Tag: TaxJusticeBlog

After his 2011 election, Wisconsin Gov. Scott Walker aggressively pursued and helped pass a series of tax cuts in 2011, 2013, 2014 and 2015. His policies pushed the state into bad fiscal straits and there is no evidence that tax changes enacted under his leadership have had the positive impact on the state’s economy that he promised. In addition, Gov. Walker has hinted that he favors repealing state and federal income taxes, a move that would make the tax system substantially more regressive.

Record as Governor of Wisconsin

How did Wisconsin’s fiscal situation get so bad that it had to skip $100 million in debt payments earlier this year? The answer is Gov. Walker’s relentless push for ever more wasteful tax cuts.

When Gov. Walker took office in January 2011, Wisconsin faced a significant budget shortfall. The Center on Wisconsin Strategy and other public interest groups called his budget proposal a betrayal of Wisconsin values. The final legislation reduced the Earned Income Tax Credit (EITC), thus increasing taxes on the state’s poorest working families, and the budget capped growth of a property tax credit for low-income families. That budget also included an estimated $135 million in tax breaks in just one year, with these breaks set to become more costly year after year. These breaks took the form of a domestic production activities credit, two different capital gains tax breaks for the rich, and a variety of new sales tax exemptions, including for snowmaking and snow grooming equipment.

Earlier in the budget process, Walker had sought to repeal combined reporting, an important reform that requires companies in the state to report their income for tax purposes on the total profit of all their combined subsidiaries, regardless of the state in which they are located. Ultimately, the Governor was not able to repeal the provision, but lawmakers agreed to cut taxes on corporations by allowing them to carry forward losses and deduct their liability in future years, thus reducing their tax bills by an estimated $40 million annually.

In late 2013, the Governor notoriously toyed with the extremely regressive idea of eliminating the state’s income tax and increasing the regressive sales tax rate to compensate. ITEP crunched the numbers and found that the new state sales tax rate would have to be 13.5 percent to ensure a revenue neutral tax change. Ultimately, lawmakers put aside the income tax elimination plan for unspecified reasons.

His proposed budget for 2013-15 included a plan to cut the bottom three income tax rates. Lawmakers signed a tax cut proposal into law that reduced income tax rates and reduced the number of tax brackets from five to four. According to the Legislative Fiscal Bureau, these tax cuts cost $647.9 million over two years.

In October 2013, with an unexpected $100 million budget surplus, Gov. Walker signed a law that added $100 million in state aid to local school districts over the next two myears—which, due to the state’s strict local revenue limits, meant that local governments receiving the new aid were forced to reduce their property taxes dollar for dollar. This was a short-sighted approach to tax cutting because the forecasted $100 million surplus could be just a memory in future years, but the new state aid will be permanently on the books. As the Wisconsin Budget Project (WBP) points out, using a one-time budget surplus to fund a permanent property tax cut is a recipe for long-term fiscal difficulties.

Walker’s January 2014 budget proposal included yet another round of tax cuts. His proposal, which ultimately passed in March, included $537 million (over two years) in property and income tax cuts. He proposed the tax cuts as a way to “return the state’s surplus to the people who earned it.” The cuts included $404 million in across the board property tax cuts and $133 million in income tax cuts that resulted from lowering the bottom income tax rate from 4.4 to 4.0 percent and reducing the Alternative Minimum Tax.

Taken together, these three tax cut packages cut taxes for all income groups according to an ITEP analysis, but did not meaningfully change the state’s regressive tax system. Between 2011 and 2014, these cuts did however blow a $2 billion cumulative hole in the state’s budget.

The governor’s most recent budget, released in early 2015, proposed expanding a property tax credit and included deep cuts to K-12 education, higher education and conservation efforts. This year’s legislative session was especially contentious and there was much push back to his proposals. In fact, much of his proposed cuts to K-12 education were restored. Ultimately, the governor was able to pass about $262 million in additional annual cuts in revenue, including an increase in the school levy tax credit, increased school aid that required offsetting property tax cuts, the near elimination of the alternative minimum tax and an increase in the standard deduction.

The stated goal of Gov. Walker’s tax cuts is that they will help the state create jobs and lead to economic growth. The problem, however, is that this strategy has not worked out all that well. While his tax cuts have not delivered significant growth, they have forced the underfunding of the real long term drivers of economic growth like the state’s education system and infrastructure.

Approach to Federal Tax Reform

Unlike many of his rivals for the Republican nomination, Gov. Walker has not laid out any clear vision for how he would change the federal tax system as president. Talking broadly, Gov. Walker has outlined his admiration for President Ronald Reagan’s approach to taxes, which he says means lowering the tax rate and simplifying the tax code. In another interview, Gov. Walker said that he thought eliminating the federal income tax “sounds pretty tempting.” He did not however provide any sense of how he would fill in the $1.4 trillion dollar hole in the annual budget that such a move would create.

