Tag: TaxJusticeBlog

While the focus of marijuana legalization debates is rightly on the potential health and criminal justice impacts, the decision to legalize marijuana also has real implications for state and local revenue.

Over the past two decades, 23 states and the District of Columbia have enacted laws allowing the production and use of marijuana for medical purposes. Taking this one step further, Colorado, Washington, Alaska and Oregon are moving forward with systems that will permit the general production and purchase of retail marijuana. California, Maine, Nevada and others may soon follow in the coming years.

Given the increasing prominence of these issues, the Institute on Taxation and Economic Policy (ITEP) has written a new report providing a comprehensive overview of best practices for taxing marijuana and the potential impact these taxes could have on state and local revenue.

One of the central findings of the ITEP report is that predicting how much money state and local governments could raise from marijuana taxes is extremely difficult. To start, no jurisdiction in the world has legalized marijuana in modern times for a sustained period of time so there is not much historic data to go on.

Colorado and Washington have raised tens of millions in revenue from marijuana taxes, but these experiments in taxing marijuana are only a year old and the markets in both states are still evolving immensely, making it difficult to draw too many definitive lessons from either state.

The critical problem with estimating the revenue yield of marijuana taxes is that there are unpredictable factors that could work to substantially increase or decrease the revenue these taxes could yield. On the negative side for example, it’s unclear whether there will be a dramatic decrease in the cost of marijuana production if legislation allows for cheaper cultivation methods, which could limit the ability of state governments to impose really dramatic excise taxes. Another significant factor that could drive marijuana tax revenue downward would be a step up in enforcement of federal laws against the production and consumption of marijuana.

One factor that could increase revenue is that legalization would likely significantly increase marijuana consumption across the United States, which would mean a bigger marijuana market to tax. In addition, bringing marijuana into the legal market would mean that individuals involved in the cultivation and sale of marijuana would be more likely to report their income from and pay taxes on these activities. Finally, states that adopt legalization early may experience a significant uptick in revenues from tourists, though this revenue could be fleeting as more states legalize marijuana.

Taking these factors all together, a recent study by the Congressional Research Service found that a $50-an-ounce tax at the state level could potentially raise about $6.8 billion annually if it were implemented across the country. Another report found that applying existing sales taxes and a 15 percent excise tax on marijuana in each state would generate just under $3.1 billion in state tax revenue. To give some context, raising somewhere between $3.1 to $6.8 billion would put marijuana taxes in the ballpark of the $6.5 billion that state and local alcohol taxes raise each year, yet put them well below the $17.6 billion raised by state and local cigarette taxes.

Read the Full Report:

Issues with Taxing Marijuana at the State Level

Dr. Ben Carson enters the Republican presidential field without any significant legislative experience so he doesn’t have a record on tax policy. But in a 2013 op-ed, the well-respected neurosurgeon explained his avid support for a flat tax system. The case Carson made then and more recently in an interview on Fox News for the flat tax is based on a number of falsehoods about our current tax system and how a flat tax would work in practice. 

Below are some truths about the flat tax that Carson should consider:

1. Flat tax proposals typically do not tax capital income, even though they should.

Carson argued that a flat tax would ensure that the wealthy are paying at least the same amount in taxes as everyone else, compared to our current system where Warren Buffett pays a lower rate than his secretary. Most flat tax proposals, however, exempt capital gains and dividends from taxes, meaning that under such plans someone like Buffett would typically pay no taxes on the bulk of his income rather than the current, maximum rate of 23.8 percent A truly proportional tax system would specify that capital income be taxed the same as normal income.

2. A flat tax would increase taxes on low- and middle-income families.

Carson has bought into the widely disproven notion that low-income people don’t pay taxes, and his op-ed argued that a flat tax would guarantee that low-income individuals pay something in taxes. While the federal tax code means poor and very low-income people pay little or nothing in federal income taxes, the truth is that all working people pay federal payroll taxes, not to mention a plethora of state and local taxes.

