State News Quick Hits: Neo-Vouchers in Alabama, and More

Kentucky’s Blue Ribbon Commission on Tax Reform released its very useful findings in December, but regrettably little action has resulted from the comprehensive document. Many of the Commission’s recommendations were bold and forward-looking, like the proposal to expand the sales tax base to services  (PDF) and simultaneously institute an earned income tax credit (PDF). But Commissioners themselves aren’t confident that anything will come from their hard work developing those recommendations. Commissioner Sheila Schuster recently said, “I haven’t heard anything since the end of the (legislative) session that would suggest that it’s got legs… So it’s pretty discouraging.”

Legislators in many states are putting the cart before the horse when it comes to budgeting for the next fiscal year. This article (subscription required) from the Wall Street Journal tells of states like Maryland and Virginia who have already passed spending bills that assume new revenues from online Internet sales tax collections when Congress passes the Main Street Fairness Act. Of course, the Act has actually only passed the Senate, and by all accounts the bill faces an unclear future in the House.

This November, Colorado voters will vote on raising their state’s income tax to better fund education. The details of that increase have yet to be worked out, but former state representative Don Marostica has taken to the pages of the Denver Post to argue in favor of his preferred alternative: ditching the state’s flat income tax in favor of a more progressive, graduated income tax used by most states. Marostica explains that “businesses and middle-class Coloradans alike would be better off with a two-step income tax to provide the resources for top teachers and great facilities. The No. 1 priority for businesses seeking a new location is a well-educated, fully prepared workforce. … Yet we’re under-investing in education, in part because we’ve prioritized low taxes ahead of everything else.”

Bad tax ideas are in the news in the District of Columbia.  Mayor Vincent Gray recently reiterated that he wants to cut taxes for DC investors who do their investing outside of the District.  But it’s Councilwoman Anita Bonds’ idea that recently made headlines. Bonds wants to give a super-sized tax break to most people over 80 years old: a full exemption from property taxes, provided their income is below $150,000 per year and they’ve lived in the District for 25 years or more.  But property tax relief should be distributed based on income, not age. Rather than cutting taxes for the well-off elderly, DC lawmakers would be wise to follow the advice of the DC Fiscal Policy Institute and expand the city’s low-income property tax credit for DC residents of all ages.

Earlier this spring, Alabama lawmakers approved a bill establishing a state income tax credit (up to $3,500) to reimburse parents for the cost of sending children to private school or transferring them to a better performing public school.  The legislation also created a tax credit for corporations and individuals who contribute to scholarship funds. These kinds of credits are often referred to as back-door or neo-vouchers as they divert taxpayer money away from public schools, indirectly via the tax code.  Due in part to concern over the unknown cost of the credits and seemingly in part due to public displeasure with the new program, Alabama Governor Robert Bentley (who had been a supporter of the bill) attempted to delay the implementation of the school tax credits last week.  He told lawmakers they “had better be listening to the people” who he says are not supportive of using public tax dollars to fund private school education.  However, the House decided this week to ignore the Governor’s request; they rejected his suggested amendment and took a vote to show they could override any veto attempts.