers.  For example, the rate for the first $20,000 of income in New Jersey is 1.4%, so the Christies paid only $280 on that portion of their income.  

As a result, Governor Christie and his wife paid just 6.2% of their income in state personal income taxes in 2009, rather than 10.25% as the governor would have you believe.  NJPP’s report found the actual share of income the Christies paid in taxes to be in line with rates in Georgia, and lower than neighboring New York and Philadelphia, PA.  

Too often in tax policy debates — and certainly in the current debate on the Bush tax cuts — lawmakers, advocates, and the media foster a misunderstanding of how graduated income taxes work, implying that a “high” tax rate applies to every dollar of income.  Thankfully, NJPP’s new report sheds a light on the distinction between marginal and effective tax rates.


More Tax Cuts for the Rich in New Jersey?


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New Jersey Governor Chris Christie campaigned on a cut taxes/slash spending platform last fall and thus far has lived up to both promises, though at the expense of the state’s lowest-income families.  Making good on his pledge to cut the income tax for wealthy New Jerseyans, Christie recently said he supports cutting the top income tax rate from 9 percent to 6 percent by the end of his term. 

In response to Governor Christie's tax cut proposal, New Jersey State Senate President Stephen Sweeney released an alternative plan to cut income taxes for older adults earning a yearly income of less than $100,000.

While it is unclear how much either plan will cost the state budget, both would likely have a substantial effect.  An aging population in New Jersey would drive up the costs of Sweeney's bill over time.  Likewise, Christie's cut would provide cuts for the rising number of millionaires in the state. 

Sweeney’s approach is certainly more targeted than Christie’s and is likely to reach low- and fixed-income older adults in the state, yet both plans leave low-and middle income working families out of the picture altogether.  This is especially troublesome knowing that Christie plans to pay for his tax cut for the wealthy with more cuts to state spending, which are likely to fall on the backs of the state’s poorest families and children.

New Jersey Governor Chris Christie has been spending most of his time out of state recently, headlining fundraisers for GOP gubernatorial candidates across the country and touting an agenda to “rein in government spending” to revive the economy and create jobs.  This week, during a home visit between campaign stops, to the detriment of his state’s economy, he pulled the plug on a much needed commuter train tunnel between New Jersey and New York.  His reason?  He says the state “couldn’t afford it.”  What the state really cannot afford is Christie’s shortsighted decision.

New Jersey was not shouldering the cost of the project alone. Of the $8.7 billion price tag, the state was expected to pay $2.7 billion, with the rest of the cost shared equally by the federal government and Port Authority of New York and New Jersey.  The project was already well underway, which means that New Jersey will likely have  to repay about $300 million plus interest in federal funds already spent on the project.  

The project was also expected to create 6,000 constructions jobs a year over the next ten years.  Now, rather than hiring workers, contractors are beginning to lay off those who had recently found work.  Denise Richardson, managing director of the General Contractors Association of New York told the New York Times, “This was the project that I think everyone was counting on to revitalize the public-works sector.  For construction workers that were counting on job opportunities, it’s a real blow to them.” The state Assembly’s transportation committee chair, John Wisniewski, said the project would have created $18 billion in economic activity.

As Paul Krugman wrote in an op-ed on Christie’s decision, “Canceling the tunnel was also a blow to national hopes of recovery, part of a pattern of penny-pinching that has played a large role in our continuing economic stagnation… By refusing to pay for essential investments, politicians are both perpetuating unemployment and sacrificing long-run growth.”

 

While blogging for the Wall Street Journal’s “Wealth Report”, Robert Frank recently highlighted a new study showing that the anti-tax crowd’s claims regarding “tax-driven wealth flight and wealth destruction may be exaggerated.”  Specifically, the study shows that despite all the fear the Journal tried to whip up regarding the “self-destructive” nature of raising state income tax rates on the wealthy, all of the states typically demonized as being “high-tax” actually saw the number of millionaires’ living within their borders rise substantially between 2009 and 2010.

The new study in question was released by Phoenix Marketing International, and shows that the number of households with more than $1 million in assets increased by 8.1% between 2009 and 2010. 

The study also shows that Hawaii, Maryland, New Jersey, and Connecticut have the highest concentration of millionaires in the country.  And despite the fact that each of these states recently raised their top income tax rate, each saw the number of millionaires living within their borders rise substantially between 2009 and 2010. 

Specifically, three of those states – Hawaii, Maryland, and Connecticut – saw their millionaire population grow at a rate even faster than the 8.1% national average.  New Jersey was only very slightly below average, having experienced a 7.4% gain in the number of millionaires between 2009 and 2010. 

On the flip side, two of the states experiencing the slowest growth in the number of millionaires – Florida and Nevada – levy no state income tax at all!

With this in mind, all the outrage exhibited by the Wall Street Journal Editorial Board regarding the “self-destructive,” “soak-the-rich theology” of “dedicated class warrior” and Maryland governor Martin O’Malley seems to have been very much off target.  After re-reading the Journal’s editorials, it does at least become clear why Frank labeled the debate “increasingly emotional.”

Interestingly, this isn’t the first time that the facts have run counter to the Journal’s (or Grover Norquist's) gloom and doom predictions regarding higher taxes on the rich.  Both CTJ and ITEP have in the past taken the time to point out the Journal’s factual errors and other exaggerations on this issue.  And in fact, Frank has even helped to highlight some of ITEP’s work in this area on at least one occasion.

One can only hope that the Journal will begin reading their own bloggers’ work and begin to temper their rhetoric next time around.  After all, as Frank’s blog post explains, “that demographics and economics matter more than taxes in increasing and retaining wealth may seem like an obvious point.”  But ultimately, we wouldn’t recommend holding your breath waiting for the Journal to acknowledge it.


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.


