State Rundown 4/23: Tax Cuts in the Face of Budget Disaster

Alabama senators have proposed a constitutional amendment that would establish a flat personal income tax and lower the corporate tax rate, despite facing a devastating budget shortfall. The proposal would lower the top income tax rate from 5 percent to 2.75 percent and reduce the corporate tax rate from 6.5 to 4.59 percent while eliminating all deductions, exemptions and credits. The bill’s sponsors claim that the measure would make the state more competitive and attract new businesses. Opponents argue that Alabama’s antiquated tax system (unchanged in 82 years) is already a flat tax in practice, since the top tax rate takes effect at $3,000 for single filers. The Montgomery Advertiser notes that “a household of four begins paying state taxes at $12,600 – well below the poverty threshold of $24,250 for that family, meaning the state taxes households operating below the poverty level.”  An ITEP analysis of this plan found that the lowest-income Alabamans would see a tax hike under this change while most other taxpayers would see a small reduction.

A new poll finds that the majority of Oklahoma voters don’t want planned tax cuts to take effect because of the state’s budget deficit. The poll, commissioned by the Oklahoma Policy Institute, found 64 percent of registered voters in Oklahoma opposed moving ahead with a scheduled cut to the top personal income tax rate, while 74 percent of voters felt the state spent too little on education. Legislators in the state have vowed to let the cuts take effect next year despite a $611 million revenue gap.

Colorado Gov. John Hickenlooper wants to implement a plan that in future years would reduce the likelihood that the state would issue taxpayers a refund as mandated under the Taxpayer Bill of Rights (TABOR) amendment to the state’s constitution. Hickenlooper would reduce the share of state revenues subject to the TABOR limit by moving hospital provider fees out of the general fund and into an “enterprise account.” He would also target some TABOR refunds to low-income households via a state Earned Income Tax Credit (EITC). While conservative lawmakers have decried the move, the governor has gained the support of an important hospital lobbying group, which said the plan would “ensure that Colorado has the flexibility to support its top budget priorities, including funding for transportation and K-12 education.”

Maine Gov. Paul LePage threw down the gauntlet to state legislators on Tuesday, filing a bill that would eliminate the state’s income tax by 2020 and giving leaders in the House and Senate a short deadline to announce their support. In the past, Gov. LePage has pledged to campaign against those who oppose his plans to get rid of Maine’s income tax and replace it with higher consumption and property taxes. So far, no legislative leaders have announced support for his plan.