Category: TaxJusticeBlog

This week we continue to track revenue shortfalls, governors’ budget proposals, and other tax news around the country, finding most proposals to be focused on slashing taxes and reducing public investments despite public opinion and economic research showing the benefits of well-funded state services and progressive tax policies.

— Meg Wiehe, ITEP State Policy Director, @megwiehe 

Revenue Shortfalls Abound…

• Missouri joins the growing list of states staring down major revenue shortfalls – in this case a $456 million gap in the upcoming budget and $146 million of cuts just announced to balance the current budget, largely through higher education cuts. The state may be in better shape than others to handle the issue though, thanks to a tax study commission that heard helpful suggestions throughout the summer and a menu of options provided by the Missouri Budget Project.
  
• In Oklahoma revenue receipts miss targets again, marking the ninth month of missed goals in 2016. Will the state consider a higher gas tax?
  
• As West Virginia lawmakers wait to hear details of the Governor’s plan to address the state’s budget woes, they consider the idea of increasing their tax on sugary drinks.
  
• With an eye on the state’s growing pension debt, S&P reduced Kentucky‘s credit outlook from “stable” to “negative”, increasing the chance of a rating downgrade over the next two years.
• The Illinois Senate is working to push through a two-year stalemate that has left the state without a regular budget, advancing legislation for an income tax increase among other measures known collectively as the “grand bargain.” Whether the measures will pass muster with House Speaker Mike Madigan or Gov. Rauner remains to be seen.
• The Louisiana Legislature is expected to be called into another special session to address a mid-year budget deficit of $313 million. There is talk of a constitutional convention if lawmakers are unable to address the state’s ongoing fiscal challenges this legislative session. 

As Some States Consider Tax Proposals…

• A recent poll conducted in Maryland confirms that Marylanders support investments in education and “closing corporate loopholes and raising income taxes on the state’s highest earners” to make that possible.
• A Wyoming lawmaker is proposing legislation that would prohibit lawmakers from covering more than half of any budget shortfall with the use of reserve funds. The state is currently one of two without rules in place to govern how savings are spent.
  
• Rhode Island‘s Gov. Gina Raimondo proposed cutting the state’s car tax. Her proposal would cost $55 million rather than the $215 million elimination over five years proposed by House Speaker Nicholas Mattiello.
  
• Nevada lawmakers are considering ending or fixing the state’s property tax cap, put in place 2005 to slow property tax growth but now causing big issues for local budgets.
  
• Kansas Gov. Sam Brownback has indicated a willingness to reconsider the LLC exemption, suggesting he may be open to a partial repeal.
  
• Arkansas Gov. Hutchinson has dropped some of the competition to his $50 million tax cut with the promise of a Blue Ribbon Panel on Tax Reform.
  
• The debate over state solutions to untaxed online purchases is heating up around the nation, most recently in Mississippi and South Carolina.
  
• An Arizona lawmaker pitched a dime a gallon gas tax increase for the 2018 ballot. The tax would increase the state’s current 18 cent per gallon gas tax that was last increased over 25 years ago. 

Budget Watch

• Nebraska Gov. Ricketts released details of his budget and tax-cut proposal along with his State of the State address. His proposal holds back state school aid growth and makes cuts to higher education and health funding while focusing spending growth on the state’s overcrowded prisons. He also proposed changing the way agricultural land is valued and instituting a flawed tax-cut “trigger” that will guarantee income tax cuts for the highest-income Nebraskans.
  
• Gov. Andrew Cuomo’s state budget would, among other things, extend New York‘s millionaires’ tax surcharge on the wealthy and continue with a “middle-class” tax cut enacted last year.
  
• Nevada Gov. Sandoval released the last budget proposal of his term this week. The mixed-bag proposal includes increased investments in higher education, $60 million for a private school voucher program, and a 10-percent excise tax on marijuana, which voters legalized for recreational use in November. 

Governors’ State of the State Addresses

• In the past week, Governors Hickenlooper of Colorado, Deal of Georgia, Holcomb of Indiana, Snyder of Michigan, Bryant of Mississippi, Greitens of Missouri, Ricketts of Nebraska, Sandoval of Nevada, Martinez of New Mexico, Raimando of Rhode Island, Haley of South Carolina, McAuliffe of Virginia, Inslee of Washington, Justice of West Virginia, and Mead of Wyoming delivered their State of the State addresses.
  