New Jersey Governor and CTJ Find (Rare) Agreement on Homebuyer Tax Credit


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In a move that should receive accolades from the tax justice community, New Jersey Governor Chris Christie recently vetoed legislation that would have put into place a tax credit for homebuyers. The legislation would have allowed tax credits of up to $15,000, or 5 percent of the home purchase price (whichever is less) for buyers of new or existing homes. The tax credit would have been available to anyone buying a new or existing home and no income caps would have applied.

The Governor said he vetoed the legislation because "the state simply can't afford it." The credit would have cost the state an estimated $100 million. The Governor expects that the state has a long road ahead in terms of fiscal solvency, saying that the state will "face long-standing, structural difficulties in its finances that require continued fiscal restraint and additional reforms." In his veto message he said, "This legislation will only briefly and artificially inflate home sales and consequently does not merit a $100 million revenue loss to the general fund."

A homebuyer's tax credit is poor policy at the state level just as it is at the federal level. As Citizens for Tax Justice noted during the debate over the federal credit, one problem with a tax incentive of this sort is that it goes to people who would have engaged in whatever activity Congress is trying to encourage (in this case, home purchases) even if the tax incentive was not available. And even if the homebuyer tax credit does prod some people to buy homes who otherwise would not, why is that something Congress wants to encourage? Isn’t over-consumption of housing, and the hugely inflated housing prices that resulted, what caused the recession?


New Jersey Property Tax Cap: Putting the Cart before the Horse


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On Thursday, the New Jersey Senate voted 36-3 in favor of a deal between New Jersey Republican Governor Chris Christie and Democratic Senate President Stephen Sweeney to place a 2 percent cap on annual increases in property taxes. With Democratic Assembly Speaker Sheila Oliver signaling support and a vote set for Monday, the property tax cap will likely be signed into law shortly.

The passage of the property tax cap will systematically damage local governments' ability to provide basic public safety and education services. In testimony to the New Jersey Assembly, Rich Brown of the New Jersey Education Association noted that a hard cap would disproportionably harm poor and minority residents and would constitute a “racist cap.” Similarly, local fire fighter officials note that the property tax cap would certainly force layoffs and even cost lives.

The compromise is based on Christie’s proposal to put a constitutional amendment on the ballot which, if approved, would have placed a 2.5 percent cap on property tax increases. The measure allowed for increases beyond the 2.5 percent if the revenue went to debt service repayments or if the tax increase was approved by local referendum with a 60 percent majority vote.

As Citizens for Tax Justice has noted previously, Christie’s original proposal is as misguided as it is hypocritical. The proposal would not only harm local governments, but it comes on top of the $800 million in cuts in state aid to local governments. Had Christie truly wanted to provide property tax relief, he would not have cut off $635 million in property tax relief for 600,000 seniors and people with disabilities.

The Democratically controlled legislature countered Christie’s proposal with the passage of a statutory cap limiting property tax increases to 2.9 percent, but which left intact the wide range of existing exceptions.  

Although the Democrats' plan passed both chambers of the legislature, Christie signaled that he would veto the measure. Unfortunately, the Democratically controlled legislature was unable to override his veto and pass the Democratic plan. Similarly, Christie could not get the votes to support his plan for a constitutional amendment.

The impasse between the two sides was broken after days of tense negotiations, with both sides agreeing on the 2 percent cap with exceptions for rising health care costs, pension payments, debt service payments and capital expenditures, including new equipment and public works projects. The compromise also allows the cap to be overruled by a simple majority in a local referendum instead of the 60 percent Christie previously proposed. One final piece of the compromise is that local governments that raise taxes under the cap will be able to bank the difference for up to 3 years and then raise taxes higher in other years.

Even with the changes from Christie’s original plan, the new property tax cap will cripple local governments' ability to provide the basic services that residents require of them. Despite having significant majorities in the legislature, Democrats abandoned their much better property tax cap proposal in favor of a harmful compromise.

As five New Jersey mayors testified to the New Jersey Assembly, passing the tax cap before providing local officials the means to fix their fiscal problems is simply “putting the cart before the horse” and will place an unfair burden on local governments.


Can New Jersey Cap Hypocrisy on Taxes?


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New Jersey Republican Governor Chris Christie’s proposed constitutional amendment capping property tax growth at 2.5% is as misguided as it is hypocritical.  The plan comes on the heels of Christie’s suspension of property tax relief for homeowners with incomes less than $70,000 and for 600,000 senior citizens. It also follows more than $800 million in cuts in state aid to local governments. The proposed property tax cap would do more damage to local governments’ ability to provide basic services like public safety and education.

The Governor's Proposed Cap on Property Tax Increases
    
While still in the process of wreaking havoc on the New Jersey budget, Christie is proposing a constitutional amendment that would create a 2.5% cap on the increase in the property tax levied by municipalities, school districts and counties, as well as a 2.5% cap on spending for state programs. After approval by the legislature, the proposal would have to be approved in a ballot referendum in November.

The proposal would allow an increase beyond the 2.5% cap only if the resulting revenue was used on debt service payments or approved by local referendum. Christie's proposed property tax cap would replace an existing 4% cap, which includes several additional exceptions.

If Christie’s goal was truly to hold down property taxes for typical New Jersey residents, he would not have vetoed the continuation of a 2% millionaire surtax. The revenue from that tax would have funded the restoration of $635 million in property tax rebates for more than 600,000 seniors and people with disabilities. The veto, which Democrats failed to override this week, suggests that Christie is more concerned with providing tax breaks for the wealthy than providing property tax relief for those who need it most.

Making matters worse, Christie's budget cuts over $800 million in state aid to local governments. The cuts will force local governments who depend primarily on property taxes to raise even more revenue to close the gap created by the cuts.

