State Rundown 6/8: Compromise and Defeat

As legislative sessions across the country enter the final stretch, many states are buzzing with activity around tax policy. Lawmakers in Kansas and Maine are still working on behind-the-scenes negotiations aimed at resolving differences around major tax deals, while Ohio and North Carolina lawmakers are expected to release budgets with more personal income tax cuts (on top of the cuts enacted in recent years). Meanwhile, Alabama, Minnesota, Florida and Illinois are headed into special sessions to tackle thorny budget and tax issues and, in some cases, enduring budget shortfalls. 

Iowa lawmakers reached a budget compromise last week, ending a stalemate that took the state legislature a week beyond its expected adjournment. The debate centered on how to spend a budget surplus. Republican legislators were reluctant to increase spending on ongoing expenses using one-time money, while Democratic legislators and Gov. Terry Branstad wanted to use the surplus to invest in education and human services. The deal includes a 1.25 percent increase in K-12 spending next fiscal year as well as $55 million in one-time expenditures for public schools this fiscal year. In all, the budget next fiscal year will increase by about $299 million.

Rhode Island lawmakers are considering various tax breaks, among them proposals to exempt retirement income from the personal income tax. State Rep. Robert Craven has proposed exempting all state, local and federal retirement income, including Social Security and military pensions paid to those 65 and older, from state income taxation. Craven argues that the measure will keep retirees from moving out of state, though research shows that retirees don’t move for tax reasons. Critics of the plan argue that most of the benefits would go to wealthier citizens. Gov. Gina Raimondo has proposed a more targeted retirement income exemption that would fully exempt Social Security income from taxation for single filers with annual household incomes of $50,000 or less and married filers making $60,000 or less.  House Speaker Nicholas Mattiello supports a similar approach, although married couples earning $100,000 or less ($80,000 for singles) would be exempt from paying taxes on Social Security under his plan. The speaker also supports raising the state EITC to 12.5 percent of the federal credit, an improvement but less than the 15 percent proposal included in Gov. Gina Raimondo’s budget.

Louisiana legislators narrowly rejected a bill that would have doubled the state’s Earned Income Tax Credit (EITC) from 3.5 to 7 percent of the federal credit. If enacted, the change would have benefitted 515,000 Louisianans every year. So far this year, lawmakers in the state have approved or extended a variety of credits for business owners and corporations. One state representative called the EITC “essentially welfare written into the tax code” and sought to do away with the credit altogether. Other representatives rebuked their colleagues for doing nothing to help working families in the state, noting that Louisiana has a starkly regressive tax system.

States Ending Session This Week:
Louisiana