Tag: TaxJusticeBlog

The drama that ensued over the last few weeks in Topeka is the stuff of telenovelas. Kansas Gov. Sam Brownback got emotional when urging lawmakers to vote for a sales tax hike, even calling legislators from the hospital where his granddaughter was just born. Staunch anti-tax legislators broke their no new taxes pledge. Lawmakers accused the governor of blackmail, and the legislative session went on for an extra 23 days.

In the end, many Kansans will pay more in taxes due to an increase in sales and cigarette taxes, a freeze in income tax rates and limits for itemized deductions.

But every good soap opera deserves a twist. It’s well known that these tax increases were precipitated by irresponsible, top-heavy tax cuts championed by Gov. Brownback and passed in 2012 and 2013. An ITEP analysis of all Kansas tax changes over the last four years (including this year’s) found that the poorest 20 percent of Kansans, those with an average income of just $13,000, will pay an average of $197 more in taxes in 2015 as a result of the Gov. Brownback tax changes, and, even with the increases Gov. Brownback is expected to sign into law today, the richest 1 percent are still paying about $24,000 less.

Early on in his tax-cutting frenzy, the Governor offered that Kansas was a “real live experiment” for other states in terms of showing the positive impact of supply side economics. Those words have come back to haunt him and other supporters of trickle-down economic theories. If Kansas is an experiment, Friday’s vote makes it clear that the experiment failed.

One of the biggest and most regressive tax cuts included in the Governor’s 2012 tax cuts is its full exemption of non-wage business income. It’s the only state in the nation to fully exempt all pass-through business income. Lawmakers missed a real opportunity to fix this costly loophole.  Instead, they approved a new tax on guaranteed payments to ensure that some tax on small business income is levied, but accountants can easily manipulate the books so their clients don’t pay this new tax.

Most importantly, Kansas’s tax changes, even the provision that allegedly exempts 380,000 low-income people from income taxes, will do nothing to alter the fact that the Sunflower State earlier this year earned a spot on ITEP’s “Terrible Ten” list because it has 9th most regressive tax structure in the country.

The tax bills that barely passed the Senate (and passed the House at 4 am that same morning) included the following:

• Income Tax Rate Freeze: Income tax rates were scheduled to fall to 2.3 and 3.9 percent, but the budget instead froze the rates at 2.6 and 4.6 percent
• Itemized Deduction Reform: The bill limits itemized deductions  for mortgage interest and property taxes paid.  This change is expected to generate $97 million in FY2016.
• Sales Tax Rate Hike: The sales tax rate (including groceries) increases from 6.15 to 6.55 percent. This rate increase is expected to bring in $164 million in FY2016.
• Cigarette Tax Rate Hike: The cigarette tax increases by $0.50 per pack to $1.29 beginning July 1.  The tax hike is expected to generate $40 million in FY2016 and will almost certainly generate less in years to come.
• Low Income Exemption: Taxpayers with taxable income less than $5,000 ($12,500 for married couples) are exempt from paying the personal income tax.
• Guaranteed Payments: These payments, received from some types of pass-through business income, will now be taxed. This change is expected to bring in $23.7 million in FY2016.

The Kansas tax drama is over for the time being, but stay tuned. Chances are this soap opera will continue as lawmakers grapple with the impact of tax hikes in the context of unaffordable tax cuts.

Stephen Moore, a member of the supply-side triumvirate along with Art Laffer and Travis Brown, recently wrote a deeply misleading op-ed for The Wall Street Journal hailing North Carolina’s revenue surplus as vindication for supply-side economics and the state’s regressive tax policy. Don’t buy it.

Moore paints a rosy picture of the economic health of the Tarheel State, where lawmakers passed massive tax cuts for the wealthy in 2013 and are gearing up for another round this legislative session. The 2013 cuts prompted public outcry from citizens concerned about the drastic spending decreases needed to make the tax cuts possible, as well as the focus on slashing taxes – the estate, personal income and corporate income taxes –overwhelmingly paid by the well-off.