• States with addresses scheduled through the end of next week are: Alaska today; Hawaii and Minnesota Monday; and Massachusetts and Montana Tuesday. 

What We’re Reading…

• A National Public Radio story featuring ITEP’s Carl Davis predicts a possible “wave of state tax hikes on gasoline and diesel” as so many states face infrastructure problems and out-of-date gas taxes.
  
• According to a new study by Oxfam, just eight men have the same wealth as world’s poorest half.
  
• The Associated Press shows how recent state experiences with misguided budget-sinking tax cuts should give Congress pause when considering repeating these mistakes at the federal level.
  
• Connecticut Voices for Children released a new report citing ITEP data that explores revenue options available to tackle the state’s budget shortfall.
  
• Protect West Virginia Campaign is fighting against deeper budget cuts in the state. Read more about their work and mission here.
  
• A study by a South Carolina economist supports raising the state’s gas tax to rebuild its infrastructure, pointing out that “taxes deployed to purchase more or better-quality public services positively affect economic outcomes.”

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.

Back in December, Kansas Gov. Sam Brownback gave an interview with the Wall Street Journal and suggested President-elect Trump should follow his state’s example and cut taxes as well as spending.

The sheer gall of the suggestion belies the fact that Kansas’s tax cuts have resulted in credit downgrades, lack of adequate funding for essential services such as education, and ongoing significant revenue gaps (including a $340 million revenue gap to close this fiscal year and an estimated $1.1 billion gap through the end of fiscal year 2019).

Brownback’s distorted reality was on display again last week in his State of the State Address, in which the fact that Kansas has been struggling with perpetual budget crises for the past four years was remarkably absent.

And based on his budget proposal, it seems achieving a structurally balanced budget is not truly a priority for the governor. Proposed measures to achieve a “balanced budget” include more of the same budget gimmicks and increased reliance on regressive sales taxes Kansans have seen over the past few years: hiking tobacco and alcohol taxes; taking money from the Highway Fund to cover general fund expenses; selling off revenue targeted to fund early developmental programs; and liquidating the state’s investment funds (which are intended to boost the state’s interest earnings, not plug budget holes).

These proposals do not put Kansas on a path toward achieving the stable fiscal footing needed to promote broad prosperity for all Kansans. Rather than raise revenues in a manner that asks more of those who reap more economic benefits, his one-time proposals continue to rely on those with the least and will only make the disparity between the rich and everyone else more vast. And ordinary people will continue to pay in other ways for these poor policy choices that have failed to generate promised results and gutted the state of resources needed to fund services for the disabled, mental health, and education.

Instead of acknowledging these fundamental problems, Brownback has dug his heels in, holding up his small business exemption—whereby more than 330,000 business owners pay no income tax—as a model for the nation.

Brownback in his address to Kansans said the state is “the envy of the world.” While Kansas does have beautiful sunsets, from an economic point of view, the state is failing to adequately invest in its infrastructure and people. A state in which much of the rewards flow to the top is hardly an example for others to follow. Kansas should clean its fiscal house before inviting others to follow its example.

Kansans are increasingly realizing the gap between what is, what is promised, and what might otherwise be and they’re opting for the latter. A growing number of lawmakers are doing the same. Hopefully, lawmakers will reject Brownback’s “everything is fine” vision of the state and steer the state toward meaningful tax reform such as the plan proposed by Rise Up Kansas.

There are a lot of troubling components of the tax reform packages being proposed by President-Elect Donald Trump and the House GOP, but one that especially stands out is the push to give companies a tax break on the earnings they are holding offshore. Unfortunately, proposals rewarding the nation’s most egregious tax dodging multinational corporations with hundreds of billions in tax breaks represent an area where lawmakers on both sides of the aisle seem to agree, making it a potential area of movement if broader tax reform efforts flounder.

Fortune 500 corporations collectively hold $2.5 trillion offshore. As long as corporations keep this money offshore, this massive stash remains an untapped source of tax revenue because a loophole in the tax code called deferral allows companies to avoid taxes on profits until they “repatriate” or bring those profits to the United States. Rather than requiring corporations to pay the full 35 percent rate (minus foreign tax credits) that they owe, lawmakers have introduced various proposals to lower the repatriation tax rate to 20, 8.75 or even 0 percent. Some of these proposals have bi-partisan support.

