Governors and legislators are beginning to settle and push through tax bills that could significantly shape the future of their states and several trends and themes are beginning to emerge. The least surprising of these are the personal income tax reduction plans. Utah is considering a cut in their lump sum tax, and while there are better alternatives to permanent cuts, the Speaker of the House, at the very least, wants it to be modest compared to other Republican plans. Mississippi, on the other hand, can eliminate their income tax altogether — a plan that would devastate their incomes and make the governor’s plan to raise teachers’ salaries much more difficult. Other states like New Mexico and Rhode Island target retirees by limiting or eliminating tax on their benefits. While these are just some of the trends we are seeing in the states, many more are still emerging, such as the EITC and CTC expansions in Michigan and Massachusetts. Be sure to follow the ITEP recap as we highlight other trends as state legislative sessions heat up.
Major State Tax Proposals and Developments
Annual Governors’ Addresses and State of the State Addresses
- HAWAII Governor David Ige announced in his final State of the State address his proposal for a $100 tax refund for each taxpayer and their dependents. Other announcements included support for more funding for broadband and education.
- In his 2022 State of the Commonwealth Address, MASSACHUSETTS Governor Charlie Baker introduced several budget proposals, including doubling tax relief for children and dependents; abolish income tax for the 230,000 lowest-paid taxpayers; increase tax relief for tenants; reduce inheritance tax; and the property tax reduction for the elderly.
- No surprise here. In his State of the State Address this week, MISSISSIPPI Gov. Tate Reeves said his top priorities are to eliminate state income tax, raise teachers’ salaries and increase funding for state police. The House has already passed a bill to eliminate the income tax, but it is unclear whether the Senate will support it.
- Last Thursday, DELAWARE Governor John Carney delivered his state of the state address and promised not to raise taxes or make further budget cuts. One of its top priorities is to increase education funding for English learners and low-income students. Some Republican lawmakers are hoping that corporate tax cut legislation introduced last year will advance in 2022, while some Democratic lawmakers are pushing for two more tax brackets.
- After his public address, Governor Dan McKee released his proposed budget. Among other things, the plan would reduce the minimum corporate tax, exempt the trade-in value of motorcycles from sales tax, and gradually exempt military retirement benefits from RHODE ISLAND state taxes. The latter would suffer a loss of revenue of $5.8 million per year once fully implemented. The state currently exempts the first $15,000 of military pension income.
- A new ALABAMA The bill would phase out local business taxes and prevent new business taxes or increases to existing taxes. Nearly two dozen municipalities that collect the tax oppose it because the municipalities have little opportunity to generate revenue.
- Opinion leaders in CONNECTICUT released a major report last week calling attention to needed improvements to the state’s tax code. Advocates are calling for allowing state income tax to adjust for inflation each year and creating a child tax credit for middle- and low-income families. Both policies would help reduce economic and racial inequalities.
- An advocacy group for GEORGIACounties are pushing state lawmakers to allow counties to include all digital products in the sales tax base. Local governments are also advocating for increased vehicle fees.
- In HAWAII there are two new bills that would change the tax system. One (paywall) would increase the tax rate to 13% for people earning over $500,000. The other (paywall) would increase the tax rate on capital gains so that they are taxed the same as regular income.
- the INDIANA The Senate has approved a bill that would provide a $125 refund to households after filing their 2021 taxes.
- In addition to creating a fixed personal income tax rate, IOWA Governor Kim Reynolds is proposing to replace the progressive corporate income tax rate with a flat rate of 5.5%. The current maximum rate is 9.8% on revenues over $250,000, meaning this reduction would benefit Iowa’s largest and most profitable businesses.
- Governor Whitmer of MICHIGAN proposes a restoration of the state earned income tax credit (EITC) to 20% of the federal credit. The credit was cut to 6% a decade ago to help fund corporate tax cuts.
- MINNESOTA Governor Tim Walz released his annual budget which projects a historic surplus of $7.7 billion. He proposed using a third of the surplus to fill the unemployment insurance trust fund, making one-time direct payments to households and front-line workers and expanding the tax credit for unemployment. K-12 education and the Child and Dependent Tax Credit.
- NEBRASKA lawmakers this week debated expanding an existing income tax credit that functions as a refund of a portion of school property taxes; it is capped at a total of $375 million per year and efforts are being made to remove this cap. They also introduced a bill to accelerate Social Security tax cuts for high-income Nebraskas.
- A NEW MEXICO the bill that would have phased out the Social Security income tax failed to pass its initial hearing after a 4-4 vote by a House panel. Governor Michelle Lujan Grisham had endorsed the idea of cutting her annual state address and similar plans are still on the horizon.
- A PENNSYLVANIA The legislature has proposed allowing counties to pass a 1% sales tax by electoral referendum or county council ordinance that would strengthen pension obligations and maintain basic services, as many local municipalities are experiencing financial difficulties. Along with the aforementioned news from Alabama and Georgia, this proposal highlights the consequences of insufficient state aid shared with municipalities.
- TENNESSEE lawmakers introduced legislation that would reduce state sales and use the 7-6% tax rate.
- VIRGINIA Lawmakers are debating a bill that would create a tax credit for parents who homeschool or send their children to private schools.
- Although his sponsor does not expect his bill to pass this year, a WASHINGTON Legislature introduced a proposal to allow cities and counties to move away from regressive sales and property taxes and instead use progressive income taxes, as long as there is no overall increase in taxes.
- WYOMINGFrance’s revenue committee is sponsoring a bill that would impose a 1% real estate transfer tax on the sale of property over $1.5 million.
What we read
- The Commonwealth Institute of Virginia explains how Governor Glenn Youngkin’s tax proposals would reduce critical state revenues and largely exclude lower-income families.
- the Kentucky The Legislature’s plan to replace income tax revenue with a higher sales tax comes under scrutiny in an op-ed by the Kentucky Center for Economic Policy in the Northern Kentucky Grandstand.
- the Republican Times in Iowa discusses the state’s stagnating population and lays out the inevitable consequences of tax cuts on education, state parks, the environment, and families.
- Pew’s State Fiscal Health Initiative has shared six key fiscal principles for building better long-term state budgets. Forecasting revenues and expenses using a “current services” approach for at least three years into the future is part of their recommendations.
- Stateline launched its State of the States 2022 series this week with articles on state policy approaches to electric vehicles, Covid-19 and elections. Payouts on essential workers and abortion are coming.
If you like what you see in the recap (or even if you don’t), please send comments or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the summary by email.