Worse, the 2013 cuts came on the heels of years of declining investment due to the national recession, a decline lawmakers have been slow to reverse. A 2014 Budget and Tax Center report found that spending in that year was still 6.6 percent below pre-recession levels, far from the norm in other states and for North Carolina in previous recessions.

Moore’s op-ed pretends that states can have massive, top-heavy tax cuts and still adequately meet their public obligations. But that’s only true if they’re in a race to the bottom. The state of public education funding in North Carolina is abysmal. The percentage of state dollars dedicated to K-12 education has gone down for the past 30 years; one study suggests that if public education had the same funding support now as in 1985, “schools would have an extra $1 billion a year in state money, which could [raise] teacher salaries [and presumably attract more talent] above the national average and could boost spending on items such as textbooks.” According to one NEA study, North Carolina ranked last nationally in teacher salary increases over the last decade. Dozens of school districts were forced to cut teaching positions or increase class sizes in 2013, a slow-burning economic blow that the state will contend with for years to come.

Moore also employs smoke and mirrors to tout North Carolina’s job and employment growth as a rebuttal to those who thought tax and spending cuts were the wrong policy. “The job market is vastly improved and people didn’t go hungry in the streets,” he reasons (it’s unclear how he knows this, but it’s worth pointing out that one in four North Carolina children are food-insecure). The truth is the number of employed North Carolinians is still below pre-recession levels and lags national averages. Despite an 18.5 percent increase in state domestic product since 2007, wages have actually fallen. And the economic recovery has been massively uneven along geographic, ethnic and socioeconomic lines.

Instead of acknowledging the challenges North Carolina faces, Moore crows about a one-time budget surplus. “Even with lower rates, tax revenues are up about 6% this year according to the state budget office,” he writes. “Gov. McCrory announced that the state has a budget surplus of $400 million while many other states are scrambling to fill gaps.”

Sounds great, right? Except that correlation does not imply causation, as every economist (including, presumably, Stephen Moore) knows. The $400 million is an unexpected windfall from business and capital gains growth – similar to revenue surpluses in at least ten other states, some of which did not cut taxes and at least one (California) which raised taxes. Even Art Pope, North Carolina’s former budget director and the architect of the 2013 cuts, doesn’t think the surplus stems from his tax policy changes.

Furthermore, plenty of other states that have embraced supply-side tax cuts ended up with massive deficits, Kansas and Louisiana being the prime examples. A recent CBPP report found that “Four of the five states that enacted the largest personal income tax cuts in the last few years have had slower job growth since enacting their cuts than the nation as a whole.”

Moore concedes the point on Kansas, most likely because he couldn’t get away with ignoring the biggest repudiation to his economic philosophy in years. But he obfuscates on the issue, noting that “Art Pope says one difference between the two states is that ‘we cut spending too. Kansas didn’t.’” And yet isn’t that the snake oil that Moore and his associates sell? That tax cuts will pay for themselves without spending cuts?

In Kansas, where lawmakers are still scrambling to close a $400 million shortfall, every supply-sider has counseled patience. The architect of the Kansas experiment, Art Laffer, said that the tax cuts there could take a decade to work. But not so in North Carolina, where two years and a one-time revenue boost are enough to declare “Mission Accomplished.”

The assertions of Moore and his compatriots in corporate welfare would be laughable were they not exceedingly dangerous. Even now, North Carolina lawmakers are preparing to waste the unexpected $400 million on additional tax cuts – on top of revenue triggers that will automatically drop the corporate rate from 6.9 to 4 percent by 2016. Senate Republicans have suggested further cutting personal income tax rates, calculating corporate income taxes on the basis of a single sales factor, and slashing the franchise tax by a third. These lawmakers claim their goal is to provide “balanced tax relief,” but don’t hold your breath. In 2013, the top five percent of taxpayers got 90 percent of the net tax cut, while the bottom 80 percent ended up paying more. Even after accounting for a sales tax base expansion, this new plan will lose $1 billion in state revenues. In other words, lawmakers are using a one-time surplus of $400 million to justify a billion dollar tax break for the wealthy. This is the state of fiscal conservatism.

So North Carolina, just as one should beware Greeks bearing gifts, you should be extra careful around Wall Street Journal editorial board members selling voodoo economics. Chances are they’re looking for a doll. 