A Democratic Alternative
    
Signaling some willingness to compromise, Democratic Senate President Stephen Sweeney has proposed a 2.9% cap coupled with a continuation of existing exceptions to the cap. Defending his proposal, Sweeney points out that the existing 4% cap has already worked and has reduced average annual property tax increases from 7% to 3.3%.

Sweeney's measure is also different from the Governor's in that it would be a statute rather than a constitutional amendment, meaning the state legislature would decide on the policy change rather than voters this November.   

Bogus Research Fails to Make Poorly Targeted Tax Break Look Like Good Policy

Christie claims that the property tax cap will force local governments to become more efficient by consolidating and working out shared service agreements. This logic was bolstered by a Manhattan Institute report, which argued that the measure on which the New Jersey law is based was a success in Massachusetts.

The Center on Budget and Policy Priorities (CBPP) has since thoroughly debunked the Manhattan Institute report by outlining its many absurdities, like its implication educational spending and test score differences are explained by property tax caps and not just with specific state policies. Another recent report by CBPP explains that the Massachusetts tax reform model Christie is hoping to follow is already causing dramatic inequalities between districts, placing an unfair tax burden on low- and middle-income families, and debilitating local government services.

The inherent problem with hard property tax caps is that they have proven time and again to be poorly targeted and have severely limited the ability of local governments to meet the basic needs of local residents. If Christie’s goal is to force local governments to consolidate and become more efficient, he could work directly toward this goal rather than relying on rigid property tax caps to bankrupt localities into cooperation. In addition, if his goal is to provide property tax relief, he could provide more of precisely the targeted tax relief that his budget eliminates.

Some Bad Ideas Are Contagious

Unfortunately, New Jersey is not the only state debating a new property tax cap. New York Governor Patterson is also floating a property tax cap of his own, although it would exclude school property taxes.

The time for the New Jersey property tax cap debate is quickly ticking away as the measure must be approved by July 7th for it to be on to the ballot in November. Complicating matters further for Christie, the proposal must also garner the support of a significant number of Democrats as the measure requires a three fifths majority in the Democrat-dominated state legislature. With Democratic support leaning toward Sweeney’s proposal and Christie’s rejection of it, the debate over the proposal will certainly intensify. Hopefully, the Democratic majority will hold strong and block the Governor's proposal.


New Jersey Lawmakers to Attempt to Override Governor's Veto of Millionaire's Tax


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On Monday, New Jersey Democrats will attempt to override Governor Christie’s veto of a bill that would have temporarily restored New Jersey’s millionaire’s tax, an income tax surcharge on the state’s wealthiest residents who make up less than half of one percent of the state’s taxpayers. 

As promised, Governor Christie vetoed the millionaire’s tax moments after it was approved last month, sticking to his vow to veto any tax increase that was sent to his desk.  Supporters of the millionaire’s tax want to use the $637 million it would raise to fund property tax rebates for older adults and disabled residents that were cut from Christie’s $29.3 billion budget proposal.

The Democrats probably won't secure enough votes to override the veto, but a poll released this week from the Quinnipiac University Polling Institute shows their constituents have their backs.  According to the poll, 61 percent of New Jerseyans think Governor Christie should have approved the millionaire’s tax.

As we wrote earlier in the spring, there is glaring hypocrisy in Christie using his anti-tax pledge to justify his veto of the millionaire’s tax.  While Christie has no appetite for tax increases on the wealthiest New Jerseyans, he continues to support a reduction in the Earned Income Tax Credit (EITC) for hard-working low-income taxpayers (which amounts to a tax increase) and increases in fees in addition to his proposed suspension of property tax rebates for older adults and the disabled.  And, his more than $1.2 billion cuts in aid to local governments and school districts will more than likely force local leaders to increase property taxes — the very taxes he claims he wants to “control”.  

Assemblyman Gordon Johnson said it best recently: "New Jerseyans are going to need a thesaurus to decipher all the ways Governor Christie’s administration is trying to insist their budget plan doesn’t increase taxes on senior citizens and working-class New Jerseyans.  Call them what they may, this budget would mean this simple fact — senior citizens, the middle class and the poor are about to pay significantly more while the wealthy enjoy a nice tax cut."

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?


New Jersey Governor's Budget: Painful Cuts, Terrible Ideas, and Glaring Hypocrisy


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The budget proposal made by newly elected New Jersey Governor Chris Christie this past Tuesday is full of painful cuts, terrible ideas, and glaring hypocrisy.  Christie has promised to veto any attempted extension of New Jersey’s income tax increases on high-income earners, and has instead put forth a plan that would that would balance the state’s budget on the backs of lower- and middle-income families.

Painful Cuts

The New York Times reports that Governor Christie’s budget would lay off 1,300 state workers, cut public school aid by over $800 million, and reduce aid to towns and cities by nearly $500 million.  Christie’s plan would also close multiple state psychiatric facilities, eliminate cash welfare assistance for the able-bodied, increase the costs of participating in the state’s prescription-drug program for the elderly and disabled, and cut state-financed school breakfasts and rental assistance programs.  Absent any significant revenue-raisers, serious cuts of this type will be required.

Terrible Ideas

On top of the immediate cuts Christie is proposing for the short-term, the Governor is also seeking — in at least two ways — to permanently hinder New Jersey’s ability to finance vital public services.  First, the Governor this week expressed his support for enshrining a property tax cap in the state’s constitution.  While the details of the cap are still a mystery, it would reportedly be modeled after Massachusetts’ ill-advised Proposition 2 ½.  Christie’s preferred cap, like Massachusetts’, would limit increases in property tax growth to 2.5 percent per year.

Governor Christie is seeking to constitutionally limit the power of New Jerseyans’ elected representatives in another way, by capping increases in state spending on “direct state services” by more than 2.5% per year.  Again, while the precise details of this plan have yet to be revealed, the indication seems to be that Christie would like to move New Jersey closer to a Colorado-style TABOR regime (which has devastated that state’s public services).

