State Rundown 3/31: Tax Cut Throwbacks

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

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

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

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


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

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


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


State Tax Policy Trends in 2015: Thank You for Being a Friend — States Make Golden Years a Golden Ticket

goldengirls1.jpgWhether you indentified with Dorothy, Blanche, Rose or Sophia, The Golden Girls was a shining moment in television history. The show was groundbreaking in its portrayal of senior citizens as fully complex individuals, and has inspired a devoted following decades after the end of its run.

Life imitates art, and senior citizens are a favorite target of legislator largesse. Almost every state that levies an income tax now allows some form of income tax exemption or credit for citizens over 65 that is unavailable to non-elderly taxpayers. But many states have enacted poorly-targeted, unnecessarily expensive elderly tax breaks that make state tax systems less sustainable and less fair.

Poorly targeted tax breaks for the elderly are a costly commitment for many states—and long-term demographic changes threaten to make these tax breaks unaffordable since older adults are the fastest growing age demographic in the country. Moreover, while poverty has often been associated with advanced age, a 2014 US Census report found that Americans over 65 are less likely to be poor than people in their prime working years, further exacerbating the mismatch between the tax breaks offered and needs within the population.

Despite these concerns, lawmakers in many states have proposed further tax breaks for the elderly (click here to read an ITEP brief on this topic). Here are five states where senior tax proposals are on the table:

Iowa: State Sen. Roby Smith recently filed legislation (SF 277) that would remove pensions, annuities, and retirement income from the personal income tax base. So far, the legislation has 23 cosponsors and a similar bill is being sponsored in the House. Note that Iowa already allows a $6,000 exclusion ($12,000 for married couples) for retirement income.  

Maine: There is a lot of coverage of Gov. Paul LePage’s sweeping tax shift package that would hike sales taxes to help pay for significant personal and corporate income tax cuts and the elimination of the estate tax.  One part of the plan that has received less attention is an increase in the state’s current pension exclusion from $10,000 to $35,000 per each taxpayer over 65.  An ITEP analysis of this increased pension tax break found that more than 60 percent of the benefit would flow to the wealthiest 20 percent of Maine residents.

Maryland: Gov. Larry Hogan would like to eventually exempt all pension income from state income taxes, but due to a tight budget situation he is starting with a more limited proposal targeted toward politically popular beneficiaries: military veterans, police, and firefighters.  It’s important to note that Maryland already has a generous exemption on the books for pensions. Under current Maryland law, the first $29,000 in pension income collected by disabled taxpayers and those over age 65 is exempt from tax, and for military veterans that amount is even higher, at $34,000.  Of course, these breaks come on top of the normal personal exemption ($3,200) and standard deduction ($2,000) that all Marylanders can claim. As a result, Hogan’s plan would mostly benefit taxpayers with above-average pensions (the average military pension is $28,000 according to official statistics) and people with the financial means to retire early.  Fortunately, State Senate President Mike Miller thinks that the plan is unlikely to gain passage.

Minnesota: Lawmakers are debating a variety of bills aimed at eliminating or reducing taxes on Social Security benefits. As this article notes, the cost of cutting the tax on Social Security benefits will grow over time because the number of Social Security beneficiaries is growing.

Rhode Island: Lawmakers want to reduce taxes for Ocean State retirees this session, but the proposals that have emerged from the state’s House chamber and the governor’s office differ greatly in their cost and scope.  A bill introduced in the House would exempt all state, local and federal retirement income, including Social Security benefits and military pensions, from the state’s personal income tax. An initial ITEP analysis of the bill found that the lion’s share of the benefits would go to well-off elderly taxpayers.  Since some Social Security income is already exempted from Rhode Island taxes, low-income seniors already owe no personal income taxes on those benefits and often have no other retirement income. The House plan could cost more than $60 million if enacted.  Gov. Raimondo’s budget includes a much smaller and more targeted retirement income tax break which would fully exempt taxpayers with incomes less than $60,000 from paying taxes on Social Security.  Not only would her plan cost significantly less (around $4 million), it would ensure that 100 percent of the benefits from the tax break flow to moderate-income older adults who depend primarily on Social Security for their income.


The Three Fundamental Reasons Why We Need a Robust Estate Tax

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At a time of growing wealth and income inequality, House Republicans seem to be on a warpath to use tax policy to accelerate this trend.