The nonpartisan Congressional Research Service (CRS) just released a report that makes a strong case for making permanent EITC provisions that are set to expire in 2017 and also improving the credit for low-income workers without children.

The 2009 American Recovery and Reinvestment Act (ARRA) expanded the EITC by temporarily increasing benefits for families with more than two children and increasing the income level at which the credit phases out for married couples. However, these two improvements are slated to expire at the end of 2017, which Citizens for Tax Justice (CTJ) estimates would result in a decrease or loss of benefits for approximately 6.3 working million families, including 14.7 million children.

The following are four of the main takeaways from the CRS report.

1. EITC Increases Employment

There is strong empirical evidence that the EITC increases labor force participation among single mothers. In fact, one study found that 34 percent of the increase in employment for this group between 1993 and 1999 can be attributed to expansions of the EITC.

2. EITC Reduces Poverty

The EITC has been associated with significant reductions in poverty for households with children. For example, studies have found the EITC reduces poverty rates for single workers with one child by about 15 percent and for married couples with three children by nearly 30 percent.

3. EITC Benefits Much Greater for Workers with Children than for Childless Workers

While the EITC leads to substantial poverty reduction among recipients with children, it reduces poverty rates for childless workers by a much smaller degree (0.14 percent for single workers and 1.39 percent for married couples). The EITC generally lifts households with children above the federal poverty line, but childless workers often remain below the poverty line even after the EITC.

In addition to differences in poverty reduction rates, there are also significant differences in tax rates between households with and without children that are otherwise “equivalent” (i.e. have the same income adjusted by household size). This disparity is due to the fact that the EITC is much more generous for households with children. While the 2015 maximum credit for a childless worker is $503, the maximum credit for a worker with one child is more than six times greater at $3,359.

These inequities provide a strong case for increasing the EITC for childless workers. Lawmakers have introduced bills in both the Senate (S.1012) and House of Representatives (H.R.902) that would increase the maximum credit for childless workers to $1,400 and lower the eligibility age for these workers from 25 to 21. CTJ estimates that this expansion would provide 10.6 million working individuals and couples without children with an average tax benefit of $604. President Obama and Rep. Paul Ryan have also both proposed increased benefits for childless workers, but would provide a maximum credit of only $1,000.

4. High EITC Error Rates May Be Due to Excessive Complexity

The EITC has been criticized for its high error rates relative to traditional spending programs and other benefits provided through the tax code, though there is evidence that a significant amount of error is due to complexity in eligibility rules and credit formulas. The report suggests that the concern about high error rates may be overblown, but a simplification of the credit has the potential to decrease error rates and confusion among taxpayers.

On the whole, evidence shows that the EITC is an important antipoverty program that has positive effects on employment. Policymakers should make permanent the ARRA improvements benefitting larger families and married couples, and can further improve on this program by increasing the credit for workers without children and simplifying the rules to increase the accuracy of claims.

There’s no doubt that Michigan needs to find additional funds to repair its rapidly deteriorating transportation network.  But the package of bills just approved by the Michigan House of Representatives represent some of the worst ideas for doing so.

The most problematic change would repeal the state’s Earned Income Tax Credit (EITC).  The EITC is a vital pro-work and anti-poverty tax credit that benefits roughly 800,000 Michigan families every year.  Just four years ago, Michigan lawmakers voted to scale back the state’s EITC by 70 percent to help fund large business tax cuts.  Rather than revisiting whether such dramatic tax cuts were prudent, the House wants to double down and repeal the modest EITC that remains.

Judging by the statements being made by some lawmakers, this decision seems to be based in part on a fundamental misunderstanding of how Michigan’s tax system works.  State Rep. Aric Nesbitt, for example, justified his vote by saying that EITC repeal “helps ensure a flat and fair system.”  In reality, repealing the EITC would only exacerbate the unfairness of a tax system already tilted against low- and moderate-income taxpayers. 

