State Rundown 2/23: Regressive Tax Proposals Multiplying

This week saw a nearly successful attempt to right the fiscal ship in Kansas; regressive tax proposals introduced in West Virginia, Georgia, and Missouri; ongoing gas tax fights in Indiana, South Carolina, and Tennessee; and further tax and budget wrangling in Illinois, New Mexico, Oklahoma, and beyond.

— Meg Wiehe, ITEP State Policy Director, @megwiehe  

• Both Chambers of the Kansas legislature approved a tax bill that would repeal the exemption for business pass-through income, restore a third income tax bracket at a higher rate, and remove haircuts to itemized deductions for medical expenses. After the governor’s veto of the bill, the House voted to override the veto but the Senate vote to override fell three votes short.
• Senate Bill 335, proposed last week, would create a general consumption tax in West Virginia (a broader, higher sales tax), eliminate the state’s personal and corporate income taxes and sales and use tax, and reduce the state’s severance tax. The result of such a dramatic shift would result in low- and middle-income West Virginians paying more while wealthy earners benefit. Read more on how this misguided policy would impact West Virginia families.
• All the while, for the third time this past year, West Virginia braces for another credit downgrade. This week Gov. Jim Justice announced Moody’s decision to downgrade the state’s general obligation debt. The state’s growing structural imbalance between revenue and expenditures was cited as a main concern.
• A regressive proposal in Georgia would flatten the state’s income tax to a single 5.4% rate, eliminate the deduction for state income taxes, and create a small non-refundable Earned Income Tax Credit at 10% of the federal credit.
• A proposal has been floated in a Missouri Senate committee to amend the state constitution to slowly eliminate the state’s income tax, which brings in more than 60 percent of general revenues, and place a cap on state spending.
• A proposal to eliminate the personal income tax over several decades has died in the Michigan House, which is now fast-tracking alternative legislation to cut the personal income tax rate from 4.25% to 3.9% over four years.
• Representatives of 16 Nebraska agriculture and education groups joined to push back against attempts by Gov. Ricketts and others to cut income taxes, arguing that property taxes and school funding issues are higher priorities.
• The Indiana House passed a bill that would raise fuel taxes by 10 cents and increase vehicle registration fees to fund improvement to the state’s infrastructure. The bill now moves to the Senate, which may require smaller increases to ensure passage.
• Proposals to raise Tennessee‘s gas tax while cutting other taxes, or instead divert sales tax revenue to infrastructure needs, will be on hold for a week after a procedural maneuver.
• South Carolina business leaders are coming together to advocate for a gas tax increase to improve funding for the state’s roads and bridges, warning of job losses if the state doesn’t act.
• Louisiana lawmakers reached a budget agreement for closing the mid-year deficit of $304 million, through a combination of agreed cuts, use of rainy day funds, and shifting around other revenue. The special session ended Wednesday.
• Delaware‘s revenue shortfall is now a $350 million gap.
• Lawmakers in New Mexico are considering a bill that would eliminate exemptions to the gross receipts tax and enact a flat rate for both personal and corporate income taxes. Democratic House members are wary of the inclusion of food and drugs in the proposed base expansions. 
• Oklahoma Gov. Mary Fallin’s tax plan, which included proposals to expand the state’s sales tax base, eliminate the state sales tax on groceries, eliminate the corporate income tax, and increase cigarette and gas taxes, has been faced with strong opposition. Raising any revenue at all has been described as the last resort for a number of Oklahoma Legislators.
• The Utah Senate has approved a bill to require more businesses to collect sales taxes for online purchases. In the neighboring chamber, lawmakers have proposed a plan for tax reform without much time for debate or analysis.
• Following up on a promise from his State of the State address, Alabama‘s Gov. Bentley has launched a task force to study potentially eliminating the state’s sales tax on groceries. He has no plans to replace the revenue.

Budget Watch

• For his proposed budget to balance, Illinois Gov. Rauner needs $4.6 billion from a “grand bargain” still being worked out in the Senate. But the governor doesn’t support major components of the latest iteration of the plan, such as taxing food and drugs at the general sales tax rate. He also is calling for a permanent property tax freeze in exchange for any increase in the income tax rates.  

Governors’ State of the State Addresses

• Most governors have now given their addresses for the year. The next scheduled address is Gov. Scott of Florida on March 7, followed by Gov. Kasich of Ohio on April 4, with Gov. Carney of Delaware and Gov. Cooper of North Carolina‘s speech dates still to be announced.

What We’re Reading…  

• In a recent, timely report, the West Virginia Center on Budget and Policy explains why a shift away from a personal income tax toward a sales tax is a poor strategy for growing West Virginia’s economy.
• The Oklahoma Policy Institute provides detail on Oklahoma’s experience with triggers, explaining that tax cut triggers are anything but fiscally responsible.
• A new report from the Oregon Center on Public Policy provides 13 policy ideas for addressing the state’s $1.8 billion deficit for the upcoming budget period.

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.