The House Ways and Means Committee passed a bill on Wednesday that would repeal the estate tax. The bill’s passage is an incremental victory for the wealthy and their allies who, for years, have been trying to outright repeal the tax. The bill’s proponents have been falsely touting estate tax repeal as necessary to keep small businesses and family farms in operation, but the truth is that the bill is a giveaway to the richest of the rich. Only a fraction of the top one percent of the population are even subject to the tax.

Earlier this year, the GOP made a big hullabaloo over talking more about poverty and income inequality. But this bill and the just-passed House budget prove lawmakers are more interested in talk about inequality for political purposes, but action only when it comes to the whims of the super rich. Given that the estate tax is a critical bulwark against wealth inequality, it’s absurd that Congress would even consider weakening the tax when they should be working to strengthen it.

For those representatives who need a review, here are the three principal reasons we should make the estate tax more robust:

1. The estate tax is one of our nation’s most progressive revenue sources. The latest data from the IRS show that less than 4,700 estates (or the richest 0.18 percent all of estates) owed any estate tax whatsoever in 2013. Put another way, repealing the federal estate tax would do nothing for 99.82 percent of estates that already do not owe a penny in federal estate taxes.

Lowering taxes for this tiniest sliver of the ultra wealthy makes even less sense given the extreme rise in their overall wealth in recent years. For example, a recent study found that the top 0.1 percent of Americans already own more than 20 percent of all wealth in America, a level of wealth inequality that has not been seen in America since the late 1920s.

Opponents of the estate tax frequently cite its alleged effect on family-owned “small” businesses and farms. This is a red herring, plain and simple. According to estimates, only about 20 small business or farm estates owed anything in estate taxes in 2013. Even for those few small businesses or farms that owe estate taxes, there are already generous rules allowing those taxes to be paid over a 15-year period.

2. The estate tax is an important complement to our income tax system. Inherited wealth is one of the only forms of income that is entirely excluded from income taxation. In testimony before the House Ways and Means Committee, law professor Ray Madoff noted this inequity by pointing out that a person earning $60,000 could owe $15,627 in income taxes, while someone inheriting $60,000, even from a distant relative, owes nothing in taxes on that income. The estate tax makes up for this inequity (for wealthy estates at least) by applying a tax to the estate as a whole before it is then distributed to its inheritors.

In addition, without the estate tax, a substantial portion of income would go entirely untaxed at any point under the current system due to the “stepped up basis” rule. Under this rule, capital gains income on assets that are not sold during the owner’s lifetime are never subject to any tax. Congress should end this tax shelter as President Obama proposed to do in his latest budget.

Under the current system, the estate tax at least ensures that some tax is paid on capital gains for the wealthiest estates. For estates worth more than $100 million for example, these unrealized capital gains constitute 55 percent of their value.

3. The estate tax is a critical source of federal revenue. According to the nonpartisan Joint Committee on Taxation, repealing the estate tax would cost the federal government as much as $268 billion in revenue over the next ten years. This loss of revenue would likely mean even more cuts to crucial public investments, a further increase in our nation’s deficit or increasing taxes on individuals with lesser ability to pay.

If anything, Congress should raise more revenue by passing President Obama’s proposals to end the many egregious loopholes (including the infamous GRAT loophole) in the estate tax and restore the exemption level to $3.5 million dollars. Taken together, Obama’s proposals would raise another $214 billion over the next 10 years and would likely result in no additional taxes owed for 99.7 percent of estates.

How Presidential Candidate Ted Cruz Would Radically Increase Taxes on Everyone But the Rich

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Texas Senator, and now presidential candidate, Ted Cruz is a supporter of radical tax plans that would dramatically increase taxes on poor and middle class Americans in order to pay for huge tax cuts for the wealthiest Americans. While he has not clearly established which he favors more, Cruz has endorsed both the creation of a flat income tax and a bill that would replace the progressive income tax system with a national sales tax, a plan misleadingly called the “Fair Tax.”

While Ted Cruz may portray himself as wanting to lower taxes, the reality is that under the tax plans he has endorsed, the overwhelming majority of Americans would likely see their taxes go up considerably. Looking at the “Fair Tax,” an Institute on Taxation and Economic Policy (ITEP) study found that the bottom 80 percent of taxpayers would see their federal taxes go up by about $3,200 on average annually. In contrast, ITEP found that the top 1 percent of taxpayers would receive an average annual tax cut of $225,000.

