State Rundown 5/8: Legislators Make Deficit Sausage

Conservative leaders in the South Carolina Senate proposed a road funding bill Thursday that reforms the Department of Transportation (DOT), increases the gas tax and reduces income taxes – all measures that Gov. Nikki Haley insisted must be in any funding package she signs. The measure increases the gas tax by 12 cents a gallon over three years, ties the gas tax to inflation and prohibits it from rising higher than gas taxes in Georgia or North Carolina. The bill raises $400 million for roads in the short term and $800 million after five years. The bill also gives the governor near-complete control over the DOT through the power to appoint the Department’s board of directors. Income taxes would be cut across the board by one percent over five years, but would be delayed if economic growth is lower than expected. The plan is in direct contrast to the proposal passed by the Senate Finance Committee last week, which would increase gas taxes and other fees without reforming the DOT or cutting income taxes.

A new study from the Urban-Brookings Tax Policy Center blasts another hole in the myth that state tax cuts are a recipe for economic success.  After closely examining a 2008 study that claimed tax cuts could benefit state economies, the authors attempted to replicate the results and found they were “not robust” in more recent years.  Instead, the study concludes that low state income tax rates, or low taxes in general, are unrelated to economic growth across states.

Bad news in the Badger state: new revenue estimates in Wisconsin have confirmed the dismal outlook for the state’s budget, making the adoption of Gov. Scott Walker’s austerity cuts to higher education more likely. Legislators were hoping the new estimates would point to increased tax revenue, but the numbers show that Walker’s tax cuts have evaporated the state’s surplus. The Wisconsin Budget Project has pointed out that legislators have other options, among them accepting federal Medicaid dollars, halting the expansion of ineffective tax cuts, and capping a tax break for manufacturers.

Gov. Paul LePage and Maine lawmakers in favor of eliminating the state’s income tax have shifted tactics away from using negotiations over the budget to push their agenda and toward a constitutional amendment. The proposal currently before legislators would eliminate the state income tax by 2020 and requires a two-thirds majority vote in the House and Senate, as well as ratification by Maine voters. It faces a long road in the legislature. Meanwhile, the Maine Center on Economic Policy argues that eliminating the income tax would be a boon for the wealthy and would fail to promote economic growth.

Alabama legislators moved in the direction of common sense this week. First, lawmakers decided to abandon a proposal to replace the state’s currently regressive income tax structure with an even worse flat tax. At the same time, conservative legislators announced their willingness to increase taxes on cigarettes and large businesses and fees for car titling and renting in order to address a budget deficit. While the proposed fees and taxes are mostly regressive, they are a step toward a better budget. An even bigger step would be if legislators considered the plan put forward by Gov. Robert Bentley, which would increase revenues by a far larger magnitude.