In talking about taxes on the campaign trail, Gov. Walker relates his strategy to that used by the department store Kohl’s, in which they lower the prices of goods in order to sell a higher volume of goods to consumers. He calls this strategy the “Kohl’s Curve” and believes that for the tax system it means we should lower the tax rate and expand the number of people who pay taxes. This new Kohl’s Curve is supposed to mirror the Laffer Curve, which has been used to promote failed tax-cutting economic policies throughout the country. 

Everyone loves a bargain (and a holiday), so it’s no surprise that sales tax holidays are hugely popular in the 17 states that will hold them in the coming weeks.

Most state sales tax holidays will coincide with back to school season to help consumers save on school clothes and supplies, but a subset of states also hold separate sales tax holidays to help consumers save on purchases tied to hurricane and hunting season. State lawmakers reap public relations benefits from these “holidays”, and media tend to cover them favorably.

But taxpayers would be wise to look beyond political talking points, long lines and bargains. The truth about sales tax holidays is that they are a costly gimmick. While they may provide taxpayers some savings on necessary purchases, they are a distraction from the bigger picture problem with regressive state tax systems.

Virtually every state’s tax system takes a much greater share of income from middle- and low-income families than from wealthy families. Nationwide, the poorest 20 percent of households pay 10.9 percent of their income in state and local taxes on average, compared to just 5.4 percent for the top 1 percent. States’ heavy reliance on sales taxes exacerbates this problem.

In theory, sales tax holidays should help mitigate this problem. But temporary reprieves from taxes on back to school items aren’t well targeted. In fact, temporarily suspending sales taxes often benefits wealthy families more than low- to moderate-income families.  Better-off families are positioned to time their big purchases to occur during sales tax holidays–a luxury that often isn’t available to folks living paycheck to paycheck. One study found that households earning more than $30,000 per year are more likely to shift the timing of their clothing purchases to coincide with sales tax holidays compared to lower-income households. Further, low-income seniors and families without children who have no need to purchase “back to school” items get nothing from sales tax holidays.

Sales tax holidays will collectively cost states more than $300 million this year. This is money states can ill afford to lose. The revenue lost through sales tax holidays will ultimately have to be made up somewhere else, either through spending cuts or increasing other taxes.

Instead of expending resources planning, promoting and implementing sales tax holidays, policymakers would do better to focus on long-term solutions with real benefits for working families.  They could implement policies such as sales tax credits for low-income taxpayers, expand or implement a state earned income tax credit, or permanently reduce sales taxes rates and shift toward a progressive personal income tax.

If lawmakers really want to help families’ bottom lines, they should look to these more thoughtful and permanent reforms. To read ITEP’s full brief on this issue click here.

The Illinois budget saga continues as Gov. Bruce Rauner and Illinois House Speaker Michael Madigan remain at odds. After Rauner vetoed the FY15-17 spending plan passed by the legislature, lawmakers were unable to override it – resulting in a one-month stop-gap state budget passed last week. However, the governor insists that he won’t sign these piecemeal measures, and demands that Madigan embrace his reforms. Any new revenues will have to be passed with a veto-proof majority, as Rauner has pledged not to raise taxes.

Impasse continues in Michigan as well, where the House lacks the votes to pass the roads funding bill that barely passed the Senate. The Senate plan would have increased the gas tax by 15 cents, raised diesel taxes and cut non-transportation areas of the state budget by $700 million. Legislators are wary of enacting gas tax increases after a ballot proposal that would have raised revenue for transportation was defeated by the voters in May. The state legislature will adjourn until mid-August, when new proposals could be offered.

The Maine Republican Party has signed on to help fund and promote Gov. Paul LePage’s plan to put a proposal to phase out and eliminate the state’s income tax before voters. GOP Chairman Rick Bennett said the party would help collect the tens of thousands of signatures required to put the measure on the 2016 ballot. The deadline for gathering signatures is in January.

An Arizona personal income tax credit for contributions to public schools is drawing attention from citizens concerned that it exacerbates inequality. According to The Arizona Republic, a small number of schools in wealthy areas receive most of the donations eligible for the dollar-for-dollar credit – on average nearly $400 per student. One school received almost $900,000 in one year. The average per-pupil expenditure statewide is just $45 in state income tax revenue. The donations were restricted to extracurricular spending, but the legislature approved a change this session that will allow the money to be spent on SAT and AP tests – worsening academic inequality between rich and poor districts. Coupled with proposed K-12 budget cuts at the state level, this income tax credit funnels resources from lower-income to upper-income school districts.

Ohio legislators inadvertently raised taxes on businesses despite attempting to enact deep cuts for them in the recently passed budget. Under the terms of the budget, business income above $250,000 was to be taxed at a reduced rate of 3 percent under the personal income tax. Instead, the legislative language omitted the $250,000 cutoff, saying that all business income would be taxed at a rate of 3 percent. And under Ohio’s graduated income tax structure, most business owners paid a rate lower than 3 percent on their business income. Lawmakers trying to give businesses a break through a flat tax and mistakenly taxing them more is the height of irony. State Senate President Keith Faber says the legislature will fix the error in the fall. For more on how this mishap highlights the need for a graduated income tax, check out this piece from Policy Matters Ohio.