On the flat tax, Cruz has not yet spelled out a specific plan that he would like to see enacted, but it’s unlikely that any plan he proposed will be significantly better than the extremely regressive flat tax proposals that have been offered in the past. For example, an ITEP analysis of Senator Arlen Specter’s flat tax proposal found that the bottom 95 percent of Americans would see their annual taxes increase by $2,900 on average, while the top 1 percent of taxpayers would see their taxes decrease by $210,000 on average.

When speaking about the tax system, Cruz has also peddled a patently irresponsible promise to abolish the IRS, without specifying how our country might go about collecting tax revenues (including Social Security and Medicare taxes) without a revenue collection agency. Even though much of Cruz’s rhetoric is likely bluster and contains factual inaccuracies, it’s still dangerous demagoguery.

Cruz’s approach on taxes is so unfair that even some conservatives suspect that it will not prove politically popular. Making this point, Pew Research recently found that even 45 percent of Republicans believe some wealthy people don’t pay their fair share in taxes, meaning a substantial portion of the Republican primary voters may not be able to stomach the massive tax breaks for the wealthy that Cruz is advocating.

Looking forward, here’s hoping that we see other presidential candidates reject Cruz’s regressive tax approach in favor of tax reform ideas that ensure that the rich and profitable corporations are paying their fair share. 

The Case for Closing the Loophole that Allows Corporations to Defer Taxes on Offshore Income

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While the problems with our international tax system are complex, the solution is relatively simple: U.S. corporations should pay the same tax rate, at the same time, on their domestic and foreign profits.

The ranking member of the Senate Finance Committee, Sen. Ron Wyden, made the case for this reform earlier this week in a Senate Finance Committee hearing on the international tax system by calling for an end to the deferral of taxes on foreign profits. Wyden has made ending deferral one of the central planks of his bipartisan tax reform legislation.

The root of the problem with the United States’ international tax system is multinational corporations’ ability to defer paying taxes on their foreign profits until these profits are repatriated to the United States. This creates a strong incentive for companies to shift their foreign profits and use accounting gimmicks to move U.S. profits to tax havens, where they will owe little to no tax. Without the ability to defer taxes on their offshore income, there would be no incentive to hold earnings in tax havens because companies would owe U.S. taxes on this income either way.

Exactly how much do companies avoid paying in taxes due to our system of deferral of taxes? According to the non-partisan scorekeepers at the Joint Committee on Taxation (JCT), deferral will allow U.S. companies to avoid paying some $418 billion in federal income taxes over just the next five years.

For its part, in its latest budget the Obama Administration proposed a 19 percent minimum tax on foreign profits. While this proposal is praiseworthy for ending deferral, the fact that the minimum tax rate would be lower than the tax rate on foreign profits means that it would still leave in place a system that incentivizes corporations to shift profits offshore, either on paper or by shifting real operations.

During another Senate Finance Committee hearing on simplification, Professor Mihir Desai, by no means a foe of multinational corporations, noted in his testimony that he thinks it is preferable to explicitly repeal deferral given that a minimum tax “creates numerous opportunities for planners that have resources that far eclipse the ability of the government to police them.” Reinforcing this point, the JCT estimates that Obama’s minimum tax would only capture about a third, $130 billion over five years, of the revenue lost due to deferral of taxes on foreign profits.

Unfortunately, much of the push for international tax reform is coming from advocates of a territorial tax system, which would actually exacerbate the problems we currently face with offshore tax shifting by exempting much of U.S. corporations’ foreign income from taxation. In other words, rather than making the U.S. more “competitive” as companies claim, a territorial system would just make it even more beneficial for U.S. companies to move jobs and profits offshore.

Looking at the big picture, tax professor and former corporate tax practitioner Stephen Shay argued before the Senate Finance Committee that the Wyden proposal to end deferral was the “first best choice” to reform the international tax system because it is the best way to address base erosion and profit shifting by multinational corporations. Senate Finance Committee members should take the recommendation of Professor Shay, Ranking Member Wyden and an increasing number of advocates to heart as they develop proposals for international tax reform going forward. 