Under current law, Michigan’s wealthiest residents pay 5.1 percent of their income in state and local taxes while the state’s poorest residents pay a significantly higher 9.2 percent rate.  Repealing the EITC would have no impact on the taxes paid by the state’s more affluent taxpayers, but an ITEP analysis showed that it would raise the rate paid by the state’s low-income residents to 9.7 percent.  The result would be an even more steeply regressive tax system, and one even further from the “flat” ideal that Rep. Nesbitt says he supports.

While EITC repeal is the most troubling aspect of the House package, the lion’s share (more than $900 million out of a $1.1 billion package) of the road funding would come from simply diverting money away from other vital services such as health care, education, corrections, and economic development.  This reshuffling of funds toward roads and bridges is nothing more than a Band-Aid tactic—and one that we’ve seen create real budgetary problems in states such as Oklahoma and Utah.

The one bright spot in this plan would raise the diesel tax by four cents and would index both gasoline and diesel tax rates to inflation.  If these changes are enacted into law, Michigan would become the 17th state to raise or reform its fuel taxes since 2013.  Such reforms are vital to ensuring the long-run sustainability of gas taxes—the single most important source of transportation funding available to Michigan lawmakers. 

But despite their merits, these incremental gas tax reforms will hardly be worth celebrating if they’re accompanied by an elimination of the EITC and cuts to non-transportation areas of public investment.  Hopefully the Michigan Senate will be able to come up with some better ideas as it crafts its own transportation funding package.

Connecticut’s legislature approved a two-year $40 billion budget last week with wide-ranging tax increases to help close a $1 billion budget gap. 

The changes include fully applying the sales tax to all clothes purchases and reducing a targeted property tax credit. But the two provisions that have received widespread attention are corporate tax reforms and increasing the personal income tax rate on the richest 5 percent of taxpayers.

Lawmakers included corporate tax reforms in the final budget despite objections from some of the largest corporations in the state, such as GE and Aetna.  In addition to higher taxes on computer and data processing services, the plan limits tax credits and specifies how business income can be reported.  Most significantly, Connecticut will join the majority of states in requiring corporations to file a combined report that treats subsidiaries of multistate corporations as one entity so they are taxed in aggregate.

General Electric (GE) threatened to relocate its headquarters and established an exploratory committee the day after lawmakers passed the final budget, and other major business interests have issued press releases conveying their discontent for the corporate- and personal income tax changes in the budget.  Gov. Dan Malloy has yet to sign the budget and has agreed to a sit-down meeting this week with the president of the Connecticut Business and Industry Association to discuss the corporate tax changes

GE and other corporations’ complaints have misrepresented the budget as a plan that only raises needed revenue by solely increasing taxes for the wealthy and profitable businesses. This is far from reality.  An ITEP analysis found that all income groups will pay more under this plan, and the lowest-income taxpayers in the state will experience the largest tax increase as a share of income.  Connecticut’s tax system is already upside down, and the tax changes included in the contentious budget deal would further exacerbate the gap between low-income and wealthy Connecticut taxpayers. 

Complaints about ‘combined reporting’ are also suspect considering that GE and other major corporations in Connecticut comply with the measure in almost every other state in which they currently operates.

GE is not exactly the best poster child for so-called high taxes. The company is notorious for paying low to zero corporate income taxes.  In 2014, an ITEP analysis found that GE paid an average state corporate income tax rate of negative 1.2 percent on its $5.75 billion in profits in the United States. Looking over the past five years, GE only paid a state corporate income tax rate of 1.6 percent, just about a quarter of the average weighted state corporate income tax rate of 6.25 percent.

Big business will undoubtedly continue to pressure Gov. Malloy into forgoing the good corporate tax changes included in the budget deal awaiting his signature.  The state is certainly in need of new revenue to protect critical public investments, yet if any part of the plan should give him pause it should be the tax increases on low- and moderate-income families rather than the small ask for wealthy taxpayers and profitable corporations to pay a little more.  

One of the main arguments used against efforts to crack down on online sales tax evasion just got a little bit weaker.  For years, e-retailers have been claiming that state and local sales tax laws are too complicated for them to bother complying with.  But Amazon.com’s decision to begin collecting sales taxes in Ohio last week belies that claim.