New Jersey officials are considering an increase in the state’s tax on wholesale petroleum (currently at 4 cents a gallon) in the wake of a transit fare hike.  Lawmakers failed to pass an increase in the gasoline tax during the session – at 10.5 cents a gallon, New Jersey’s gas tax is among the lowest in the nation. The wholesale petroleum tax and gasoline excise tax support the state’s transportation fund, which is dangerously close to running out of money.  

This is how the tax code unravels.

The Senate Finance Committee, in a rare show of bipartisanship, took less than two hours Tuesday to approve the tax extenders, a hodgepodge of more than 50 temporary tax breaks that expired at the end of 2014. The extenders are primarily a giveaway to business and should remain expired­–an option that doesn’t require any congressional action–but on these corporate giveaways, the nation’s lawmakers agree.

This is bad enough — but it gets worse. Committee members presented a jumble of amendments that would broaden these tax breaks, and actually approved a handful of them. For example, one of the existing provisions gives a special tax break for film and television productions. Producers can immediately write off the costs associated with creating a film or TV show, instead of gradually writing off their investments over the life of the asset as required of most other businesses. But there are meaningless limits: production companies can only write off the first $15 million in costs per film or per television episode (which essentially means the entire cost of a single television episode could be fully tax deductible), and only the first 44 episodes of a TV series are eligible for the tax break. This, however, may reflect lawmakers’ awareness of the jumping the shark phenomenon rather than legislative restraint.

Committee Chairman Orrin Hatch decided that it’s unfair to give the producers of “House of Cards” a tax break without extending the same privilege to their counterparts on Broadway, and so the committee broadened the film and TV tax break to include “live theatrical productions.” This revision could have saved such gems as the big budget disappointment “Spiderman: Turn off the Dark,” and, if passed, would provide generous tax write offs for those who produce economically devastating Broadway duds in the future.

Discerning lawmakers decided a tax break for Broadway is one thing, but southern-grown blueberries went a step too far. Sen. Johnny Isakson (R-Georgia) offered an amendment to expand the “bonus depreciation” tax break to include expenses related to blueberry production. Georgia, it turns out, is the largest blueberry-producing state in the nation. Isakson’s proposal thankfully fell on deaf ears.

The committee’s actions Tuesday reflect a disappointing lack of legislative interest in achieving real tax reform. The tax fairness victory achieved by allowing this motley array of tax breaks to expire at the end of 2014 was purely accidental. The committee should have simply allowed the extenders to remain dead and buried. At the very least, they could have spent more than two hours on these corporate giveaways and taken the time to ask hard questions about each and every one of them.

Instead, they simply brought them all back to life in the legislative equivalent of A&E’s The Walking Dead. Of course, the enthusiasm of the members of the tax-writing committee for the extenders has nothing to do with good tax policy. Rather the tax   extenders are simply a periodic campaign fundraiser for senators and representatives at the expense of ordinary American taxpayers.

The following comment was submitted to the California Road Charge Technical Advisory Committee.  The committee is advising the California Transportation Agency as it prepares to launch a pilot program taxing volunteer drivers based on each mile that they drive.

Studying the feasibility of a vehicle miles traveled tax (VMT tax) in California is a worthwhile endeavor.  If we are headed toward a future where many vehicles will use little or no gasoline, then eventually the gasoline tax will cease being a reliable way of charging drivers for their use of the roads.

The legislation creating this committee, and the committee’s online materials, both reference Oregon as a leader in VMT tax experimentation.  While this is true, it is also important to note that Oregon’s VMT tax program (called OReGO) contains a serious flaw that sharply limits its ability to raise revenue in a sustainable manner.  That flaw is a lack of planning for inflation.

Under OReGO, the tax rate applied to each mile driven is a flat 1.5 cents-per-mile.  As Oregon’s law is currently written, drivers participating in the program a decade from now will be charged the same 1.5 cent-per-mile tax that they are being charged today.  This is despite the fact that asphalt, concrete, machinery, and other construction materials are virtually guaranteed to become more expensive in the years ahead.

If construction costs grow by a modest 2 percent per year, the OReGO system’s 1.5 cent tax rate will have lost nearly a fifth of its purchasing power within the next decade.  Offsetting this loss will require raising the tax rate to 1.8 cents per mile.

The most efficient and seamless way of allowing the OReGO tax rate to keep pace with inflation is to rewrite the law so that the rate automatically updates each year according to a formula that takes inflation into consideration.  Such formulas already exist in the gas tax laws of states such as Florida, Georgia, Maryland, Rhode Island, and Utah.  And similar inflation indexing provisions are well tested in the income taxes levied by California, Oregon, and numerous other states.