House Budget Proposal Silent on Fate of Budget-Busting Tax Extenders

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The GOP House budget proposal released Tuesday implies that lawmakers intend to allow the controversial package of business tax cuts known as tax extenders to expire for good. If true, this would be an important step toward a fairer tax system. Unfortunately, they probably don’t mean it.

As we have noted before, the extenders are mostly a motley array of ineffective giveaways to businesses. There’s the research credit that gives businesses tax breaks for such dubious activities as developing new soft drink flavors or exploring how to replace workers with machinery. And then there’s bonus depreciation, which allows businesses to write off the cost of capital investments at a much faster pace than which materials actually depreciate. There’s also the infamous “active finance” loophole, which is likely a main driver in allowing General Electric to pay next to nothing in federal income tax most years.

The House budget blueprint says nothing at all about the fate of these and other tax “extenders,” each of which expired at the end of 2014. On its face, this suggests that Republican leaders are ready to say a permanent adieu to these ill-advised tax breaks, which have been the subject of a year-end drama almost every year recently. After all, the blueprint’s authors are pretty vocal about the few high-end tax cuts they explicitly propose in the document, so one would expect they’d be poised to brag about the extenders as well. But in light of Republican leaders’ recent history in dealing with budget blueprints—and with the extenders—a very different interpretation seems more plausible. In all likelihood, the House leadership fully intends to bring the extenders back—it just would prefer not to have to explain, at this time, how Congress will find the revenue needed to pay for them.

We’ve been here before: a year ago, the House budget plan formulated by then-Budget Chair Paul Ryan was just as conspicuously silent on reviving the extenders. But the House leadership subsequently revealed their true stripes, approving several bills over the course of 2014 that would not only have brought these misbegotten tax breaks back, but also would have made some of them permanent.

While this strategy is intellectually dishonest, this approach to budgeting makes perfect sense for those seeking only to masquerade as fiscal conservatives. During the budget season, everyone wants to be able to claim they’ve proposed a “balanced budget.” And the more tax cuts you propose, the harder it is to say with a straight face that your budget proposal is fiscally responsible. But months from now, when the goal has shifted from burnishing their “fiscal conservative” credentials to pushing through tax cuts for grateful corporations, the budget-busting impact of the extenders will be less of an issue.

This shell game has real consequences for the federal budget, and for middle-income working families. Every time Congress passes up the chance to root out unwarranted tax loopholes for corporations and the wealthy, that’s increasing the odds that the next budget fix will fall on low- and middle-income taxpayers.

Budgets are moral documents, laying out a vision of the priorities of a government and of its citizens. From this perspective, the House budget blueprint’s hypocritical silence on the fate of the tax extenders borders on the sociopathic. 

Art Laffer Writes An Economics Book for Children

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Art Laffer, an economist renowned for the childlike simplicity of his theories, has decided to enter the children’s book market. His new book Let’s Chat About Economics! was coauthored by writer Michelle Balconi, who heard Laffer speak at on a panel and enthused “I was listening and I just really wanted my kids to be there. I said to my husband, ‘We have to talk about this tonight.’” I’m sure Mrs. Balconi’s kids are grateful to have missed the event.

The actual content of the book is comprised of straightforward economic concepts couched in familiar settings for children, like planning a vacation for spring break (diminishing returns) or buying groceries (budgeting and scarcity). The Laffer curve is not included, but there are fun and colorful graphs to illustrate ideas in ways that kids can understand. Perhaps Laffer can send a few free copies to the Kansas public school libraries decimated by budget cuts in the wake of disastrous tax policies he championed.

Given the recent success of Mr. Laffer’s book, here are a few more titles he might consider:

Sam Brownback and the Terrible, Horrible, No Good, Very Bad Year: Poor Sam Brownback! From the moment he passed deep income tax cuts, nothing has gone his way. Revenues are way under projection, economic growth and jobs have failed to materialize, and he had to propose tax increases to keep Kansas solvent. It’s enough to make a governor want to move to Australia.  

Harriet the Supply-Sider: Harriet M. Welsch is a precocious eleven-year-old and aspiring writer who believes that tax cuts for the wealthy will generate prosperity for everyone. When the other students at her progressive New York City elementary school catch wind of her political views she is shunned, but she gets the last laugh as a successful novelist under the pseudonym Ayn Rand.

The Borrowers: A fantasy novel about tiny politicians that live in the walls of an English home, this story features a wee president who is forced to take things from the Big People in order to pay for tax cuts and boost military spending.