Effective June 1, Amazon is now collecting sales taxes in fully half the states that are collectively home to over 247 million people, or 77 percent of the country’s population.  In other words, more than three out of every four Americans now live in a state where Amazon willingly collects the sales taxes its customers owe.

In the shrinking number of states where Amazon is still refusing to collect the tax, the problem is clearly not that Amazon is incapable of participating in the sales tax system.  Instead, the company thinks it can retain a competitive advantage over mom and pop shops, and other brick-and-mortar stores, by continuing to offer its customers an avenue to evade state and local sales taxes.  And in at least half a dozen states (Arkansas, Colorado, Maine, Missouri, Rhode Island, and Vermont), Amazon has gone out of its way to preserve this advantage by cutting ties with local advertisers in order to dodge state-specific requirements that it collect sales tax.

As we’ve noted before, Congress could address this inequity quite simply if it were able to overcome its current gridlock and pass the Marketplace Fairness Act or similar legislation.  But until that happens, state sales tax enforcement as it applies to purchases made over the Internet will remain an inefficient and unfair patchwork. 

As legislative sessions across the country enter the final stretch, many states are buzzing with activity around tax policy. Lawmakers in Kansas and Maine are still working on behind-the-scenes negotiations aimed at resolving differences around major tax deals, while Ohio and North Carolina lawmakers are expected to release budgets with more personal income tax cuts (on top of the cuts enacted in recent years). Meanwhile, Alabama, Minnesota, Florida and Illinois are headed into special sessions to tackle thorny budget and tax issues and, in some cases, enduring budget shortfalls. 

Iowa lawmakers reached a budget compromise last week, ending a stalemate that took the state legislature a week beyond its expected adjournment. The debate centered on how to spend a budget surplus. Republican legislators were reluctant to increase spending on ongoing expenses using one-time money, while Democratic legislators and Gov. Terry Branstad wanted to use the surplus to invest in education and human services. The deal includes a 1.25 percent increase in K-12 spending next fiscal year as well as $55 million in one-time expenditures for public schools this fiscal year. In all, the budget next fiscal year will increase by about $299 million.

Rhode Island lawmakers are considering various tax breaks, among them proposals to exempt retirement income from the personal income tax. State Rep. Robert Craven has proposed exempting all state, local and federal retirement income, including Social Security and military pensions paid to those 65 and older, from state income taxation. Craven argues that the measure will keep retirees from moving out of state, though research shows that retirees don’t move for tax reasons. Critics of the plan argue that most of the benefits would go to wealthier citizens. Gov. Gina Raimondo has proposed a more targeted retirement income exemption that would fully exempt Social Security income from taxation for single filers with annual household incomes of $50,000 or less and married filers making $60,000 or less.  House Speaker Nicholas Mattiello supports a similar approach, although married couples earning $100,000 or less ($80,000 for singles) would be exempt from paying taxes on Social Security under his plan. The speaker also supports raising the state EITC to 12.5 percent of the federal credit, an improvement but less than the 15 percent proposal included in Gov. Gina Raimondo’s budget.

Louisiana legislators narrowly rejected a bill that would have doubled the state’s Earned Income Tax Credit (EITC) from 3.5 to 7 percent of the federal credit. If enacted, the change would have benefitted 515,000 Louisianans every year. So far this year, lawmakers in the state have approved or extended a variety of credits for business owners and corporations. One state representative called the EITC “essentially welfare written into the tax code” and sought to do away with the credit altogether. Other representatives rebuked their colleagues for doing nothing to help working families in the state, noting that Louisiana has a starkly regressive tax system.

States Ending Session This Week:
Louisiana

If his 2012 presidential campaign is any indication, former Texas Gov. Rick Perry will continue making a pitch in his 2016 presidential campaign for regressive tax policies and cuts in essential public services to fund tax breaks for the wealthy and corporations.

During his 2012 presidential campaign, Perry proposed to replace the individual income tax with a flat tax, at a rate of 20 percent. According to an analysis by Citizens for Tax Justice (CTJ), Perry’s flat tax plan would have cut taxes by an average of $272,730 annually for the top 1 percent of Americans, while reducing taxes by an average of $1,000 for those in the middle 20 percent.

