State Rundown 5/16: EITCs and Estate Taxes

Thanks for reading the State Rundown! Here’s a sneak peek: New Jersey legislative leaders support pairing a gas tax increase with a boost to the EITC. An Oklahoma coalition urges lawmakers to protect state tax credits for working families in possible budget deal. Vermont legislators end their session with a package of tax and fee increases. New CBPP report shows that state estate taxes reduce inequality and support broad prosperity.

— Carl Davis, ITEP Research Director

New Jersey leaders are finally considering an update to the state’s decades-old gasoline excise tax rate to pay for needed infrastructure improvements.  But while an update to the gas tax is sorely needed, an increased gas tax will disproportionately impact lower- and moderate income families who spend a significant share of their incomes refueling their vehicles.  To deal with this reality, State Senate President Steve Sweeney and Assembly Speaker Vincent Prieto have proposed boosting the state’s Earned Income Tax Credit (EITC) from 30 to 40 percent of the federal credit to offset some of the impact that higher fuel taxes would have on these families. The development comes after Prieto broke with Sweeney and Gov. Chris Christie on a plan to pair a gas tax increase with a repeal of the state’s estate tax. Combining a gas tax increase with enhancements to low-income refundable credits like the EITC is a model worthy of close attention from lawmakers across the country.  This pairing could allow for economically crucial infrastructure projects to move forward without having to pay for them on the backs of working families.

A coalition of clergy and progressive organizations urged Oklahoma lawmakers last week to protect tax credits that benefit over 400,000 working families and seniors in the state. Over the past few months legislators have considered reductions and/or elimination of a variety of tax credits and exemptions in order to close the state’s budget gap, including the state’s EITC, Sales Tax Relief Credit, and Child Care/Child Tax Credit. Low-income families with children can receive benefits from these credits in amounts as high as $300 or more. While scaling back these credits would have a real impact on the ability of vulnerable families to make ends meet, the proposals under consideration would only reduce the state’s current $1.3 billion budget gap by about $76 million. Notably, state legislators have thus far been unable to rein in tax credits and incentives for corporations.

Vermont legislators recently ended their session and passed a $49 million revenue package that relies largely on fees to raise money for home weatherization, increased Medicaid costs, and public sector employee contracts. The package includes a new fee on the registration of mutual funds in the state, which is expected to raise $20.8 million. The package contains a few tax changes as well, including a 3.3 percent tax on ambulance providers and the conversion of the tax on heating oil, kerosene and propane to an excise tax of 2 cents per gallon of fuel. The move from a price-based tax to one based on consumption is meant to offset the effect record low fuel prices. Lawmakers also expanded the state’s lodging tax to include Airbnb and similar companies.

A new report from the Center on Budget and Policy Priorities (CBPP) makes the case for state estate taxes, arguing that they are “a key tool for reducing inequality and building broadly shared prosperity.” CBPP Senior Fellow Elizabeth McNichol notes that only the wealthiest households are subject to the tax – the top 2.56 percent of estates on average in states where the tax is levied. Currently, just 18 states and the District of Columbia tax inherited wealth. You can read the full report here.

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 Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email.