Corporations are avoiding up to $720 billion in taxes through this offshoring strategy. With such a significant sum at stake, any reduction in the repatriation rate would be a bonanza for multinational corporations. For example, under President-elect Trump’s revised tax plan, companies would be required to pay a 10 percent rate on their offshore earnings, meaning that they would get a 70 percent discount from the current rate owing an estimated $206 billion in taxes. In other words, President-elect Trump is proposing to give companies a $514 billion tax break on their accumulated offshore earnings.

A new ITEP report examines the benefit to the 10 companies with the most money offshore: Apple, Microsoft, Oracle, Citigroup, Amgen, Qualcomm, Gilead Sciences, JP Morgan Chase & Co., Goldman Sachs Group, and Bank of America Corp. The top 10 companies account for $182.8 billion of the potential $720 billion in tax revenue and would receive a $130.6 billion tax break under President-elect Trump’s proposal.

Giving companies a discounted tax rate of 10 percent on repatriation, or any rate below 35 percent, would disproportionally benefit companies that have most aggressively stashed profits offshore. For instance, Apple would receive a tax break of $48.1 billion on its $216 billion in unrepatriated earnings. Similarly, Microsoft would see a $28.1 billion break on its $124 billion in unrepatriated earnings. Wall Street firms such as Citigroup, JP Morgan and Goldman Sachs would receive breaks of $9.1, $5.9 and $4 billion respectively.

A one-time tax break on offshore earnings would provide a quick infusion of revenue, which is likely why lawmakers on both sides of the aisle have backed the idea. Many policymakers, including advisors to President-elect Trump, would like to use this one-time revenue to fund additional infrastructure investment. Alternatively, some conservatives would like to use any one-time repatriation revenue to help make lowering corporate tax rates appear revenue-neutral in the short term, even if over the long term the rates will lose revenue.

Rather than rewarding tax avoidance for a short-term revenue boost, lawmakers should pursue legislation that would require companies to pay the full $720 billion they owe on their unrepatriated earnings. In addition, Congress should end offshore tax avoidance once and for all by no longer allowing companies to indefinitely defer paying taxes on their foreign earnings. These two policies would be a huge win for the American public, raising hundreds of billions in much-needed revenue for public investments and making our tax system fundamentally fairer.

If the incoming Trump Administration and Republican-lead Congress have their way, fundamental changes to the tax code are afoot. The most important similarity between the Ryan and Trump tax plans are dramatic reductions in the corporate tax rate and across-the-board tax cuts whose benefits primarily flow to the richest Americans.

Because of their potentially catastrophic effect on federal revenue and tax fairness, neither plan should be the starting point for tax talks. Instead, lawmakers should  embrace tax reform plans that close down loopholes, increase the fairness of the tax code and raise more revenue.

One of the crucial dynamics in the upcoming debate over taxes will be whether Speaker Paul Ryan’s and President-elect Trump’s tax proposals can be combined in a way that will gain enough support from lawmakers to become law.

The plans have a lot in common, as this side-by-side comparison shows. Both Ryan and Trump would:

• Eliminate the estate tax
• Create an individual income tax rate structure of 12 percent, 25 percent, and 33 percent
• Limit itemized deductions (Ryan would eliminate all deductions except the charitable and mortgage interest deduction, Trump would cap deductions)
• Increase the standard deduction
• Eliminate personal exemptions
• Lower the tax rate on capital gains
• Eliminate the alternative minimum tax
• Cut the corporate tax rate
• Provide a lower top rate for pass-through business income
• Repeal the Affordable Care Act, which means repealing a series of tax provisions including higher taxes on investment income and tax credits for health insurance premium payments.

Ryan and Trump will still need to settle on the specifics of issues even where they embrace the same trajectory such as whether the corporate tax rate should ultimately be lowered to 15 (as Trump proposes) or 20 percent (as Ryan proposes).

There are a few areas in which the two plans differ meaningfully.

