State Rundown 4/19: Alaska’s Long Income Tax Freeze May Be Thawing

This week Alaska‘s House advanced a historic bill to reinstate an income tax in the state, Oklahoma‘s House voted to cancel a misguided tax cut “trigger,” West Virginia‘s governor colorfully vetoed his state’s budget, tax reform debate kicked off in Louisiana, and gas tax updates were considered in South Carolina and Tennessee, among other tax-related news from around the country. And in our “what we’re reading” section you’ll learn about a new book on American attitudes toward taxes and a new effort to make public finance data readily available online.

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• The Alaska House voted 22-17 to reinstate a personal income tax for the first time since 1980. An ITEP analysis found that the income tax contained in House Bill 115 would be the fourth lowest in the nation when measured relative to overall personal income. But the progressive nature of the tax (with rates ranging from 0 to 7 percent) would play an important role in counterbalancing the regressive measures also being considered by Alaska lawmakers. The bill now moves to the Senate, where legislative leaders have expressed resistance to new revenues and would instead like to slash the state’s Permanent Fund Dividend (PFD) payout and hold out hope for a rapid increase in oil prices. Gov. Bill Walker, by contrast, supports enacting a state personal income tax.
• Oklahoma’s House passed a bill to repeal the arbitrary tax cut “trigger” created in 2014 that will worsen the state’s $878 million revenue shortfall if left in place.
• Calling it a “bunch of political bull you-know-what,” West Virginia Gov. Jim Justice vetoed the legislature’s budget, which relied on spending cuts and a withdrawal from the state’s Rainy Day Fund. All eyes are now on the “compromise plan” for tax reform that will play out in special session. It could potentially include the creation of a commercial activities tax, an increase and expansion of the sales tax, and lower reliance – and eventual elimination – of the state’s personal income tax.
• Lawmakers in Louisiana are beginning to chip away at tax reform, starting with examining various tax expenditures early this week. The state exempts almost as much as it collects in taxes, leaving significant holes in the tax structure. Closing these loopholes offers significant opportunities for filling the $1.3 billion revenue gap that the state faces upon the expiration of the temporary sales tax increases enacted in 2016.
• As Minnesota policymakers return from recess to finalize a budget, there are many divergent ideas regarding the treatment of the state’s surplus. In response to proposals for either large tax cuts or spending increases, the Star Tribune Editorial Board has a wise word of advice for lawmakers facing surpluses anywhere–“modest tax cuts and spending increases are affordable; big moves are not.” Among their list of priorities: targeted tax relief for low-income workers and families through expanding the Working Family and Child Care Credits.
• The Senate tax plan in North Carolina would worsen he state’s budget situation by $600 million and likely lead to dwindling reserves and funding cuts to education and other priorities.
• South Carolina‘s gas tax debate heated up today, with House lawmakers urging their Senate counterparts to follow their lead and vote to update the gas tax. Some in the Senate continue to hold out for income tax cuts to be added to the package, and Gov. Henry McMaster remains opposed, preferring to fix the roads with borrowed money.
• Tennessee Gov. Bill Haslam’s gas tax bill still has a fighting chance as well and is also being debated, and possibly voted on, in the both houses before the end of the week.
• Lawmakers in Rhode Island are considering a proposal to cut the state’s sales tax rate – from the current 7 percent to 3 percent. The impacts will be studied in a special legislative commission.
• Ohio lawmakers recently announced that they need to cut $800 million from the state budget over the biennium. Some legislators have pointed to recent tax cuts and tax shifts, that have taken place over the past five years, as key drivers of the state’s budget woes.
• Nebraska legislators debated a property tax and school funding bill Tuesday that would have redirected funding from an existing property tax credit to increase school aid in rural areas. The bill did not appear to have enough support to overcome a filibuster and will likely not advance.
• Alabama‘s effort to update its gas tax was declared officially “dead” for the year after the bill failed to pass a procedural hurdle in the House, but proponents are still working to resuscitate it.

What We’re Reading…  

• A new book that examines Americans’ attitudes on taxes, “Read My Lips: Why I Am Proud to Pay Taxes,” shows that most Americans consider paying taxes a civic duty and are bothered by the idea of others not playing their part.
• Retired Microsoft billionaire executive Steve Ballmer has led a new effort to make public finance data easily available online.
• The Public Assets Institute recently released a report that provides alternative approaches to balancing the state budget while better meeting the needs of Vermonters.
• The New York Times covers an emerging body of work supporting the positive benefits of public investments and supports that, contrary to typical supply-side mythology, encourage work and grow the economy.

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.