The goal of a VMT tax pilot project is to find a sustainable way of funding transportation in the long-term.  If California moves ahead with a VMT tax system that does not take the inevitable impact of inflation into account, then it will have failed to achieve this goal.

Lawmakers are once again moving to pass a $96 billion package of controversial tax breaks that mostly benefit businesses under the pretense of incentivizing economic activity.

The Senate Finance Committee on Tuesday morning will hold a session to weigh the so-called merits of the tax breaks, widely known as tax extenders. Given that Sens. Orrin Hatch (R-Utah) and Ron Wyden (D-Fla.), respectively the chair and ranking member of the committee, have introduced bipartisan legislation to extend the tax breaks, the direction lawmakers are heading is clear.  

But as CTJ and others have repeatedly pointed out, the tax extenders are a motley array of ineffective corporate giveaways. To name a few, the extenders includes the research and development credit, the “active financing” loophole and the CFC look-through rule. The active financing loophole makes it easy for multinational corporations to cook their financial books in a way that makes it appear that they are generating income in low-rate foreign tax havens while their costs are deductible in the United States. And the “CFC look-through” rule gives companies additional options for offshoring their profits on paper. An exhaustive Senate investigation into Apple’s international tax avoidance found that the CFC look-through rule was a key part of the company’s tax-dodging strategy.

If committee members critically examine these and other tax breaks during tomorrow’s hearing, they will be in for a long day– there are more than fifty of them. But it appears lawmakers are more concerned about quickly moving to pass the legislation.

Sen. Hatch has said moving fast is the only way to make sure these tax breaks will work, arguing that “these provisions are meant to be incentives, (and) we need to advance a package as soon as possible.”

There is a major problem with this argument: the bill would apply retroactively. The extenders generally expired at the end of 2014, and the Hatch-Wyden plan would reactivate the tax breaks as of Jan. 1, 2015. This would mean that the two-year extenders legislation would expire at the end of 2016, so a quarter of time covered under this plan has already passed. This makes the incentive argument less compelling: how can providing big corporations with a retroactive tax credit for past activity create an incentive?

The tax extenders, to be sure, include a few small provisions that would have some effect on middle-income families. The deduction for teacher expenses provides teachers with federal income tax liability the chance to reduce their tax slightly, and the deduction for state and local sales taxes allows upper-middle taxpayers a chance to deduct their sales taxes instead of state income taxes.

A thorough Finance Committee exploration of these tax breaks would allow Congress to evaluate whether these and other tax breaks serve any social purpose—and, importantly, whether the tax code is the appropriate policy tool to achieve these social goals.

But Congress doesn’t appear to be focused on weighing the individual merits of each of the extenders. And that’s a shame.

Since 2001, the Boeing Corporation has enjoyed a cumulative $52.5 billion in pretax U.S. profits, but it hasn’t paid a dime in federal or state income taxes over this period.

Yet Roy Conner, president of Boeing Commercial Airplains, said earlier this month the company needs to compete on a “level playing field” when discussing the future of the Export-Import Bank of the United States. Boeing is intensely lobbying Congress to renew the bank’s charter.

Setting aside debate over the merits of the Ex-Im Bank, which ceased new financing activities this month because Congress allowed its charter to expire on June 30, it’s worth noting that Boeing has been remarkably effective in leveraging the U.S. tax system to avoid anything resembling a level playing field with other American corporations.

The company has received $757 million in federal tax rebates and $55 million in state tax rebates since 2001. Put another way, the company’s has not paid a penny in federal and state income taxes for the past 14 years.  

In fact, the company’s cumulative 21st century income tax rates are negative 1.4 percent in federal income taxes, and negative 0.1 percent at the state level. This astonishing record of tax avoidance came during a period in which the company was consistently profitable, never reporting less than $1 billion in annual U.S. profits over the past decade and a half.

Boeing of course is not alone in this rampant tax avoidance. Many big, profitable corporations are finding ways to pay far less than the 35 percent statutory federal corporate income tax rate. A 2014 study from Citizens for Tax Justice and the Institute on Taxation and Economic Policy found that consistently profitable Fortune 500 corporations paid an average effective tax rate of just 19.4 percent of their U.S. profits in federal income taxes over a recent five-year period, little more than half the statutory tax rate.

But Boeing has far outpaced most of corporate America in its ability to create its own “competitive advantage” through the tax system.

It is in this context that senior Boeing officials are lobbying Congress to reauthorize the Export-Import Bank, the federal agency created 70 years ago to subsidize loans for American corporations’ foreign customers. The company’s aggressive lobbying is hardly surprising; the Ex-Im bank is colloquially known as the Bank of Boeing because half the bank’s loans go to Boeing customers.

Those seeking to bury the Export-Import Bank, including Texas Sen. Ted Cruz, argued earlier this week at a press conference that the bank’s functions constitute “corporate welfare.”  Unfortunately, these lawmakers haven’t applied these same principles to the generous tax breaks Boeing receives at the federal and state level that allow it to handsomely benefit from the U.S. system.  