On corporate taxes, Ryan’s plan would eliminate the ability of companies to deduct interest, allow companies to immediately expense the full cost of their capital investments and enact a border adjustment which would exempt exports from taxation and not allow companies to deduct the cost of imports. In contrast, Trump would only allow full expensing (and disallow the interest deduction) for certain manufacturing firms. Also, Trump’s revised plan does not specify how it would deal with the treatment of international corporate earnings, though his original plan ended the ability of companies to defer taxes on these profits. In a recent interview, Trump specifically rejected the House GOP’s border adjustment plan, calling it too complicated, and arguing that its reliance on increasing the value of the dollar could be damaging to trade.

Another area where Trump’s plan is significantly different than Ryan’s is that it includes  substantial new tax breaks for dependent or childcare expenses. In fact, a top Trump representative is reported to have pushed Ryan to include these provisions during last week’s tax reform discussion between Ryan and the Trump tax team.

While the focus of the tax debate so far has been on Ryan’s and Trump’s tax plans, it is critical to remember that any tax plan must also go through the Senate. Unlike the House GOP, Senate Republicans do not have a blueprint detailed enough to serve as a starting point for tax reform legislation. The closest thing they have to a vision on tax reform is articulated in a lengthy primer (here’s a summary of the document) on tax reform put out by the Republican Senate Finance staff in December 2014.

The big initial question will be whether Senate leaders such as Majority Leader Mitch McConnell or Finance Chairman Orrin Hatch will use Ryan’s or Trump’s plan as a starting point for reform, or if they will start from scratch and create their own plans. It is important to note that the Senate is likely to face different pressures that the House because it will have a lot less room for party defections in a vote on tax reform. Specifically, tax reform legislation could be defeated in the Senate if as few as three Republicans Senators vote against it (assuming all Democrats vote against it). In contrast, the House could lose as many as 23 defections from their party and still pass legislation.

Regardless of the vagaries of legislative wrangling, the fact is that the majority of Americans do not support tax cuts for corporations and the wealthy. Recent polling shows that 64 percent of Americans think that corporations and upper income people are paying too little in taxes. In fact, only a tiny sliver of the population, less than 14 percent, share the belief of Ryan and Trump that the wealthy and corporations are paying too much in taxes. Even among Trump voters specifically, only 18 percent favor lower taxes on the wealthy and only 39 percent favor them for corporations, with significant majorities saying that they should stay the same or be raised.

Members of Congress have floated fundamental changes to the tax code for years, but last week marked a ramping up of these efforts as Republican Speaker of the House Paul Ryan met with President-elect Donald Trump and his advisors to discuss how to move forward with tax reform in 2017.

Plans floated by the incoming administration and Trump would dramatically cut taxes for the wealthy and corporations and eliminate revenue necessary to meet the nation’s most basic priorities. In other words, if either the blueprint for Ryan or Trump’s plans (or some combination of both) becomes law, the outcome will likely be the furthest thing from true “reform” of our tax system.

In the last major successful federal tax reform effort in 1986, lawmakers stood by the principle that any tax reform legislation should be revenue and distributionally neutral. The basic idea was that these two principles would allow Democratic and Republican lawmakers to put aside their broader ideological disputes and focus on making the tax code more efficient in ways that everyone could agree on. This approach resulted in the 1986 tax reform legislation, which is rightly heralded as a major milestone in improving the tax code.

More recently, former House Ways and Means Chairman Dave Camp sought to replicate this approach with his proposal for comprehensive tax reform in 2014. While the plan ultimately fell short of fully achieving revenue and distributional neutrality over the long run, Camp’s proposal at least laid out a path that lawmakers could revisit if they wanted to replicate 1986 tax reform efforts.

Ryan and Trump’s tax reform proposals are in sharp contrast to these previous reform efforts. At the heart of their tax plans is a major cut in the top income tax rates for the wealthy and corporations. As an ITEP analysis of Ryan’s “A Better Way” tax plan shows, his plan would lose $4 trillion in tax revenue over a decade, with as much as 60 percent of the tax cuts going to the top 1 percent. Similarly, ITEP found that Trump’s revised tax plan would lose $4.8 trillion, with 44 percent of the tax cut going to the top 1 percent. Rather than attempting to stay revenue or distributionally neutral, Ryan and Trump’s tax plans are chiefly a huge tax cut for the wealthy and corporations.