Glaring Hypocrisy

In addition to the massive spending cuts and tax/spending caps that Governor Christie proudly champions, the Governor’s budget also includes a variety of less-publicized components that may surprise you given the rhetoric Christie has used in recent days.  Specifically, Governor Christie this week proudly declared that “I was not sent here to approve tax increases; I was sent here to veto them … And mark my words, if a tax increase is sent to my desk, I will veto it.”  Elaborating upon these remarks, Christie explained his belief that any tax increase would “kill a job market already on life support.”

But despite the unwavering nature of Christie’s rhetoric, his actual budget raises taxes in a number of ways.  Low-income families would be the first target of Christie’s tax hikes, as the Governor has proposed slashing the state’s EITC by $45 million.  This proposal is particularly surprising given the EITC’s reputation as one of the best work-incentives on the books.  President Ronald Reagan went so far as to refer to the federal EITC program as “the best job creation measure to come out of Congress.”  For a Governor who claims to be so concerned about the “job killing” aspects of tax increases, an EITC cut is a very strange proposal to make.

While Christie’s proposed cut to the EITC may represent the most glaring inconsistency between the Governor’s anti-tax rhetoric and his actual proposals, it is not the only example.  Christie has also proposed raising taxes on hospitals and ambulatory care facilities by some $45 million.  Moreover, property taxes would rise under Governor Christie’s plan as a result of his proposed suspension of the state’s property tax rebate program — a proposal the New York Times has described as being in violation of his own campaign promises.  And finally, the Governor’s decision to cut local aid by nearly a half billion dollars should be seen for what it is — a decision to shift the onus for raising taxes to the local level.  Local governments will, very predictably, be forced to compensate for at least part of these cuts by raising taxes on New Jersey residents.  Christie will undoubtedly try hard to distance himself from these hikes, but they will ultimately be an unsurprising, and necessary, consequence of Christie’s own proposals.


New Jersey's First Tax Expenditure Report: A Disappointment


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In January, New Jersey took an important step forward by enacting legislation that required it to finally join the vast majority of other states already producing “tax expenditure reports.”  These reports catalogue and measure the plethora of special tax breaks offered in a particular state, thereby providing policymakers with an invaluable tool for understanding the complex workings of their state’s tax code.  New Jersey’s first such report was issued earlier this month, and was advertised in Governor Christie’s budget as evidence of the Governor’s “commitment to transparency.”  Unfortunately, the report is a significant disappointment, and fails to even come close to living up to the basic legal minimum requirements established in the legislation the state enacted just two months earlier.

In some ways, the shortcomings of the state’s first tax expenditure report are unsurprising, and even forgivable.  As we pointed out when we first discussed the state’s new reporting requirement this past January, the legal requirements created for this report are quite daunting.  And with only two months to create the report, the state’s Department of Taxation can be forgiven for not being able to meet the full range of requirements.

What is less excusable, however, is the complete absence from the report of any indication regarding what information or other resources the Department would need to meet the state’s legal requirements, and what steps the Department plans to take to continue moving toward fulfilling these requirements in the future.  As things currently stand, the reader is left only to hope and wonder whether or not the Department possesses an interest, and capacity, for improving upon its current “bare bones” report in the years to come.

Looking specifically at the legal requirements, the report itself confesses that it fails to meet four of the seven requirements articulated in the law passed earlier this year.  Those four requirements are that the report:

(1) describe the objective of each State tax expenditure,

(2) determine whether each State tax expenditure has been effective in achieving the purpose for which the tax expenditure was enacted and currently serves, including an analysis of the persons, including corporations, individuals or other entities, benefitted by the expenditure,

(3) the effect of each State tax expenditure on the fairness and equity of the distribution of the tax burden, and

(4) the public and private costs of administering the State tax expenditures.

Presumably, the Department has at its disposable much of the information needed to produce the kinds of distributional analyses required by the third criterion above.  Adding these analyses to next year’s report would be the easiest way to maintain the state’s momentum toward greater transparency that was generated by the state’s new law.

The second criterion, by contrast, may be the hardest for the Department to fulfill.  Washington State is the only state that currently reviews the effectiveness of its tax expenditures on a systematic basis — and its experience makes clear that doing such reviews well requires a significant amount of effort.  New Jersey legislators should have done a better job outlining the types of criteria they would like to see used in conducting these evaluations, and should have provided the Department with the additional resources it will likely need to execute those reviews.  Clearly, the Department of Taxation and New Jersey’s elected officials have much work to do before the state’s tax expenditure report can be expected to live up to the requirements contained in state law.


New Jersey Finally Joins Majority of States Producing Tax Expenditure Reports


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

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

The report must, among other things:

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

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

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


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


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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.


New Jersey Gubernatorial Candidate's Plan Filled with Wild, Impossible Promises


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New Jersey gubernatorial hopeful Chris Christie has promised the following if elected: property tax cuts, across-the-board income tax cuts, corporate tax cuts, and tax cuts for small businesses.  Like a true politician, Christie has chosen to avoid upsetting any specific voters by refusing to outline the unavoidably severe cuts in state services that would be required to finance his tax-cutting spree.  Instead, he has simply stated that everything, aside from police funding, should be on the table.  Like most states, New Jersey will be staring down a large budget gap for the foreseeable future (projected at about $6 billion or more for FY11).  Closing this gap alone (without raising taxes) would require a 20% cut in the state budget.  Piling Christie’s tax cuts on top of that gap would raise that percentage significantly.