This is the final installment of our three part series on 2015 state tax trends.  The first article focused on tax shifts and tax cuts.  The second article discussed tax credits for working families and revenue raising initiatives.

July 1st marked the end of most states’ fiscal years, the traditional deadline for states to enact new spending plans and revenue changes. The 2015 legislative sessions delivered lots of tax policy changes, both big and small. Some states finished early or on time, while others straggled across the finish line after knockdown budget battles. Still others are not yet done racing, operating on continuing resolutions until an agreement is reached. As of now, four states still do not have spending plans in place for the fiscal year that started July 1st (Illinois, New Hampshire, North Carolina, and Pennsylvania.  Alabama has until October to reach a budget agreement). 

Perhaps the most active area of state tax policy this year was the debate over how to fund the nation’s deteriorating infrastructure.  As Congress continues to drag its feet on a solution to our current revenue shortfall, lawmakers in many states took action by enacting gas tax changes that will fund meaningful improvements to their transportation networks. A total of 17 states have enacted gas tax increases since 2013—including 9 this year alone.

Check out the detailed list after the jump to see which states increased their gas tax to support transportation funding.

Transportation Funding

Georgia: A 6.7 cent gas tax increase took effect July 1, 2015 as a result of a law signed earlier this year.  That law also positions Georgia for the long-term by allowing future increases to occur alongside growth in inflation and vehicle fuel-efficiency.

Idaho: A 7 cent gas tax increase took effect July 1, 2015—the state’s first gas tax increase in over 19 years.

Iowa: A 10 cent increase finally took effect on March 1, 2015 after years of debate.

Kentucky: Falling gas prices nearly resulted in a 5.1 cent gas tax cut this year, but lawmakers scaled that cut down to just 1.6 cents.  The net result was a 3.5 cent increase relative to previous law.

Nebraska: A 6 cent increase was enacted over Gov. Pete Ricketts’ veto.  The gas tax rate will rise in 1.5 cent increments over four years, starting on January 1, 2016.

North Carolina: Falling gas prices were scheduled to result in a 7.9 cent gas tax cut in the years ahead, but lawmakers scaled that cut down to just 3.5 cents.  The eventual net result will be a 4.4 cent increase relative to previous law (though now there is talk of allowing further cuts to take place and hiking drivers’ license fees to make up some of the lost gas tax revenue).  Additionally, a reformed gas tax formula that takes population and energy prices into account will result in further gas tax increases in the years ahead.

South Dakota: A 6 cent increase took effect April 1, 2015.

Utah: A 4.9 cent increase will take effect January 1, 2016, and future increases will occur as a result of a new formula that considers both fuel prices and inflation.  This reform makes Utah the nineteenth state to adopt a variable-rate gas tax.

Washington: Gov. Inslee signed a recent compromise package approved by the legislature. Washington State’s gas tax will rise by 11.9 cents in two increments: 7 cents on August 1 and an additional 4.9 cents on July 1, 2016. 

This is the second installment of our three part series on 2015 state tax trends.  The first article focused on tax shifts and tax cuts, and the final article will discuss transportation funding initiatives.

July 1 marked the end of most states’ fiscal years, the traditional deadline for states to enact new spending plans and revenue changes. The 2015 legislative sessions delivered lots of tax policy changes, both big and small. Some states finished early or on time, while others straggled across the finish line after knockdown budget battles. Still others are not yet done racing, operating on continuing resolutions until an agreement is reached. As of now, four states still do not have spending plans in place for the fiscal year that started July 1 (Illinois, New Hampshire, North Carolina, and Pennsylvania.  Alabama has until October to reach a budget agreement).  

While every state’s tax system is regressive, some states chipped away at this problem by enacting new tax policies to support working families. Most commonly, states adopted or strengthened their Earned Income Tax Credits (EITCs). But a number of proposals to enact or improve tax credits for working families stalled, including bills in Mississippi, Louisiana and Nebraska. There is still a chance that Illinois could improve its state EITC before the end of its legislative session.

In addition to policies supporting working families, a number of states, facing deep budget deficits, discussed or enacted revenue-raising plans this year. These plans will also help the public by supporting crucial services.

Check out the detailed lists after the jump to see which states created new tax policies to support working families and which states increased taxes to raise needed revenue.

Wins for Working Families

California (Enacted): Lawmakers reached a deal with Gov. Jerry Brown, passing a $115.4 billion budget that includes a new EITC for working families. This new EITC is worth approximately $380 million and is expected to help 2 million Californians. 

Hawaii (Still Active): Assuming Gov. David Ige signs a bill approved by the state’s legislature, most low-income families receiving the state’s refundable food tax credit will see their credit grow somewhat starting in 2016.  The credit is designed to offset highly regressive sales taxes on food in a state that ITEP has ranked as having higher taxes on the poor than anywhere except Washington State.