This regressive tax plan would have exploded the deficit by $10.5 trillion in its first decade. While Perry did spell out some ill-advised program cuts, he never explained how he could possibly pay for a full $10.5 trillion in tax cuts.

Perry’s 2012 flat tax plan was essentially a call to replace our current federal tax system with something like the regressive and revenue-starved tax system already in place in Texas. That would be a boon for wealthy people at the expense of the vast majority of Americans.

His regressive federal tax proposals aren’t surprising based on his record as a three-term governor of Texas. During that time, Perry repeatedly demonstrated his support for tax cuts for the rich, even when it would mean tax increases—or reductions in public services—for low- and middle-income families.

High-Tax Texas

One of Perry’s biggest talking points is touting Texas’s low taxes. In reality, however, Texas taxes are only low for the state’s wealthiest residents. According to the Institute on Taxation and Economic Policy (ITEP), the wealthiest one percent of Texans pay only 2.9 percent of their income in state taxes on average. In contrast, the bottom 20 percent of taxpayers pay, on average, as much as 12.5 percent of their income in state taxes, meaning they pay a rate that is four times higher than the state’s richest residents. Because of this, Texas’s tax system is one of the most regressive in the entire nation. For low-income families, Texas is actually the 7th highest tax state in the country.

While Texas’s tax system is tough on lower-income taxpayers, it’s a haven for businesses seeking corporate tax breaks and other handouts. A 2012 analysis using data from Good Jobs First found that Texas gives more special tax incentives for business, totaling around $19 billion annually, than any other state in the country. In other words, Perry is more than happy to let working families pick up the tab for billions in tax breaks for big corporations.

Building on this, Perry has worked in recent years to ensure that Texas and its local governments are perpetually unable to raise adequate revenue to provide funding for critical public services. For example, in 2012, Perry campaigned around Texas calling on lawmakers to sign his Texas Budget Compact, which included promising to oppose any new taxes or tax increases, as well as setting a constitutional limit on spending increases. In addition, he fought to tighten the state’s already debilitating property tax cap, a policy that would have made it even more difficult for local governments to adequately fund education.

Perry’s record on taxes is nothing to brag about. As a presidential candidate in 2016, he is likely to continue making the same pitch for the benefits of regressive tax cuts and reductions in essential government investments. Such policies are only good for  corporations and an elite sliver of the population.

It’s been clear for more than a year that Kansas must make significant policy changes to address its severe budget shortfall. Now, legislative developments are moving quickly as Gov. Sam Brownback and lawmakers try to hammer out a plan to plug the budget gap, but so far proposals on the table would make Kansas’s already regressive tax code even more so.

On Saturday, Gov. Brownback unveiled (a second) tax proposal to fix the state’s fiscal mess, AKA a $400 million shortfall. The governor’s latest plan cuts income tax rates, changes how itemized deductions are taxed, includes a vague low-income exemption and raises both the sales tax and the cigarette tax.

“The latest proposal is asking the Kansas Legislature to repeat 2012 mistakes, proposing dramatic changes to the Kansas tax code without identifying specific statutory changes or data to show the impact those changes will have,” Annie McKay, executive director of the Kansas Center for Economic Growth said in a statement.

By now, it’s no secret that that much of this fiscal mess has its roots in the governor’s own top-heavy, unaffordable tax cuts passed in 2012 and 2013. Perhaps the copious and damaging press over the last several years around the governor’s tax cuts for the wealthy are the impetus behind Brownback’s claim that 388,000 people will not have to pay income taxes under his new plan. While ITEP hasn’t yet evaluated whether this claim is true,  an initial ITEP analysis of Brownback’s plan found that his proposal results in an average net tax hike for Kansans in the bottom 40 percent of the income distribution due in part to higher  sales and other regressive excise taxes.

As our analyses have repeatedly shown, Gov. Brownback’s 2012 and 2013 tax cuts disproportionately benefited the wealthy, collectively cost the state more than $1 billion and actually raised taxes overall on average for the bottom 20 percent of Kansans.

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