Somewhat encouragingly, voters are beginning to question Christie’s ability to deliver tax cuts during these dire budgetary times.  In an attempt to side-step these growing questions at a recent gubernatorial debate, Christie compared his current situation to the one he faced as a U.S. attorney:  “When I said I was going to combat public corruption, no one asked me exactly how [I was] going to do it … They said, ‘Do it. Let’s see if you can.’”  But you can’t blame the voters for being just a bit skeptical.  The fact is, if Christie explained “how” he was going to do it, he’d probably lose more than a few votes.

In addition to the general fund fantasies Christie seems to be concocting, he also has some interesting ideas regarding transportation funding.  In discussing the state’s deteriorating transportation infrastructure, Independent candidate Christopher Daggett admitted that gas tax increases or toll increases will be needed.  When Christie attempted to bash this idea, Daggett fired back, “It’s easy to criticize when you have no plan of your own. The tooth fairy’s not going to solve this problem.”

In addition to taking a realistic position on transportation, Daggett should also be commended for his willingness to offer specifics regarding his property tax plan.  In order to pay for a 25% cut in property taxes, Daggett has proposed expanding the state’s sales tax to include services.  Such a move would modernize an outdated tax, and would ensure the sales tax’s long-run sustainability.

Finally, while incumbent Jon Corzine has been relatively tight-lipped regarding his future plans for the state’s tax system, he has shown some real leadership by refusing to take the childish no-tax pledge that many observers have been attempting to force onto him.  Moreover, it’s important not to forget that Corzine has already shown an ability to make the tough choices in his decision to take a balanced approach (both raising taxes and cutting spending) during the most recent round of budget negotiations.


Oregon and New Jersey: Time to Get Serious on Tax Increases


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With the start of fiscal year 2010 generally only a little more than a month away and with the overall fiscal picture continuing to look rather bleak, two more states have gotten serious about using progressive income tax increases to generate much needed revenue. In Oregon this past week, Democratic legislators -- who control both chambers of the statehouse -- unveiled a plan to raise $800 million over the FY09-11 biennium. One of the principal features of the plan is the creation of two new income tax brackets -- one for couples with incomes over $250,000 (or for single filers with incomes above $125,000) and another for filers with incomes greater than $500,000. The rates for these brackets would be 10.8 percent and 11 percent respectively. (At present, the top rate in Oregon is 9 percent). Similarly, in New Jersey, Governor Jon Corzine, in the wake of particularly poor April revenue collections, has revised his earlier budget plan. He now proposes to raise the tax rate for millionaires to 9.47 percent and to create an additional bracket for filers with incomes between $400,000 and $500,000. While the income tax aspects of the Governor's proposal have won support from progressives, his recommendation that the state suspend its current property tax rebates for everyone except the elderly and the disabled has been less favorably received.


State Income Taxes: The Jet Set Stays Put?


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In the wake of the worst fiscal crisis in decades, several states -- most notably, New York and Hawaii -- have recently adopted income tax increases targeted at upper-income individuals and families. As the Center on Budget and Policy Priorities has documented, they may well be joined by several other states in the coming months as more lawmakers realize that this is the most responsible way to address budget shortfalls.

Critics of progressive income tax increases like to suggest that such changes will only spur the wealthy to pack up and head to more tax-friendly climes like, say, Wyoming or South Dakota. Yet, as ITEP observed earlier this week, at least three of the states that turned to income tax increases during the last fiscal crisis (New York, New Jersey, and Connecticut) saw an upturn in the number of affluent taxpayers over the ten year period from 1997 to 2006. Guess it's hard to find the equivalent of Per Se or Le Bernardin in Sioux Falls!


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


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

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

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


New Jersey Governor's Budget Includes Progressive Revenue Options


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In continuing our effort to highlight states where progressive revenue-raising options are gaining support, this week the attention shifts to New Jersey where the Governor has proposed a budget that wisely relies on revenues from wealthier taxpayers who are most able to afford to pay during these difficult times.

Rather than only slashing services, the Governor has proposed a temporary income tax rate increase on earnings over $500,000, a suspension of the property tax deduction for better-off New Jersey residents, and the extension of a temporary surcharge on corporations. Like many proposals circulating in states across the country, the Governor's budget also includes increases in alcohol and cigarette taxes.

Overall, it's encouraging that yet another state appears ready to acknowledge that taxes on high-income earners are among the least harmful ways to escape current state budgetary nightmares. See past stories from Iowa, Missouri, Alabama, New York, and Wisconsin for more examples.


Budget Picture Hardly Rosy in the Garden State


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Last week New Jersey residents got word that current fiscal year tax collections are down and the state budget shortfall may reach $1.2 billion. The future doesn't look much brighter, as the shortfall for fiscal year 2010 is expected to more than quadruple to an astonishing $5 billion.

Late last month, we discussed Governor Jon Corzine's rather unimpressive stimulus package. It includes proposals like the introduction of the "single sales factor" and eliminating the state's "throw out rule." Together, these proposals could allow many large New Jersey companies that do business across several states to avoid tax liability.

To be fair, other components of Corzine's stimulus package, like giving more money to food banks and increasing aid to residents in need of heating assistance, would help those hardest hit by these tough economic times. But the Governor did little to distinguish between helping people and boosting corporate profits when he said, during a recent briefing, "Everything that we talked about in the stimulus program I think is more important today than it was before."

For some more commonsense, responsible policy alternatives, read Mary Forsberg's report from New Jersey Policy Perspective, What's the Rush? Costly Tax Changes Need More Deliberation. We second Mary's suggestions about the need to carefully consider a variety of reform options including combined reporting, corporate disclosure, and publishing a tax expenditure report. We urge the Governor and others to follow Mary's advice before quickly and perhaps carelessly pushing through the aspects of the Governor's stimulus that amount to poorly targeted tax cuts.


New Jersey: Stimulus for Whom Exactly?


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Governor Jon Corzine recently revealed his economic stimulus plan, saying that the crisis on Wall Street will uniquely impact his state. "Economists predict New Jersey could lose tens of thousands of Wall Street jobs," he said, adding "our casino revenues are in decline, thousands of construction and manufacturing jobs have already been lost, auto and retail sales are down while inventories climb."