Massachusetts (Enacted): Massachusetts lawmakers included an increase in the state’s refundable EITC from 15 to 23 percent of the federal credit in their final budget agreement.

New Jersey (Enacted): The legislature increased the state EITC to 30 percent of the federal credit after a surprise endorsement from Gov. Chris Christie. As New Jersey Policy Perspective notes, the increase will help more than 500,000 working families and boost the state economy: “It’s been estimated…that the EITC has a multiplier effect of 1.5 to 2 in local economies – in other words, every dollar of tax credit paid ends up generating $1.50 to $2 in local economic activity.”

Rhode Island (Enacted): As part of the budget deal, Rhode Island lawmakers approved an increase in the state’s refundable EITC from 10 to 12.5 percent of the federal credit. 

Maine (Enacted): The final budget package approved by lawmakers converted the state’s nonrefundable 5 percent EITC to a refundable credit and introduced a new refundable sales tax fairness rebate, which will help to offset the impact of higher sales tax rates also included with the budget.

New York (Enacted):  Gov. Andrew Cuomo, the Assembly, and the Senate all proposed separate versions of a refundable property tax credit this session – some more targeted than others.  In the closing days of the session, lawmakers agreed to a compromise credit that is a sliding scale percentage of homeowners’ STAR property tax exemption, with benefits targeted to low- and moderate-income homeowners.  The credit is unavailable to homeowners with income above $275,000, and those residing in New York City or other jurisdictions that do not comply with the state’s property tax cap.  Unfortunately, the final agreement did not include any support for renters.

Significant Revenue Raising:

Alabama (Still Active): Lawmakers left their regular legislative session without a budget—or a needed revenue raising plan—in place (their fiscal year starts Oct. 1, so they are working on borrowed time).  Gov. Robert Bentley proposed a $541 million revenue package earlier in the year, including a higher cigarette tax, higher sales taxes on car purchases, and enacting combined reporting under the corporate income tax.  Unable to reach agreement on which taxes to raise and by how much to raise them, lawmakers sent the governor a budget with no new revenues, which he swiftly vetoed.  Lawmakers reconvened briefly on July 13 to receive Gov. Bentley’s latest revenue raising proposal that would raise more than $300 million: eliminating a state deduction for social security payroll taxes (only taken by lawmakers), a 25-cent cigarette tax increase, and a few small business tax changes.  His proclamation also suggested lawmakers could consider a soda tax as an alternative to eliminating the payroll deduction.  Lawmakers are expected to review the revenue changes over the next three weeks and will meet again on August 3 to vote on the proposal.

Connecticut (Partially Enacted): Connecticut lawmakers passed a budget with more than $1 billion in new revenue to plug a budget gap and ensure the state has resources to make needed investments in education, transportation, and health care.  In late June, lawmakers were called back to the capital for a special session after Gov. Dannel Malloy caved to the behest of corporate lobbyists. At issue was an increase in the state’s sales tax on computer and data processing services from 1 to 3 percent, as well as new combined reporting rules for businesses operating in Connecticut. The legislature backed down on those changes after corporations decried the measures and leaned heavily on the governor. The new deal maintains the sales tax rate on computer and data processing and delays the start of combined reporting by one year.  The close to $1 billion revenue package also includes higher personal income taxes for very wealthy households, the elimination of an exemption on clothing under $50, cuts to a property tax credit, and a cap on car taxes paid in some districts.  

Illinois (Still Active): Gov. Bruce Rauner and lawmakers face a reckoning of their own making; the state could be headed toward a shutdown without a resolution. Rauner wants to address the state’s $6.1 billion budget gap with massive spending cuts to healthcare, education and other public services in a budget proposal denounced as “morally reprehensible” by critics in the state. The legislature and the Governor are at a standstill.

Louisiana (Enacted): State leaders grappled with how to close a $1.6 billion budget gap all session long. Eventually, they passed a package of eleven bills that will raise about $660 million in revenue. The package increases the state cigarette tax by 32 cents per pack, scales back business subsidies, and decreases many of the state’s existing tax breaks through a 20 percent across-the-board cut. Most of the new revenue raised by the package of bills will go toward preventing deep cuts to higher education and healthcare programs. To win approval from Gov. Bobby Jindal, lawmakers were forced to adopt a convoluted plan with a fake fee and fake tax credit as a smokescreen for raising revenue so that the governor could keep his promise to Grover Norquist not to raise taxes.

Vermont (Enacted): In order to address a revenue shortfall, Vermont lawmakers enacted a handful of tax increases this year.  Most notably, they broadened the income tax base by capping itemized deductions (mostly used by upper-income taxpayers) at just 2.5 times the value of the state’s standard deduction.  Sensibly, lawmakers also eliminated the ability to deduct Vermont state income tax from, well, Vermont state income tax.  They also expanded the state’s sales tax base to include all purchases of soda beverages.

This is the first installment of our three part series on 2015 state tax trends.  The next article will focus on more positive developments: working family tax credits and revenue raising.  And the final article will discuss one of the most active areas of state tax policy in 2015: transportation funding initiatives.

