State Rundown 2/8: Lessons of Kansas Tax-Cut Disaster Taking Hold in Kansas, Still Lost on Some in Other States

This week we bring news of Kansas lawmakers attempting to fix ill-advised tax cuts that have wreaked havoc on the state’s budget and schools, while their counterparts in Nebraska and Idaho debate bills that would create similar problems for their own states, as well as tax cuts in Arkansas that were proven unaffordable within one day of being signed into law. Meanwhile, debates over online sales taxes, Earned Income Tax Credits, and gas tax updates to fund transportation needs continue around the country.

— Meg Wiehe, ITEP State Policy Director, @megwiehe 

• Kansas lawmakers in both chambers are considering bills this week to roll back Gov. Sam Brownback’s tax cuts primarily via reforming the personal income tax, including repealing the exemption for business pass-through income and raising personal income tax rates in the Senate and a more comprehensive tax reform plan in the House.
• Nebraska‘s Revenue Committee will conduct a hearing on Gov. Rickett’s proposal to use a trigger mechanism to cut income taxes for the state’s wealthiest residents this week. Last week, the committee was presented with two alternatives to slashing taxes on the rich by instead increasing the state’s Earned Income Tax Credit.
• Idaho lawmakers in the House passed bills cutting the corporate and top personal income tax rates and raising the exemption levels for the business personal property tax. The bill faces an uncertain future in the Senate.
• Alabama lawmakers joined the list of states looking to cut income taxes this year.   
• Arkansas Gov. Asa Hutchinson signed his $50.5 million tax cut  into law last Wednesday. The following day, the governor told several agencies to prepare contingency plans for budget cuts as the latest revenue reports came in $57 million behind forecast.
• The Mississippi House has advanced a bill to enforce sales tax collection on online sales and divvy up the revenue with 70 percent going to state roads and other needs, 15 percent to counties, and 15 percent to cities. The need for such a fix is highlighted by the fact that even though Amazon is now collecting sales taxes on its own transactions in the state, many transactions hosted by the site are still not covered. Meanwhile, Tennessee‘s rule to require such collections has been challenged, adding to the pressure for a new court ruling on the matter.
• Michigan lawmakers are considering bills to eliminate the sales tax on feminine hygiene products.
• Wisconsin Gov. Scott Walker has proposed increasing the state’s Earned Income Tax Credit for families with one child. Walker decreased the credit six years ago.
• Wyoming lawmakers are faced with the need to diversify their tax base. Some have already begun considering revenue options: the House recently passed a cigarette tax increase that would increase a pack of cigarettes from $0.60/pack to $0.90/pack.
• State legislators in both New York and Pennsylvania are pushing back against recent local tax initiatives: the New York City bag tax and the Philadelphia soda tax.
• A proposal to update the South Carolina gas tax, raising $600 million per year for the state’s transportation needs through a 10-cent per gallon increase and other fee changes, has advanced from the House Ways and Means Committee.
• Tennessee Gov. Haslam’s proposal to raise the state’s gas tax while slashing other taxes has received criticism lately, as has an alternative plan to divert sales tax revenues away from general fund needs to plug the hole in the transportation fund.
• Missouri private school advocates are pushing a bill to circumvent the state’s prohibition on state money funding religious schools by creating a tax credit for donations to private schools. Read about how these programs are costly and frequently abused in our report here.

Governors’ Budget Watch

• Faced with an $868 million shortfall, Oklahoma‘s Gov. Mary Fallin delivered her state of the state address this week. Proposed tax changes include replacing the state corporate income tax with increases in fuel, tobacco, and sales taxes. While details of the sales tax base broadening have not been released, Fallin has called for elimination of the state sales tax on groceries.
• Pennsylvania Gov. Tom Wolf released his budget proposal this week. As he promised, it was void of any broad-based tax increases. Rather, state spending cuts and a proposal to tax natural-gas drilling are among the ways in which he plans to fill the state’s $3 billion shortfall.
• Today Connecticut Gov. Dannel Malloy is scheduled to unveil his two-year budget proposal. Faced with a $1.7 billion deficit, the plan will likely include a call to eliminate the state’s $200 property tax credit and a requirement for cities and towns to pay a third of the annual cost for teacher pensions.
• Alabama Gov. Bentley proposed studying and ultimately eliminating the state sales tax on groceries, increasing prison construction to deal with overcrowding, and increasing the state’s investment in pre-K education in his address this week.

Governors’ State of the State Addresses

• In the past week, Governors Bentley of Alabama, LePage of Maine, Fallin of Oklahoma, and Wolf of Pennsylvania delivered their State of the State addresses.
• States with addresses scheduled through the end of next week are: Kentucky and West Virginia, both scheduled for today.

What We’re Reading…

• As the Center on Budget and Policy Priorities (CBPP) details in two new reports, state lawmakers are increasingly turning to tax cut phase-ins and triggers as ways to take credit for cutting taxes without having to face the full consequences for years, decades, or in the case of term-limited lawmakers, maybe never.
• A new report by Ohio Policy Matters uses ITEP research to dig into Gov. John Kasich’s tax plan, finding that it would, once again, shift taxes and worsen inequality.
• Pew Trusts explores the various reasons behind declining state populations in recent years.
• The Kentucky Center for Economic Policy released a report that provides an overview on how refugees and immigrants are important to the state’s economy.
• The Georgia Budget and Policy Center released two reports showing the importance of immigrants to Georgia’s state and local economies and budgets.

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.