State Rundown 1/28: Taxes Up For Debate

New Kentucky Gov. Matt Bevin delivered his first State of the Commonwealth address on Tuesday, forgoing tax cuts he promised during the campaign because in his words, the state “can’t afford them right now.” Instead, he called for deep reductions in state spending that would impair crucial services. Bevin would cut spending by $650 million across the board — a 4.5 percent reduction for all agencies for the remainder of the fiscal year and a 9 percent reduction over the next biennium. The governor‘s plan would protect per-pupil K-12 funding, Medicaid, and social workers, and would increase some public safety spending. Bevin would also move $1.1 billion to the state’s troubled pension funds for teachers and state employees. However, universities, regulatory agencies, parks, public television, workplace safety, public health, environmental quality and economic development would be affected by the cuts.  

The North Carolina Budget and Tax Center came to the aid of partners in West Virginia this week, pleading with legislators to take proposed tax cuts off the table. Gov. Earl Ray Tomblin’s budget proposal would cut the state’s severance tax on coal to help prop up the ailing industry, while raising taxes on tobacco products and telecommunications. Ted Boettner of the West Virginia Center on Budget and Policy warned lawmakers that more tax cuts wouldn’t help the economy, and could make matters worse, pointing out that recent sales and corporate tax cuts had reduced state revenue that could have prevented the current deficit. Alexandra Sirota of the North Carolina Budget and Tax Center backed him up, noting that tax cuts in her state merely shifted taxes down the income scale and failed to produce new jobs.  

Georgia Senate Finance Chairman Judson Hill proposed two tax-cutting measures last week. The first would institute a flat income tax rate of 5.4 percent, eliminate most itemized deductions (though would allow taxpayers to deduct all charitable contributions), and increase the personal and dependent exemptions by $2,000. Hill’s second measure would amend the state’s constitution to mandate a decrease in the flat rate (assuming the first proposal is enacted) to 5 percent if state revenues and reserves exceed certain levels. The finance chairman’s proposals come against the backdrop of Gov. Nathan Deal’s call for additional funding to make up for reduced spending in the wake of the Great Recession.  Look for an ITEP analysis of these proposals soon on the Tax Justice Blog.

Lawmakers in South Carolina continue to debate how to increase road funding while also cutting taxes in order to satisfy a demand by Gov. Nikki Haley to offset any gas tax increase with income tax cuts. The latest compromise would increase the state’s gasoline excise tax by 12 cents per gallon over three years, along with a number of other vehicle related fees and taxes. The increases, expected to increase road funding by $665 million, would be paired with $400 million in  income tax cuts. One point of contention is a desire by some  lawmakers to include a refundable EITC for low-income South Carolinians in the package. The proposed EITC would cost $44 million and benefit 514,000 residents who would face higher costs at the pump. Some influential lawmakers were amenable to idea. Senate President Hugh Leatherman, who supports proposed tax breaks for manufacturers included in the plan, said “When we are giving everybody else something, why wouldn’t we look to help them to pay the additional increase in the gas tax?” An ITEP analysis of this proposal will be coming soon to the Tax Justice Blog. 

The debate over the budget deficit in Alaska continues, with lawmakers mulling a gas tax increase and proposals to bring an income tax back to the state. The Senate and House transportation committees considered Gov. Bill Walker’s plan to double the state’s gasoline excise tax from 8 to 16 cents per gallon. The measure would raise $49 million annually, a far cry from the $4 billion needed to plug the state’s budget hole. The governor has also suggested levying a state income tax equal to 6 percent of the federal income tax Alaskans owe, while State Rep. Paul Seaton has put forth a plan asking Alaskans to pay the state 15 percent of what they pay in federal taxes. Walker’s income tax plan would raise $200 million, while Seaton’s more ambitious plan would raise $655 million and includes a long-term capital gains tax of 10 percent. A recent poll of Alaskans shows that residents favor a mix of cuts and new revenue to address the crisis by almost a 2-1 margin. 

Got a juicy news story or new development in state tax policy that’s too good to miss? Send your ideas and any comments to Sebastian at sdpjohnson@itep.org and we’ll add it to the next State Rundown!