State Rundown 6/2: Things Fall Apart

This week looks like an active one for states that are entering the final stretches of their legislative sessions. Stay tuned to the State Rundown for updates on the tax policy battles happening across the country.

Bipartisan negotiations in Maine over the scope of proposed comprehensive tax reform failed this weekend after Republican lawmakers in the House and Senate remained deeply divided and a Democratic counterproposal to Gov. Paul LePage’s plan failed to gain traction. State leaders announced that they’ve reached a tentative budget deal that would include no new income tax cuts over the biennium, but as a trade-off would allow a proposed constitutional amendment requiring a two-thirds legislative supermajority to enact new income tax increases to be put before state voters. The plan would also allow the sales tax rate to revert back to 5 percent from a temporary increase to 5.5 percent on schedule (note: this should not be perceived as a tax cut as many commentators have suggested). Republican leaders in the House are vowing to oppose any budget plan that does not include the welfare reform or income tax cuts championed by Gov. LePage in his original proposal. As of now, the compromise budget will fail to be enacted unless is draws enough House Republican support to override Gov. LePage’s certain veto.

Republican leaders in Kansas remain deadlocked over a plan to close the state’s big budget shortfall, despite warnings from government officials that state workers would be furloughed by the end of the week without a deal. Legislators are divided over how to close the projected $406 million gap; some want to roll back Gov. Sam Brownback’s exemption of business pass-through income for business owners and farmers, while others want to rely on increased sales and excise taxes. Meanwhile, Gov. Brownback unveiled a plan on Saturday that would protect his business income exemption but eliminate income taxes for low-income individuals in response to criticisms that his previously enacted tax cuts shift income taxes from employers to their employees. A preliminary ITEP analysis of the governor’s plan found that on average, Kansans in the bottom 40 percent would pay more.

Texas’s legislative session ended on Monday, with lawmakers passing new tax cuts in addition to the tax changes enacted last week. The first change, a $10,000 increase in the homestead exemption for property taxes, has been described as “the least-worst way to under-invest,” as the homestead exemption is spread evenly across taxpayers and the bill will replace local property tax revenue with more state aid to schools. For more on why homestead exemptions can be a good policy option, check out this ITEP brief. The second change, a cut in the business franchise tax rate of 25 percent, will cost the state $2.6 billion in revenue in a way that decidedly favors the wealthy and corporations.

In a welcome development, Nevada Gov. Brian Sandoval gained legislative approval of $1.3 billion in new revenue to fund improvements in public education, despite strong opposition from conservative lawmakers in the Republican-dominated legislature. Sandoval’s tax package, which he is expected to sign this week, will increase the business license fee and the payroll tax, extend some tax measures that were to sunset this year, and implement a new Commerce Tax on gross business revenue that falls more heavily on capital-intensive businesses. Altogether, the measures add up to the biggest one-time tax increase in state history. The new revenue will increase education funding, expand services to the poor, and provide for special education and statewide full-day kindergarten. 

States Ending Legislative Session This Week:
Nevada
Texas
Connecticut
Iowa