July 1st marked the end of most states’ fiscal years, the traditional deadline for states to enact new spending plans and revenue changes. The 2015 legislative sessions delivered lots of tax policy changes, both big and small. Some states finished early or on time, while others straggled across the finish line after knockdown budget battles. Still others are not yet done racing, operating on continuing resolutions until an agreement is reached. As of now, four states still do not have spending plans in place for the fiscal year that started July 1st (Illinois, New Hampshire, North Carolina, and Pennsylvania.  Alabama has until October to reach a budget agreement). 

A number of states continued the troubling trend of cutting taxes for the wealthy while asking working families to pick up the tab. These tax shift proposals make state tax systems less fair and can contribute to budget shortfalls down the road. Tax shifts come in many forms, though a shift from income taxes to consumption taxes is the most common and most regressive example. Sadly, tax shifts are here to stay; Arizona, New Mexico, Georgia and West Virginia could all see new proposals surface in next year’s legislative sessions.

Several states enacted or considered tax cuts without balancing lost revenue with other tax increases. Instead, these states cut spending or used one-time surpluses to justify long-term changes. The overwhelming majority of these proposals reduce taxes for the best off while doing nothing or little for everyone else, making a regressive tax landscape even worse.

Check out the detailed lists after the jump to see which states enacted or attempted to enact new tax shifts and tax cuts this legislative session:

Tax Shifts

Kansas (Enacted): The tax debate in Kansas was watched more closely than in any other state this year. After promising that massive tax cuts would pay for themselves back in 2012 and 2013, Gov. Brownback and anti-taxers were forced to admit the “experiment” went too far. After high melodrama – Gov. Brownback tearfully urging lawmakers to vote for a sales tax hike, staunch anti-tax legislators breaking their anti-tax pledges, and lawmakers accusing Brownback of blackmail – state leaders passed a bill that increased taxes. Governor Brownback claimed that despite the increase, Kansans were still better off because of his earlier tax cuts. But an ITEP analysis revealed that talking point as fiction when it showed that lower-income taxpayers will be paying more than they did prior to Brownback taking office.

Ohio (Partially Enacted): Earlier in the year, Gov. Kasich proposed a large-scale tax shift which would have paid for significant personal income tax cuts with much higher sales taxes.  Legislators agreed to a budget with a net tax cut of $1.85 billion over two years focused just on cutting personal income taxes. The move is sure to make the revenue outlook worse in Ohio and will undermine investments in priority areas like education, infrastructure and healthcare. ITEP’s analysis of the compromise plan found that the top one percent of Ohio taxpayers will get half of the income tax cuts – an average annual tax break of $10,236 for those making $388,000 or more. Meanwhile, the bottom 20 percent of taxpayers will see their taxes increase by an average of $20.

Maine (Partially Enacted): Gov. Paul LePage proposed a costly, sweeping tax shift package back in January that would have resulted in a significant shift away from progressive personal income taxes and toward a heavier reliance on regressive sales taxes.  While almost every Mainer would have received a tax cut under this plan, the benefits were heavily tilted in favor of the state’s wealthiest taxpayers. Thankfully, despite its flaws the final tax reform package passed by the legislature over the governor’s veto will actually improve the state’s tax code.  Among the major tax changes it includes are: lower income tax rates, a broader income tax base, new and enhanced refundable tax credits, a doubling of the homestead property tax exemption, an estate tax cut, and permanently higher sales tax rates. Maine will slightly shift its reliance away from its progressive personal income tax onto a narrow and regressive sales tax.  However, this plan is vastly different from other proposed and enacted tax shifts, as it reduces taxes for most low and moderate-income families and somewhat lessens the regressivity of the state’s tax code.

Mississippi (Failed): Legislators defeated efforts to pass significant tax shifts this legislative session. Lt. Gov. Tate Reeves’s proposal to cut income and corporate franchise taxes by $555 million over 15 years died in the House, while House Speaker Philip Gunn’s plan to phase out the state income tax died in the Senate. Opponents of the cuts noted that they would sap K-12 and higher education budgets while shifting the burden of funding crucial services to the local level.

Idaho (Failed): Thanks in part to ITEP’s analyses, legislators ended the session without enacting a regressive flattening of the state’s income tax. Had that proposal passed, it would have provided an average tax cut of nearly $5,000 per year to the state’s wealthiest taxpayers while raising taxes on most middle-income families. Instead, lawmakers agreed to simply raise the state’s gas tax by 7 cents (the first increase in 19 years) and boost vehicle registration fees by $21 without a corresponding tax cut.

