State Rundown 2/17: Cuts and Crises

Thanks for reading the Rundown. Here’s a sneak peek: Despite a revenue shortfall, lawmakers in West Virginia are moving forward with their corporate tax cuts. North Carolina lawmakers are once again talking tax cuts, Pennsylvania lawmakers are barely talking – after legislative leaders declared Gov. Wolf’s budget bill DOA. Louisiana Gov. Edwards is threatening that if his state doesn’t balance its budget the end of college football is near.  Thanks for reading.

— Meg Wiehe, ITEP’s State Tax Policy Director

North Carolina lawmakers are looking at cutting income taxes – again. This time, a House committee considered a proposal to increase the standard deduction for the second time since last year. Joint filers would see an increase of $2,000, while individuals would get an increase of $1,000. If enacted, the change would mean an additional 70,000 to 75,000 filers would owe no income tax since their income would be below the standard deduction. State revenues would decline by $195 million to $205 million annually. An editorial in The News & Observer makes the case that lawmakers should restore the state’s Earned Income Tax Credit (EITC) rather than raise the standard deduction. The EITC is better targeted to those families hit hardest by regressive sales, excise, and property taxes, and it would be less costly than increasing the standard deduction, as has been pointed out by our friends at the North Carolina Justice Center.  An ITEP analysis found that the bottom 40 percent of taxpayers in the Tarheel state would receive just 28 percent of the tax cut from a change to the standard deduction, but would see more than 87 percent of the cut from reenacting a state refundable EITC.

Pennsylvania legislative leaders declared Gov. Tom Wolf’s budget dead on arrival last week after the governor unveiled his plan in a speech to the legislature. Pennsylvania has not had a budget since July 2015; negotiations between legislators and the governor have broken down multiple times over the past few months. Wolf’s budget address was a fiery rebuke to lawmakers with dire predictions of chaos for state workers and services if a deal is not reached soon. Wolf’s proposed $33.3 billion budget includes $2.7 billion in new revenue. Under his plan, the state’s flat income tax rate would increase from 3.07 to 3.4 percent, and the sales tax base would be expanded to include basic cable television, movie tickets and digital downloads. The governor would also levy a new 6.5 percent severance tax on natural gas extraction, increase the cigarette excise tax by $1 per pack, and raise taxes on other tobacco products.

Despite a major budget shortfall, West Virginia lawmakers are moving forward with a corporate tax giveaway to coal and natural gas companies. Senate Bill 419 would repeal two severance tax increases first implemented in 2005 to pay off the state’s workers compensation debts. One tax is a 56-cents-per-ton levy on coal producers while the other is a 4.7-cents-per-thousand cubic feet tax on gas producers. Together, the two taxes brought in $122 million in revenue during fiscal year 2015. If repealed, the state will lose $110 million next fiscal year. The Senate Finance Committee unanimously approved the tax cuts by voice vote, “in a committee room largely empty save for members of the governor’s staff and coal and gas lobbyists.” The state will finish the current fiscal year $353 million in debt.

Louisiana Gov. John Bel Edwards warned legislators that the continuing revenue shortfall could spell disaster for college athletics. In his state of the state address, Edwards told Louisianans that they could “say farewell to college football” since Louisiana State University is set to run out of money by April 30. Louisiana faces a $2 billion budget shortfall next fiscal year and needs to come up with $850 million to make it through the current fiscal year. Lawmakers have railed against the governor’s proposal to increase sales and alcohol and cigarette excise taxes, but the dire situation leaves them with few options.

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 Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown in via email.