Bridge to Topeka: Two lonely and imaginative young children create a fantasy bridge to Topeka, Kansas, when the original one collapses due to inadequate funding that delayed routine maintenance.

Frog and Toad are Austrians: Frog and Toad may be opposites, but there is one thing they can agree on: The United States should return to the gold standard and abolish the Federal Reserve.

The Job-Giver: This utopian tale is set in the near future, where society has eliminated all pain and strife by appointing the wealthiest man in town – the “Job-Giver” – as ruler.

Miss Nelson Was Laid-Off! When Miss Nelson’s students constantly take advantage of her kind nature, she takes a leave of absence and is replaced by a long-term substitute, the strict Miss Viola Swamp. The students believe this to be a ruse, but it is revealed that Miss Nelson was let go due to budget cuts.

The Grinch Who Stole Pensions: The mean old Grinch is at it again! This time, he’s run for and won a seat in the state legislature, using his power to try and wiggle out of his state’s pension obligations to teachers and police officers. 


GOP Budget Proposal Once Again Punts Tough Questions

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Once again, U.S. House leadership has released a budget blueprint that promises a “stronger America,” but is, at best, vague about the hard choices lawmakers really must make to ensure the nation has enough resources to meet its basic priorities.

After releasing A Balanced Budget for a Strong America Tuesday, House Budget Committee Chair Tom Price asserted that the budget blueprint “balances the budget within ten years.” But like so many Republican budget proposals before it, the plan would achieve balance almost entirely through spending cuts. The outcome of budget battles in both Republican and Democratic administrations demonstrates balanced budgets are never achieved solely through spending cuts.

On the tax side, the House budget plan appears to have been sketched out on a cocktail napkin. Apart from enacting two new tax cuts that would overwhelmingly benefit the wealthy—and implicitly hiking taxes on low-income families by cutting two targeted tax credits for working families–the House plan is vague about how it would approach urgent reforms of individual and corporate tax laws.

Last year, we criticized the House Budget proposal for being very specific about how low it would cut  top tax rates, while offering no details about which loopholes it would close to pay for these rate cuts. It didn’t seem possible, but this year’s proposal offers even fewer details. On the important question of how to restructure the income tax, the blueprint says only that it would “lower rates… [and broaden] the tax base by closing special interest loopholes that distort economic activity.” This may be an appropriate talking point for a political candidate, but the budget plan should offer something more than campaign rhetoric.

And while the plan is mostly devoid of comprehensive tax reform proposals, it offers copious details on two proposed tax cuts that would disproportionately benefit the wealthy. The plan would repeal Medicare tax expansions designed to help fund healthcare reform, and it would repeal the Alternative Minimum Tax (AMT). The Medicare tax repeal would blow a $1 trillion hole in the federal budget over the next decade, and dismantling the AMT would lose more than $300 billion over the same period. 

More worrisome is that the House budget also appears to endorse a backdoor tax increase on low-income working families by allowing temporary expansions of the federal Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) to expire. The tables in the House blueprint show no change in revenues from a current-law baseline, implying that these temporary changes will be allowed to expire on schedule at the end of 2017. Allowing these provisions to expire would essentially be a tax hike on more than 13 million working families.

This should be no surprise to observers of the legislative process, since the Republican leadership in the House has repeatedly signaled its intention to let these valuable anti-poverty strategies expire. But in combination with the two high-end tax cuts, the net impact of these changes would be to make the federal tax system less fair.

It’s not easy to design a fiscal blueprint that avoids the hard tax reform questions facing the nation while simultaneously hiking taxes on low-income families and cutting them for the best-off, but the House Budget blueprint appears to have accomplished this.

Press Statement: House Budget Vague on Vital Tax Reform Questions, Clear on Tax Cuts for the Wealthy

March 17, 2015 05:09 PM | | Bookmark and Share

For Immediate Release: Tuesday, March 17, 2015
Contact: Jenice R. Robinson, 202.299.1066 x 29,

Following is a statement by Robert McIntyre, director of Citizens for Tax Justice, regarding the House Budget proposal for fiscal year 2016 released today.

