State Rundown 2/1: 2017 State Tax Debates Getting Real

This week’s Rundown brings news of tax cuts passed in Arkansas and advanced in Idaho, proposals to exempt feminine hygiene products from sales taxes in Nevada and Michigan, revenue shortfalls forcing tough choices in Louisiana and Maine, and more governors’ state of the state addresses and budget proposals setting the stage for yet more tax and budget debates to come.

— Meg Wiehe, ITEP State Policy Director, @megwiehe 

• Arkansas lawmakers passed Gov. Hutchinson’s $50 million tax cut bill. While sold as a tax cut for workers earning less than $21,000 per year, ITEP analysis found that just under half of the value of the tax cut would benefit taxpayers in the top 40 percent (with the other half going to the bottom 60 percent as advertised). Lawmakers also passed a tax cut for military veterans, exempting retirement benefits—along with a tax break for the soda industry paid for by expanding the sales tax to manufactured housing, some digital goods, soft drinks, and candy.
• Louisiana lawmakers will meet in special session Feb. 13 to 23 to address a midyear deficit of more than $314 million. With tax increases off the table, expect cuts, rainy day fund spending, shifting costs to next year, and possible fee increases to balance the budget. Lawmakers will debate tax measures, such as those recommended in the recently released final report of The Task Force on Structural Changes in Budget and Tax Policy, during the regular legislative session starting in April.
• Nevada‘s ongoing debate over its property tax cap demonstrates how unhelpful and shortsighted such caps can be. To reduce property tax increases during the mid-2000s housing boom, the state installed property tax caps that now are now causing major problems for schools and other local governments, whose funding “won’t reach pre-recession levels for a generation” if something isn’t done.
• Nevada lawmakers will also consider proposals to create sales tax exemptions for feminine hygiene products and diapers. Lawmakers in Michigan also have introduced similar legislation.
• Idaho lawmakers are advancing two tax cut proposals—cutting the top personal income tax and corporate income tax rates, as well as increasing the exemption on the businesses personal property tax. An ITEP analysis of the bills found that the top 5 percent of taxpayers would receive two-thirds of the benefit.
• Nebraska lawmakers have a proposal to require online retailers to collect sales taxes due on purchases in the state, though one legislator is hoping to co-opt the idea by using the revenue to fund a tax cut for the wealthy.
• Efforts to enforce tax collection for online sales are also advancing in South Carolina, Minnesota, and Indiana. Utah lawmakers will take up the issue again this year, with the threat of competing tax initiatives to fund public education creating higher pressure for action.
• Several legislators in Maryland are attempting to make it the next state to legalize and tax marijuana.
• Oregon lawmakers face stark choices with a $1.8 billion deficit demanding drastic cuts or significant tax increases. The latter faces an uphill battle given supermajority legislative requirements, Republican demands for cutting public employee retirement benefits, and potential challenge via referendum.
• Florida Gov. Scott’s tax cut package this year includes an expansion of the state’s back-to-school sales tax holiday, which, as we’ve written here, is a nice-sounding but not-very-effective way of helping working families.

Budget Watch

• Ohio‘s Gov. John Kasich released his final two-year budget this week, which includes a proposal to shift a significant amount of tax revenue away from personal income taxes and onto consumption taxes.  His personal income tax plan would flatten the personal income tax (reducing the number of brackets), cut rates, and increase the personal exemption for low- and moderate-income taxpayers at a full cost of well more than $1 billion annually.  But, he would raise almost an equivalent amount in revenue from sales, cigarette, alcohol, and severance taxes. Ohio Policy Matters take is that the proposed budget focuses on a tax shift, shortchanging key programs. 
• Tennessee Gov. Haslam released the final budget proposal of his term Monday. With revenues performing strongly but infrastructure needs growing, the budget includes funding increases for basic education, teacher and state employee pay increases, higher education building maintenance and construction, and a proposal to raise the state’s outdated gas tax but offset the increase with tax cuts for wealthy Tennesseans.
• Florida Gov. Scott unveiled details of his budget proposal Tuesday. His spending plan includes public-safety pay increases but budget cuts to public defenders, and relies on expected property value increases to improve school funding. It includes a tax-cut package, similar to a failed proposal last year, composed mostly of business tax cuts and sales tax holidays.

Governors’ State of the State Addresses

• In the past week, Governors Rauner of Illinois, Hogan of Maryland, Haslam of Tennessee, Abbott of Texas, and Herbert of Utah delivered their State of the State addresses.
• States with addresses scheduled through the end of next week are: Oklahoma on Monday; Alabama, Maine, and Pennsylvania on Tuesday; and Kentucky on Wednesday.

What We’re Reading…

• Governing reviews the fiscal pros and cons of self-driving cars, which are expected to be a net benefit to state and local budgets once accounting for reduced spending on things like road maintenance and traffic stops, increased property tax revenue thanks to less need for parking garages, and reduced revenues from fuel taxes, registration and license fees, and parking and speeding fines — not to mention reduced traffic injuries and deaths.
• The troubled “Kansas experiment” goes to Washington.
• Governors and legislatures are attempting to nullify voter-approved referenda on a host of issues from ethics reforms in South Dakota to minimum wage increases in Arizona and Maine.

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.