But even if Ryan and Trump chose to meet the lofty standards of the 1986 tax reforms, it would not be sufficient given our current fiscal and economic state. After decades of tax cuts, our nation faces an $8.5 trillion deficit over the next 10 years. It’s a hard truth for politicians to swallow, but the nation needs to roll back these tax cuts to help lower the growing debt and to create fiscal space for public investments in things like healthcare and infrastructure. In addition, our nation is facing an increasingly economically unequal society. For the past several decades income inequality has grown, with the top 1 percent now capturing more than 20 percent of all income. Increasing taxes on the wealthy and corporations would help counteract this trend.

Put simply, the guiding principles of tax reform should be to raise enough revenue to meet the nation’s priorities. Further, tax reform should be progressive and categorically avoid shifting more of the nation’s income to the wealthiest Americans, who already continue to capture a greater share of the nation’s wealth due to lawmakers’ past policy decisions.

Recent polling indicates the overwhelming majority of Americans (regardless of how they voted) neither want tax cuts for corporations nor the wealthy. Ryan and Trump’s so-called “tax reform” plans go against the will of the broader public. Our nation’s elected officials need to change course on tax reform. 

This week brings still more states looking for solutions to revenue shortfalls, multiple governors’ State of The State addresses, important reading on counter-transparency and local-preemption efforts, and more. 

— Meg Wiehe, ITEP State Policy Director, @megwiehe 

• A Nebraska legislator this week diagnosed the state’s $900 million revenue shortfall in plain terms, describing it as “self-inflicted misery” brought on mostly by repeated tax cuts in recent years, and adding that further tax cuts in this context would amount to “visionless activity.”
  
• Hawaii‘s tax revenue growth is down, resulting in $155 million less than expected for the upcoming legislative session. The state’s Council on Revenues predicts that low visitor spending and an increase in online shopping could be contributing to the shortfall.
  
• Ohio again this month saw tax revenues fall short of estimates. Legislators are gearing up for a difficult budget situation.
  
• North Dakota‘s 2016 budget woes will continue into the new year, as a new forecast has reduced projected revenues 7 percent just since the last forecast in December.
  
• New York‘s Gov. Andrew Cuomo proposed expanding the state’s child care tax credit. The proposal, another attempt to provide breaks to the middle-class, would benefit 200,000 families making between $50,000 and $150,000 and would cost $42 million.
  
• South Carolina lawmakers are putting forth a range of bills to address the state’s need for funding to improve roads and bridges. Unfortunately, as we saw in New Jersey last year, one of these ideas is to use the state’s infrastructure issues as an opportunity to force through regressive income tax cuts.
  
• Pennsylvania‘s Gov. Tom Wolf, again this session, is proposing a natural gas severance tax. This will be the governor’s third attempt to tax the industry since coming into office.

Budget Watch 

• Gov. Paul LePage’s budget would, among other things, cut 500 state jobs, broaden the sales tax base, and shift Maine to a flat tax by 2020, effectively rolling back the state’s recent referendum for an education tax surcharge on high-income Mainers.
  
• On the heels of his State of the State Address, Kansas Governor Sam Brownback is expected to release his budget proposal this week.  Based on his speech, don’t expect to see an expansion of Medicaid or elimination of his state’s costly pass through business income exemption in the proposal.  He will seek in his words “modest, targeted” tax increases including another hike in the state’s cigarette tax to help address a $342 million revenue shortfall. 

Governors’ State of the State Addresses 

• In the past week, Governors Ducey of Arizona, Hutchinson of Arkansas, Malloy of Connecticut, Otter of Idaho, Branstad of Iowa, Brownback of Kansas, Christie of New Jersey, Burgum of North Dakota, Daugaard of South Dakota, Scott of Vermont, and Walker of Wisconsin delivered their State of the State addresses.
• States with addresses scheduled through the end of next week are: Georgia, South Carolina, Virginia, and Wyoming today; Colorado and Nebraska on the 12th; West Virginia on the 16th; and Indiana, Michigan, Mississippi, Missouri, Nevada, New Mexico, and Rhode Island on the 17th. 

What We’re Reading…

• The Hill looks at a likely trend of Republican-led state governments passing “preemption” laws to reduce the flexibility of democratically dominated cities in areas such as local minimum wage laws, environmental regulations, and soda taxes.
  
