State Rundown 3/1: Will Tax Cut Proposals Be “In Like a Lion, Out Like A Lamb”?

Tax cuts have been proposed in many states already this year, but amid so much uncertainty, it remains to be seen how successful those efforts will be. This week saw one dangerous, largely regressive tax cut proposal move in Georgia, new budget proposals in Louisiana and New Jersey, a new plan to close West Virginia‘s budget gap, and cities in Alabama and Washington taking more matters into their own hands.

— Meg Wiehe, ITEP State Policy Director, @megwiehe  

• The Georgia House has advanced a regressive income tax bill that combines some promising features – a new nonrefundable state Earned Income Tax Credit and elimination of the state’s nonsensical deduction for state income taxes – with a flat tax rate that will predominantly benefit the highest-income Georgia residents.
• West Virginia Gov. Jim Justice proposed changes to the way in which he would close the state’s budget gap. New tax components include a 1-cent per ounce tax on sugar-sweetened beverages, 50-cent cigarette tax increase (bringing the tax/pack to $1.70), and a 0.25 percentage-point sales tax rate increase, expanding it to include professional services. The plan would also assess a surcharge between $500 and $1,000 for families with incomes over $200,000.
• Indiana lawmakers in the House passed a budget that includes a 10-cent increase to the fuel tax and a $1 increase to the cigarette tax. The budget is expected to be reworked in the Senate.
• Looking to raise more revenue to fund education, lawmakers in Utah continue to consider raising the sales tax on food from 1.75 percent to 4.7 percent. Advocates warn of the regressive impact this change would have without an offsetting tax change such as the enactment of a state EITC.
• Due to weak revenue collections and the state’s recent revenue failure, which will lead to cuts in essential state programs, S&P lowered Oklahoma‘s bond rating.
• How will Kentucky pay for pension reform? Lawmakers are considering taking up tax reform in special session, but say it would need to be revenue neutral to gain support.
• Alabama‘s window to update its gas taxes is “rapidly closing” due to the coming election year, according to The Anniston Star.
• Maryland lawmakers will attempt to close the “carried interest loophole” at the state level.
• A New Jersey legislative committee has advanced two bills to tax and regulate Airbnb and similar online marketplaces.
• Nebraska revenue forecasters revised their projection Monday, increasing the state’s revenue shortfall by $153 million.
• A bill to enforce collection of sales taxes owed on Mississippi purchases and devote the money to roads and bridges has been killed by Lt. Gov. Reeves.
• A campaign in Seattle is proposing a new strategy for testing the constitutionality of an income tax in Washington state—taxing unearned income for families with over $250,000 to “Trump proof” the city.
• Birmingham, Alabama is moving forward with a plan to give a rebate to its low-income residents to offset the state’s tax on groceries.

Budget Watch

• New Jersey Gov. Christie presented his final budget to legislators this week. The budget holds funding flat despite growing needs for K-12 schools and higher education, and it makes minor reductions to property tax relief programs despite a record-high average property tax bill in 2016. Christie’s proposal also relies on a narrow margin for error due to minimal reserves and assumed savings in public employee healthcare that have not yet been realized. He also suggested devoting state lottery proceeds to fill the pension funding gap.
• Louisiana Gov. John Bel Edward released his FY17-FY18 executive budget last week. The budget is short $440 million of what is needed to maintain existing year services and requires cuts to safety net hospitals and continued underfunding of the state’s higher education tuition program. 
• North Carolina Gov. Roy Cooper released his first budget (for FY17-19) this week.  While his proposal boosts public investments in education and other critical services, his policymaking was limited by the close to $2 billion in tax cuts enacted since 2013.  As the Director of the NC Budget and Tax Center notes, the spending level as a share of personal income proposed in the second year of his proposal is 17% below the state’s 45 year average.

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…  

• Studies from three locales that have recently enacted taxes on sugary beverages show decreases in soda consumption.
• The Colorado Fiscal Institute explains why consumer purchases are not a realistic measure for changes in government spending.
• The DC Fiscal Policy Institute has released a new primer on where the district gets the revenue for its schools, public safety, and healthcare efforts.
• All signs suggest that the Bakken Shale boom has passed its peak, which will mean a need for careful budgeting and contingency planning in Montana and North Dakota.

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.