 “The House leadership’s budget (A Balanced Budget for a Strong America) once again demonstrates some of our lawmakers value rhetoric over substance. The blueprint is astonishingly vague on vital tax reform questions. The plan calls for reducing tax rates and eliminating special interest loopholes but is silent on how to achieve the tax reform that both parties agree is vital.

“At the same time, the blueprint is quite specific about two new budget-busting tax cuts for the best-off Americans. The plan would repeal tax increases enacted to pay for health care reform and the Alternative Minimum Tax. These new cuts would blow a trillion-dollar hole in the federal budget over 10 years, with little or no benefit for middle- and low-income families.

“Most worrisome, the plan would allow valuable temporary expansions of two tax credits for working families to expire. Reducing the Earned Income Tax Credit and Child Tax Credit, as the plan appears to do, would push low-income working families further into poverty.”

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State Rundown 3/16: Win Some, Lose Some

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Nevada Gov. Brian Sandoval will make his case for expanding the state’s business license fee before a joint legislative committee on Wednesday. The governor wants to change the fee from a flat rate of $200 per year to a tiered system with rates from $400 to $4 million per year, with a company’s revenue and industry type determining the fee level. Sandoval argues that the change is necessary to support investments in K-12 education throughout the state.

Rhode Island Gov. Gina Raimondo’s budget proposal received positive reviews last week for its emphasis on job creation and education. Notable tax changes include a two-step increase in the state’s Earned Income Tax Credit (EITC) and a targeted tax exemption on social security income for couples who make up to $60,000. An ITEP analysis shows that all of the benefits of the governor’s proposed social security exemption would go to seniors in the bottom 80 percent of the state’s income distribution, whereas a rival plan to exempt all social security income from taxes would deliver half its benefits to the top 20 percent. To help raise revenue, Gov. Raimondo also proposed a new property tax on second homes worth over $1 million, as well as increases in the cigarette excise tax and taxes for online rental companies.

The Montana House of Representatives failed to override Gov. Steve Bullock’s veto of HB166, a bill that would have cut income taxes. Under the proposal passed by the legislature, income tax rates would have been reduced by 0.2 percentage points across all brackets. Opponents of the bill argued that the state already faces a $47 million deficit and that most of the benefits of the income tax cut would accrue to high-earners; almost 50 percent of the cuts would have gone to the top ten percent of Montanans. Gov. Bullock also pointed out that “the experience of other states shows that decimating your revenue base to benefit large corporations and the wealthiest individuals does not work to stimulate the economy.” A smattering of other tax cut proposals are still making their way through the legislature, including a measure that cuts income taxes and reduces breaks for capital gains, and another that would increase the exemption allowed for business equipment.

The Oklahoma House of Representatives, by contrast, voted to allow a scheduled income tax cut to proceed despite facing a $611 million budget deficit. The tax cut will reduce the top income tax rate from 5.25 to 5 percent beginning in January 2016. After that, if revenue conditions are met, the tax rate will fall to 4.85 percent in 2018. Since the Oklahoma Tax Commission says the state will lose $404 million in revenue from 2016 to 2018 due to the cuts, that’s a big “if.” ITEP data show the tax cut will put an average of just $29 back into the pockets of middle-income households, while the top 1 percent of Oklahoma earners will get an average benefit of $2,009 each.

A bill that would cut income taxes in Arizona if online shoppers lose their ability to evade sales taxes passed in the House after being defeated twice in the same chamber.  Sponsored by state Rep. J.D. Mesnard, the income tax cut proposal will only go into effect if Congress passes the Marketplace Fairness Act (which has little chance of happening soon).


Following Up
Massachusetts: Gov. Charlie Baker’s budget faces a tough road in the legislature; Senate President Stanley Rosenberg has said it fails to “invest in the future,” while other state officials have claimed that the cuts proposed by the governor would endanger everything from the lottery to elections.

Texas: The budget drafted by leaders of the state’s House Appropriations Committee reportedly includes more money for public schools than the Senate budget does. The Senate plan would cover additional costs from surging school enrollment, but would direct more revenue to tax cuts than the House proposal.

South Carolina: A Senate panel headed by Sen. Ray Cleary approved a bill that would increase the gas tax by 20 cents over five years and index the tax to inflation. The measure is expected to be vetoed by Gov. Nikki Haley, who has said she will not approve an increase in the gas tax unless it’s paired with a big cut in the state’s income tax.


States Ending Session This Week:
New Mexico (Saturday)