The Governor's proposal includes both short- and long-term strategies. The short term strategies include ensuring more seniors have access to property tax cuts, investing in public infrastructure, and expanding heating assistance.

The Governor's long-term strategies are more suspect. Among them is a proposal to change the state's formula for calculating business taxes to consider only sales made in the state (in other words, moving towards a single sales factor (SSF) approach). Unfortunately, the SSF is a huge revenue-loser in states that have already adopted it and results in a corporate tax structure that is less fair, as explained in ITEP's policy brief.

The Governor also proposes to "remove certain tax provisions that penalize New Jersey companies" including the "throw out rule." As another ITEP policy brief explains, many states have a "throwback rule" or, in the case of New Jersey, a "throw out rule" that prevents companies from shifting portions of their taxable income out of state. Every state that levies a corporate income tax must determine, for each corporation doing business within its borders, how much of the company's profit they can tax. Whether sales are in-state or out-of-state is one factor used to make this determination (and it's the only factor used in single sales factor states). In the absence of a throwback/throw out rule, some corporate sales fall between the cracks, and cannot be taxed by any state. (This can happen because, for example, a company stretches its operations so that its sales are recorded in a state that does not have a corporate tax or a state where it doesn't meet the requirements to be subject to the corporate tax).

This phenomenon is called "nowhere income." The "throwback/throw out" rule simply says that state of origin (the state that is the home of the company making those sales) can tax this income.

Mary Forsberg at New Jersey Policy Perspective wisely cautions policymakers to get the facts and not act hastily to adopt tax changes that could have long-lasting ramifications.

Why would the state even consider changes that would mainly help corporations avoid paying state taxes? It's true that New Jersey has more corporate CEOs, stockbrokers and hedge fund managers who are affected by the stock crash than most other states, but the state government seems to think this means all New Jersey residents belong to this wealthy elite. A surprising amount of attention has been given to how members of this elite are "feeling the pinch" as one recent article put it. A paper actually sent a reporter to Moorland Farms for the 88th annual Far Hills Race last Saturday to find wealthy attendees complaining that they have to cut back on dining at expensive restaurants and traveling over the holidays. Hopefully, tax policy changes will not be geared solely towards benefiting this group.

Ironically, in the Governor's address to a joint session of the Legislature he said, "It's our time to be courageous. Let's do what is right for the people and prosperity of New Jersey." Let's hope the Governor takes a step back and has the courage to do less for corporations and more for those hardest hit by his state's fiscal woes.


New Jersey: Progressive Income Tax Reform Doesn't Scare Off the Wealthy


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When New Jersey enacted a new top income tax rate of nearly 9% on incomes of over $500,000, opponents of progressive tax policy issued dire warnings that the state's wealthiest residents would flee the state, with detrimental effects both on productivity and tax revenues. Needless to say, those fears proved to be baseless, as a new report out of Princeton University shows that out-migration by wealthy New Jerseyans has been nothing more than a "small side-effect" of the tax hike -- a policy that raises over $1 billion annually for the state. In fact, as a result of strong income growth among the more fortunate members of society in recent years, the number of New Jersey residents with incomes over $500,000 actually increased by 70% between 2002 and 2006.

You can read the report here. For more information, check out New Jersey Policy Perspective, one of the key groups involved in the original passage of this progressive policy.


Tax Foundation State Rankings Continue to Deceive


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The Center on Budget and Policy Priorities has put out a critical appraisal of the Tax Foundation's latest rankings of states by their relative state and local tax levels. Due to some methodological changes and recently revised data, some states underwent huge shifts in their ranking (changes of 10 to 15 places were not uncommon) which are not explained by the minor shifts in tax policy that may have taken place within the states. They've revised downward their estimates of the overall state and local tax burden by a full percentage point since 2007. They also no longer call 2007 a "25-year high" in state and local tax burdens, now considering the year lower tax than the mid-90s.

If history is any indication, the Tax Foundation's inconsistent methodology and reliance on early projections without hard data will lead to further rankings revisions in the future. The problem is that when state and national media pick up a juicy story along the lines of, "Your taxes are too high," they don't report the numbers as estimates or tentative. They report them as fact and don't report it when figures for previous years are revised. This is problematic because if politicians take the numbers at face-value, they may overreact to the almost certainly flawed numbers that indicate an enormous shift like, "New Jersey edged out New York to become the highest taxed state in 2008" after being ranked 10th for two previous years.

But because the numbers used to derive this conclusion are so preliminary and based on a shifting methodology, no responsible policy analyst would confidently claim that New Jersey has higher taxes than New York, Connecticut, or other similarly ranked states. The media don't mention the cautionary details that the Tax Foundation includes in its final report and methodology but excludes in its press releases. Its website even contains a sensational headline that glosses over the limitations of their study.

There are also several more fundamental problems with the Tax Foundation's ranking scheme. The Tax Foundation attempts to determine the combined tax impact from all states on a given state's residents. This is different from how most organizations would identify an average tax load, by simply dividing total state and local tax receipts by total income within a state. This is an important distinction because states generally cannot influence tax policy in other states. Also, while the Census Bureau takes two years or more to compile the official data for a given fiscal year, Tax Foundation relies on proxies (such as dividend income to estimate capital gains) to obtain data for a fiscal year that has barely ended. Using such fly-by-night estimates as a basis for ranking states against one another is so unreliable as to provide almost meaningless numbers.