• The Missouri Budget Project has created a Policy Framework for Building a Prosperous Missouri and a Strong Middle Class, which includes important tax reforms: creating a refundable state Earned Income Tax Credit, better evaluating tax credits going forward, and rolling back dangerous tax-cut triggers enacted in 2014.
  
• Governing reports on a troubling trend of states reducing transparency to avoid shining light on the negative consequences of their own short-sighted tax policies.
  
• At the kickoff of the Arizona Center for Economic Policy, Kansans offer a cautionary tale of the negative impacts of deep tax cuts.
  
• In a recent report citing ITEP data, Ohio Policy Matters finds that that a move toward a flat tax would mean more taxes for most Ohioans.

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.

This week we bring you updates on major revenue shortfalls looming in Nebraska, Oklahoma, and Pennsylvania, as well as gas tax changes taking effect in some states and being debated in others.

— Meg Wiehe, ITEP State Policy Director, @megwiehe 

• Oklahoma lawmakers are weighing options to close the state’s $870 million shortfall. Up for discussion are tobacco and gas tax increases, expanding the sales tax to a range of services, and enacting a soda tax. At the same time, there’s discussion among lawmakers and a push from the state Auditor to repeal the tax cut trigger that has been chipping away at the state’s personal income tax.
• Pennsylvania lawmakers are turning their attention toward the state’s budget deficit. However, steps to address it are unclear as Republicans renewed their pledge to avoid tax increases and Gov. Tom Wolf says he will not seek major tax increases to balance the budget.
• A new coalition in Nebraska is pushing for a shift from sales to property taxes, but most lawmakers remain focused on the state’s $900 million budget gap.
• Mississippi is in dire need of revenue to repair and maintain its crumbling roads and bridges, but there are doubts that the legislature can come to agreement on a fix despite two obvious options: raising the state’s outdated gas tax, or repealing last year’s misguided tax cuts.
• South Carolina continues to debate gas tax increases as well, with proposals that include  a slowly phased in 10-cent increase and an authorization of county-level gas tax increases.
• Several states saw increases in their gas taxes starting Jan. 1, including large increases in Pennsylvania and Michigan and smaller adjustments in Nebraska, Georgia, North Carolina, Indiana and Florida.
• Amazon began collecting sales tax on purchases made by residents of Iowa, Louisiana, Nebraska, and Utah on Jan.1.
• Californians saw a 0.25 percent sales tax cut take effect on Jan. 1 with the expiration of the temporary tax increase approved by voters as part of Proposition 30 four years ago.
• With Kansas Gov. Sam Brownback advocating that his failed tax policies should be adopted at the national level, federal lawmakers would be wise to follow the lead of Kansas lawmakers, the Kansas electorate, and pundits in not buying it.

What We’re Reading…

• Governing explores how federal-state tensions may play out in 2017, including federal budget and tax cuts that are likely to worsen state budget shortfalls. The magazine also offers a list of five public finance topics to watch: tax reform, budget shortfalls, tax break transparency, pension contributions, and online sales taxes.
• The Pennsylvania Budget and Policy Center released its Fair Share Tax Plan for Pennsylvania. The plan is intended to offer equitable revenue solutions to the state’s deficit and it received significant news coverage across the state. 
• Pew reviews the status of debates in various cities, and one state, considering a “Netflix Tax” on digital entertainment.

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.

By all indications, 2017 is shaping up to be a major year for state gas tax reform. Alaska Gov. Bill Walker has already proposed tripling his state’s gas tax. Task forces in Indiana and Louisiana have laid the groundwork for significant gas tax reforms in those states. And Tennessee Gov. Bill Haslam seems to be on the verge of releasing a gas tax proposal as well. Altogether, it appears that more than a dozen states will seriously debate gas tax changes next year.

But 2017 will also usher in a few gas tax changes before state legislative sessions even begin. Specifically, seven states will be raising gasoline tax rates while two states will be cutting them. Three of the increases (in Pennsylvania, Michigan, and Nebraska) are the result of legislation enacted by lawmakers during the last few years. The other four increases, and both of the rate cuts, are automatic adjustments based on various formulas those states use in setting their gas tax rates.