Michigan (Still Active): In May, voters rejected a ballot proposal that would have raised sales taxes, gasoline taxes, and vehicle registration fees to pay for improvements to the state’s deteriorating infrastructure.  Since then, the Michigan House agreed to an alternative plan that would fund roads by repealing the state’s Earned Income Tax Credit (EITC), raising diesel taxes, indexing gas and diesel taxes to inflation, and transferring money away from other public services.  Fortunately, the most regressive component of this plan—repealing the EITC—was not included in the package passed by the state Senate.  But unlike the House, the Senate would implement a tax shift whereby a regressive gasoline tax hike is paired with a cut in the state’s income tax rate that would primarily benefit high-income taxpayers.  As of this writing, it is still unclear what, if any, compromise will be reached between the House and Senate.

North Carolina (Still Active): Lawmakers have reached a budget impasse (which seems to be a yearly ritual in the Tarheel state) and had to pass a stop gap spending measure to keep government functioning while they sort out their differences.  Several spending priorities are at the center of the House and Senate standoff as well as proposed tax changes included in the Senate budget: deeper cuts to the personal income tax, adding more services to the sales tax base, slashing the business franchise tax by a third, and additional corporate income tax cuts.  It will likely take North Carolina lawmakers months to sort out their differences.

Pennsylvania (Still Active): The budget showdown between Gov. Tom Wolf and the state legislature will continue through the summer. Stating that “the math doesn’t work”, Governor Wolf vetoed the entire budget lawmakers delivered to him in the final days before the start of the fiscal year.  Governor Wolf’s preferred budget included a property tax reform measure and additional spending for education (both paid for with higher personal income and sales taxes) and a new tax on natural gas extraction.  While Republican lawmakers also favor reducing (or even eliminating) school property taxes, there is no common ground on how to achieve that goal and most are adamantly opposed to a severance tax.  Lawmakers will begin to hammer out a compromise early next week and the government will operate in a partial shutdown mode until the state has a budget in place for the new fiscal year.

South Carolina (Failed): South Carolina lawmakers spent the majority of the session exploring ways to improve the state’s crumbling infrastructure while also cutting taxes. Needless to say, this effort sparked enormous debate across the state.  Three proposals were heavily debated: the Governor’s shift away from income taxes in favor of a higher gas tax, a House-passed plan that would have combined some tax increases with a much more modest income tax cut and a Senate Finance plan which would have increased revenues without an income tax cut.  Ultimately, however, the session ended with no income tax cuts, no gas tax hikes, and no progress toward a more adequately funded transportation network. 

Tax Cuts 

Arkansas (Enacted): Gov. Asa Hutchinson fulfilled his campaign promise of passing a middle class tax cut. The governor’s plan introduces a new income tax rate structure for middle income Arkansans.

Florida (Enacted): The legislature approved a $400 million package of tax cuts after the resolution of a deadlock over healthcare spending; Florida is expected to lose federal aid to state hospitals, and many lawmakers were reluctant to accept Medicaid dollars offered under the Affordable Care Act. In the end, the size of the tax cuts relative to those initially proposed by Gov. Rick Scott was reduced by almost half in order to cover healthcare costs. The package of cuts includes tax cuts for cell phone and cable bills, college textbooks, and sailboat repairs that cost more than $60,000.

Montana (Failed): The legislature failed to override Gov. Steve Bullock’s vetoes of multiple bills that would have cut personal income tax rates. Opponents argued that the state already faced a $47 million deficit and that the majority of the tax cuts would have flowed to the state’s highest-income taxpayers (a fact confirmed by multiple ITEP analyses). In explaining his veto, Gov. Bullock also made clear that “the experience of other states shows that decimating your revenue base to benefit large corporations and the wealthiest individuals does not work to stimulate the economy.”

Nebraska (Failed): Despite the large number and diversity of tax cut bills circulating in Nebraska this session, no significant cut was enacted.  However, that does not mean that the proposals are off the table.  Rather, expect the tax cutting debates to carry over into next session.

North Dakota (Enacted): For the ninth straight year, North Dakota lawmakers approved cuts to the state’s personal and corporate income taxes.  Starting next year, the corporate income tax rate will drop by 5 percent, and personal income tax rates will be reduced by 10 percent across the board. 

Rhode Island (Enacted): Middle- and upper-middle income older adults will now be fully exempt from paying taxes on Social Security income.  The exemption applies to Rhode Islanders age 65 and over with income below $80,000 (single) or $100,000 (married).  This tax break will largely benefit middle- and upper-middle income older adults since low-income seniors are already exempt from paying taxes on Social Security income in the state.

Tennessee (Failed): Efforts to repeal the Hall Income Tax failed again after the legislature did not act on two repeal measures before the close of session. The Hall Tax is a 6 percent tax on income from stocks, bonds and dividends that is the state’s only tax on personal income. A significant portion of the revenues raised by the tax supports county and municipal governments. Opponents of the Hall tax won a small victory, however, as they succeeded in increasing the exemption allowed for citizens over the age of 55.

Texas (Enacted): Lawmakers passed a number of new tax cuts this year. 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” since the homestead exemption is spread evenly across taxpayers and the bill will replace local property tax revenue with more state aid to schools. 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.