Of course, the most fundamental criticism of the Tax Foundation report is that it lumps all of a state's residents, from the very poorest to the wealthiest, together in one group for purposes of measuring tax levels. As an excellent Birmingham News editorial reminds us, calling Alabama a "low tax" state conceals the harsh reality that it is among the highest-tax states in the nation in its effect on low-income families. As the editorial points out, "[Our tax fairness ranking] is the ranking that most needs to change. "


FY 2009 State Budget Carnage: New Jersey


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New Jersey's recent budget agreement is somewhat less disheartening with fewer cuts and more aid. Garden State lawmakers plan to only raise taxes on public utilities, a move that would disproportionately affect the poor as energy costs soar. New Jersey, already the nation's fourth-most indebted state, plans to rely on borrowing to channel as much as $3.5 billion toward school construction in the state's poorest cities following a state Supreme Court Order. Legislators opted to cut state aid to help hospitals treat uninsured patients, reduce funding to nursing homes and deny a funding increase (in the face of a rising cost-of-living) for nonprofits that care for the poor and disabled. State funding will also be reduced for municipalities and colleges. Retirement incentives for state workers were increased. But while salary costs will now fall, retirement benefit costs will rise later. Benefits for newly hired government workers and teachers were slashed. On the positive side, households with incomes over $150,000 will no longer receive property tax rebates.

New Jersey lawmakers expressed little sympathy for their plans to choke hospitals and nursing homes. Assemblywoman Joan Quigley, D-Bergen, claimed that "the pain in this budget is being shared pretty equally by everyone." But it is quite obvious that the primary burden of the budget cuts will fall to the poor, disabled, elderly and teachers.


Gas Tax Changes Pick Up Speed


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Earlier this week, legislators in Minnesota overrode Governor Tim Pawlenty's veto and enacted a $6.6 billion transportation plan, one of the key elements of which is a 8.5 cent per gallon increase in the state's gas tax. While higher gas taxes tend to fall harder on low-income individuals and families, the plan does include a refundable low-income tax credit of up to $25 per family to help mitigate the regressive impact of the larger levy. Other states considering proposals to raise their gas taxes to meet transportation funding shortfalls would do well to follow Minnesota's lead and provide similar credits.

A gas tax increase that will soon be before the Nebraska Legislature may also be worth emulating in some respects. A bill there would effectively increase the state's gas tax by 3 cents per gallon. But it is the means by which that increase would be accomplished that is notable. The bill would reduce the existing gas tax by 8 cents per gallon and instead impose a tax equal to 5 percent of the wholesale price of gas. Using what amounts to a sales tax on gasoline rather than an excise tax is preferable since it ensures that state revenues are more responsive to economic growth.

Lastly, raising the gas tax wasn't envisioned in New Jersey Governor Jon Corzine's transportation or budget plans, but, in a new report, New Jersey Policy Perspective (NJPP) argues that it ought to be part of any comprehensive approach to improving state finances. In observing that the New Jersey gas tax has been raised just once since 1972, the NJPP highlights one of the key flaws with excise taxes like the gas tax... they fail to grow with inflation, the economy, or personal income. NJPP points out that a 20 cent increase in the Garden State gas tax would mean $1 billion in new state revenue, a portion of which could be used to lessen the impact of such a change on low-income residents or to support mass transit improvements for all.


Standing Up Against Refund Anticipation Loans: A Better Alternative


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Many anti-poverty advocates advise low-income families not to resort to Refund Anticipation Loans (RALs) when filing their taxes. RALs allow filers to get their tax refund quickly by borrowing against that refund. According to the Center for Responsible Lending (CRL) these cash advances come at a steep price, with interest rates ranging from about 40% to over 700%. CRL says that in 2003 over 12 million people took advantage of an RAL, which translates to over a billion dollars in fees for tax preparation companies.

Of course, many teetering on the edge of poverty may genuinely need extra cash as soon as possible to pay bills or to deal with some emergency. Acknowledging this, New Jersey Citizen Action has followed the lead of the city of San Antonio and offers alternative refund anticipation loans with lower fees. Governor Corzine recently signed legislation that allowed nonprofit organizations like New Jersey Citizen Action to offer free tax preparation services and loans. The legislation also "prohibits tax preparers from requiring clients to take refund-anticipation loans and requires preparers to provide itemized statements of charges related to the loans and other services."


State of the States Roundup


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New Jersey

New Jersey Governor Jon Corzine has put forward an ambitious proposal of his own to help reduce the state's debt burden and to make needed public infrastructure investments. He has called for a 50 percent increase in tolls on the Garden State Parkway and other major roads every four years. Corzine also wants to create a new entity that would manage those roads and that would have the authority to issue as much as $38 billion in bonds backed by the revenue generated by such toll increases. While higher tolls may be a necessary component of any long term budget plan in the Garden State, New Jersey Policy Perspective's Jon Shure points out that they ought to be considered with an eye towards improving the overall fairness of state fiscal policy.


Flawed Property Tax Relief in New Jersey Redo


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Next week New Jersey voters will be asked again to let their voices be heard about property tax relief. Last fall voters approved earmarking half of the revenues generated through a one-cent sales tax hike for property tax relief. The question before voters on November 6 will be whether or not to approve a constitutional amendment that would devote the second half of that one-cent increase to property tax relief -- in other words earmarking the entire $1.3 billion raised by the sales tax increase for property tax relief.

Politicians in the Garden State give the ballot measure mixed reviews. Assembly Speaker Joseph Roberts Jr. supports the measure saying, "passage of Public Question #1 must be priority #1." On the other hand Governor Jon Corzine opposes the question though he hasn't actively campaigned against it. New Jersey Policy Perspective President Jon Shure comes out squarely against the proposal for three very good reasons. The amendment reduces the state's ability to be fiscally flexible, it won't help the larger problem that the state continues to spend more than it collects, and it is "yet another Band-Aid applied" until the entire tax system can be fundamentally restructured.