Here are the details on the changes taking place in each state:

Pennsylvania is raising its gasoline tax by 7.9 cents per gallon and its diesel tax by 10.7 cents. These are the final increases associated with legislation enacted by lawmakers in 2013, though further increases could be triggered in the years ahead if gas prices rise.

Michigan is raising its gasoline tax by 7.3 cents per gallon. The state’s diesel tax will rise by 11.3 cents to bring the two tax rates into alignment with each other. These changes are the result of legislation enacted in 2015. No further changes are expected until 2022, when the state’s gas tax rate will begin rising annually to keep pace with inflation.

Nebraska is raising its gasoline and diesel tax rates by 1.5 cents per gallon as part of a four-part, six-cent increase enacted in 2015.

Georgia’s gasoline tax will rise by 0.3 cents, and its diesel tax will rise by 0.4 cents, under a new formula linking the state’s fuel tax rates to growth in inflation and vehicle fuel efficiency.

North Carolina’s gas and diesel tax rates will rise by 0.3 cents under a new formula linking the state’s fuel tax rates to growth in population and energy prices.

Indiana’s gasoline tax rate will rise by 0.2 cents as it varies each month alongside the price of gasoline.

Florida will implement 0.1 cent gas and diesel tax rate increases because its fuel tax rates are tied to inflation.

New York will cut its gas and diesel tax rates by 0.8 cents per gallon as part of an annual adjustment based on the price of gas.

West Virginia, much like New York, will cut its gas and diesel tax rates by 1.0 cents per gallon as part of an annual adjustment based on the price of gas.

New Jersey’s diesel tax rate will rise by 15.9 cents on January 1 due to legislation enacted last year. The state will not change its gasoline tax rate on January 1, though it did implement a 22.6 cent increase in that tax on November 1, 2016.

See chart of gasoline tax rate changes 

See chart of diesel tax rate changes

Thank you for reading the Tax Justice Blog and Tax Justice Digest. We’re going on hiatus until Jan. 3, 2017, to recharge our brains and get into the holiday spirit with bad fruitcake and eggnog. Well, maybe not the latter two. But we will be revving up our tax analysis chops because next year we will head into one of the most significant federal tax battles in the last generation.

In the meantime, here’s our last Tax Justice Digest for 2016. 

But first, please consider supporting our work with a donation to ITEP this year.  It is more critical than ever for our research to inform tax policy debates in Washington, DC and in statehouses across the country next year.

Keep an Eye on State Estate Taxes in 2017
We know that Congress and the incoming Trump Administration have set their sights on eliminating the federal estate tax. A new ITEP research brief explains the role of state estate taxes in the 18 states that levy the tax, and a blog by ITEP policy analyst Dylan Grundman argues that states have a unique opportunity with the estate tax to ensure their tax systems are more progressive.

Governors’ Plans for State Taxes in 2017/2018
In advance of the new year, several governors have released tax and budget proposals for their states’ next two fiscal years. While these proposals are not necessarily indicative of nationwide trends we expect to see in 2017, some help to set a good example of progressive solutions to raising revenue and improving tax fairness. Read ITEP’s State Policy Fellow Misha Hill’s summary here.

ITEP Holiday Entertainment Guide
Oddly enough, we tax policy wonks have interests outside of tax policy, and in the spirit of the giving season, we’d like to share some of the podcasts, films and books we’ve enjoyed this year with you. If you have selections for us, please tweet at us @iteptweets! 

The State Rundown
This week’s rundown looks at how several states are taking the taxation of online sales into their own hands; new taxes in Philadelphia and the District of Columbia, and state budget woes in Oklahoma, Alaska, and Virginia. Read more

In advance of the new year, several governors have released tax and budget proposals for their states’ next two fiscal years. Below, proposals from Montana, Washington, Alaska, Arkansas, and Oklahoma are outlined. While these proposals are not necessarily indicative of nationwide trends we expect to see in 2017, some help to set a good example of progressive solutions to raising revenue and improving tax fairness.

Montana

Montana Gov. Steve Bullock (D) released a budget proposal that aims to address a revenue gap while improving tax fairness. As highlighted by the Montana Budget & Policy Center, the governor’s budget would restore a higher tax bracket on top earners (on incomes over $500,000) and limit the preferential treatment of income earned from wealth rather than work by limiting the lower tax rate applied to capital gains income to the first $1 million of income. And it would increase parity for the treatment of income by capping the deduction for federal income tax paid for income from estates and trusts like it currently does for other types of income. Perhaps most notably, Gov. Bullock’s proposal also called for the creation of a refundable Earned Income Tax Credit (EITC).