New Jersey Budget Signed, but Long-Term Questions Remain


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On Thursday, Governor Jon Corzine signed New Jersey's fiscal year 2008 budget into law, but warned that difficult times may be ahead if the state fails to address a looming structural budget deficit. But, as Jon Shure of New Jersey Policy Perspective explains in a recent op-ed, this concern didn't stop the Governor from approving a number of substantial tax cuts included in this year's budget, such as more than $2 billion in additional property tax rebates and a $275 million business tax cut. Though much smaller in cost, at roughly $36 million, the state budget contains another tax change that may be more meaningful for some working families - an expansion of New Jersey's earned income tax credit. As a result of the change, approximately 300,000 taxpayers, all of whom have incomes between $20,000 and just under $40,000 per year, will now receive the credit, while the overall value of the credit will rise from 20% of the federal credit to 25% over the next few years.


New Jersey's Ineffective Bribes


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Eighty million dollars for Verizon? Thirty-seven million dollars for Citigroup? Sounds almost like a modern version of Monopoly, doesn't it?

Well, as a recent New York Times op-ed by New Jersey Policy Perspective's Jon Shure points out, those are just two of the tax breaks that the Garden State has doled out to major corporations since the mid-1990s. Yet, as New Jersey's experience with MSNBC suggests, the corporations that benefit from this largesse often don't live up to their end of the bargain.

Good Jobs First has long been making that very point - and this week introduced a new on-line tool to help the public keep track of all of the subsidies that one particular corporation, Wal-Mart, is receiving from states and localities around the country. See www.walmartsubsidywatch.org to learn more.


The Garden State Is Not Quite Rosy


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New Jersey's property taxes are among the highest in the nation. Much has been made in the national press about New Jersey Governor Jon Corzine's efforts to reduce the state's property tax. The property tax saga has been full of ups and downs including heated political debates, a sales tax increase, and even a temporary government shut down. Now lawmakers expect the Governor to sign a bill that includes $2 billion in property tax credits that will cut property taxes for most homeowners. Those earning less than $100,000 a year would see a 20 percent cut in their property tax bills. Those earning between $100,000 and $150,000 would see a 15 percent cut, and those with incomes between $150,000 and $200,000 would see a 10 percent cut. But 90 percent of New Jerseyans remain skeptical of the proposal. Jon Shure of New Jersey Policy Perspectives is skeptical too, arguing that the proposal (which pays for these across-the-board property tax cuts by diverting sales tax revenue and repealing an existing "circuit-breaker"-style property tax credit) falls far short of the long-term structural reform that New Jersey needs


EITC Expansion: A Good Idea in Every State


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In a welcome trend, lawmakers and advocates in Connecticut, New Jersey, North Carolina, Nebraska, New Mexico, Montana, Hawaii, Utah, Ohio, and Iowa are considering enacting Earned Income Tax Credits ... or expanding existing EITCs. The federal EITC has been hailed by policymakers of all stripes as an especially effective tool for lifting working families out of poverty. At the state level, the EITC offers the additional benefit of helping to offset the regressive sales and property taxes that hit low-income families hardest. To find out more about whether EITC legislation is active in your state, check out the Hatcher Group's State EITC Online Resource Center.


Short Term Gain, Long Term Pain


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At first glance, it looks like the holy grail of state governance: a way to raise more revenue without raising taxes.The idea of selling off or leasing state assets, such as the state lottery, is now under discussion in Illinois, Indiana, Minnesota, New Jersey, and Texas. It is easy to see the idea's appeal: Texas Governor Perry predicts that the sale of his state's lottery would generate at least $15 billion, for example, while Indiana Governor Daniels expects that state's lottery to carry a price tag of over $1 billion, all without a single tax increase. However, there is a catch. While the boost to revenue is substantial, it is a one-time gain, and it comes at the cost of the yearly revenue contributions these assets would provide far into the future. While the seemingly painless financial gain offered by this privatization schemes is tempting, in the long run these sales would only diminish state coffers.


Governor Corzine Highlights Property Tax Reform in New Jersey


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In his state of the state address, New Jersey Governor Corzine outlined a proposed property tax reform package and emphasized property tax breaks that are fairly progressive in terms of who benefits. The proposed package would reduce property taxes by 20% for those with incomes less than $100,000. Those with incomes of $100,000 to $150,000 would see 15% reductions, and those with incomes of $150,000 to $250,000 would see a reduction of 10%. In addition to the tax cuts, the proposal would also cap the amount property taxes can be increased per year at 4%.


Casinos and Competition


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The recent shutdown of New Jersey casinos provided an opportunity for surrounding states to lure gamblers (and tax dollars) away from the Garden State. In Delaware, slot parlors saw an estimated increase of almost 20 percent in revenue. Nearby Pennsylvania has also legalized some forms of gambling and will also soon compete with New Jersey. As more and more states turn to casinos to generate tax dollars, states will probably find it more difficult to depend on revenue from this source. Instead of gambling on the future, lawmakers should focus on more reliable sources of funding. You can read ITEP's policy brief on gambling by clicking here.


Property Tax Reform in New Jersey, Texas


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New Jersey continues to struggle with property tax reform. A task force has signaled that it will call for a July special legislative session to deal with the state's growing homeowner property taxes. One lawmaker has proposed paying for major homeowner tax cuts with an income tax hike, while others think consolidating school districts is a necessary first step.

Meanwhile, Texas lawmakers are wrapping their special session up after finally figuring out a way to cut school property taxes -- but a lot of people are unhappy with the outcome. The new law reduces school property tax rates across the board, and pays for this major tax cut with three major sources: the state's short-term budget surplus, a cigarette tax hike, and a revamp of the state's major business tax. The Texas Center for Public Policy Priorities sensibly points out that since the budget surplus part of this equation will eventually disappear, once these changes are fully phased in, this "tax swap" will create a $10.5 billion hole in the state's biennial budget.

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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