Gov. Bullock’s plan is not all rosy. The budget includes across-the-board cuts to services and by no means flips Montana’s overall tax structure from regressive to progressive. But it is an example of how states can remedy revenue shortfalls without placing all the responsibility on low-income families.

Washington

In Washington state, Gov. Jay Inslee (D) proposed a host of revenue raising measures, largely to increase state funding for K-12 education. The state is under a court order to increase contributions to teachers’ salaries. The governor’s proposal would raise revenues beyond the court’s requirements by establishing a capital gains and carbon tax, increasing the business tax on services provided by some professionals, and eliminating several tax exemptions.

It would establish a 7.9 percent tax on some capital gains earnings, like stocks and bonds. (Homes, farms, retirement accounts, and forestry would be exempt from the new tax.) About half of the revenue from a new carbon tax of $25 per metric ton of pollution would go to K-12 education. Inslee’s proposal restores a decades-old rate cut to the business and occupation tax on professional and personal services. It would also expand the definition of business and occupation to capture revenue from certain out of state retailers that currently avoid the tax. Eliminating several state tax breaks, such as a sales tax exemption for nonresidents, would also generate significant revenue for the state. And because of the increase in state contributions to school funding, the local tax levy in most of the state’s school districts would be lowered.

As the Washington State Budget & Policy Center noted, the proposal would raise needed revenue in a forward thinking and equitable manner, but there is still more that needs to be done to create a more equitable and adequate tax system overall.

Alaska

The stated goal of the budget proposal from Gov. Bill Walker (I) is to continue cutting the size of government, restructure the state’s Permanent Fund Earnings Reserve (Permanent Fund) to make it more sustainable and provide funding for services, and generate new revenue through broad-based taxes. To that aim, the governor’s proposal re-introduced a version of a bill that passed the Senate earlier this year to restructure the state’s Permanent Fund. It would establish a formula to draw from the fund to provide funding for government services. The proposal also includes an increase to the gas tax to cover transportation expenses. Alaska currently has the lowest gas tax in the country (8 cents per gallon) so the proposed threefold increase would keep the state under the national average. The proposal did not give specific guidance on what broad-based taxes the governor hopes to utilize for new revenue. Walker departed from his strategy in the last budget of proposing to reinstate an income tax for the first time in 35 years and instead left a $890 million revenue gap that he hopes will be addressed with the help of the legislature.

Arkansas

Arkansas Governor Asa Hutchinson (R) called for a $50 million decrease in revenue from income tax cuts. This proposal follows the previous budget which included a $100 million income tax cut which the administration claims the state budget fully absorbed. (The governor has pushed back against calls from legislators for even more aggressive income tax cuts unless they are paid for by reductions in exemptions and loopholes.) While being billed as a tax cut for families earning less than $21,000 per year, an ITEP analysis shows that the proposal would only give a cut to 45 percent of taxpayers in the bottom two quintiles, with 75 percent of the tax cut going to taxpayers in the top 60 percent. To provide tax relief for low-income families, the governor would be better off proposing a targeted tax cut like a state EITC.

The governor’s budget proposal has been appropriately praised for its increased funding for critical services, such as the state’s foster care and mental health services, but it missed an opportunity to use sensible tax reform as a source for the needed revenue. Arkansas’s tax structure already suffers from a fundamental mismatch – it’s a low-tax state that’s high-tax for many low-income families – and further cutting the state income tax will not help.

Oklahoma

Oklahoma is expected to face a shortfall of more than $800 million. Gov. Mary Fallin (R) has not released a formal budget, but she has hinted at a few proposals. The first is wishful thinking that the price of oil and gas will rebound by February so the state can cash in on its oil and natural gas production tax. Another includes ideas to generate new revenue – including a cigarette tax, expanding the sales tax to services, and eliminating $8 billion in sales tax exemptions. Since Oklahoma has not met revenue projections it will not reduce its top income tax rate – yet another example contrary to the idea that tax cuts always increase revenue.