A Citizens for Tax Justice study of one flat tax proposal found that the bottom 95 percent of taxpayers would see their taxes go up by an average of $2,887, while the top 1 percent of taxpayers would receive a tax break of $209,562.

3. Deductions and credits make the tax code complicated, not the progressive rate structure.

One of the typical arguments for the flat tax is that it would simplify the tax code. Carson wholly buys into this, claiming a flat or proportionate tax would substantially simplify the tax system. Our current, federal progressive rate structure, however, is not the reason for our tax code’s complexity. It is the myriad tax deductions, credits and loopholes that Congress continually creates. We could simplify the tax system by reforming tax expenditures, as Carson argued, but this would not benefit from or require eliminating the progressive rate structure.

4. A flat tax would still require a revenue collections agency.

In his op-ed, Carson trots out the same irresponsible talking point as Sens. Ted Cruz and Rand Paul, arguing that a flat tax system would allow for the abolition of the Internal Revenue Service (IRS). The truth is that even under a radically simplified tax code, there is no way for a modern state to collect revenue without some agency like the IRS. While calling for the abolition of the IRS may be a good line in a presidential stump speech, it serves to demonize an agency that is woefully underfunded and simply carrying out the role that Congress created for it.

A complex Michigan ballot initiative that would increase various taxes to fund roads, public transit, K-12 education and local governments is a sound idea that, unfortunately, is unpopular among the state’s voters. The measure, Proposal 1, would increase the sales tax from 6 to 7 percent for education, and increase the gas tax and vehicle registration taxes to fund transportation. The measure also includes a provision to improve the EITC. An analysis of the plan estimates it would raise about $1.8 billion annually. The bottom fifth of Michigan taxpayers would receive an average tax cut of $24, while earners in the state’s top bracket would pay an average of $497 to $697 more. Given that Michiganders spend more than $686 a year on vehicle repairs thanks to atrocious roads, the measure is a comparative bargain for most.

The South Carolina Senate Finance Committee passed a road funding bill that would raise $800 million a year by increasing the gas tax and driver’s license and vehicle registration fees. It would also tie the gas tax to inflation and increase the sales tax cap on cars.  Passed earlier, a House plan would raise $400 million by increasing the gas tax and sales tax cap on cars (by smaller amounts than the Senate bill) and introducing a new gas excise tax at the wholesale level. Neither measure includes the immense income tax cuts that Gov. Nikki Haley insisted be included with any bill that raises the state gas tax. For more on the gas tax debate in South Carolina, check out this guest blog post from John Ruoff on the Tax Justice Blog.

Despite the plethora of bad press the state has received for attempting to balance the budget on the backs of low-income people while maintaining ill-advised tax cuts for the wealthy and businesses, Kansas lawmakers continue to propose regressive tax plans to plug the state’s deficit. Sen. Les Donovan, who chairs the Senate Assessment and Taxation Committee, suggested that the committee would consider a measure to increase excise taxes on cigarettes and liquor as well as a bill that would weaken the state’s EITC by reducing the credit and making it non-refundable. The committee will also review a host of small tax exemptions to phase out. Kansas faces an $800 million deficit, $400 million of which must be closed with spending cuts or tax increases.

Over the past decade, West Virginia lawmakers have phased out and eliminated the state’s Business Franchise Tax and reduced the corporate income tax rate from 9 to 6.5 percent. The tax cuts failed to deliver the promised job growth, instead blowing a hole in the state budget; business tax collections next year will be lower than they were in 1990.  Meanwhile, public university students in West Virginia could soon see big tuition increases thanks to shrinking state funding. West Virginia University is considering a 10 percent tuition hike on top of the 29 percent increase over the past five years, while West Virginia State University recently announced a 7 percent hike.

A California Senate committee approved a bill that creates a refundable earned income tax credit (EITC) for low-income and working families. The state EITC would equal 30 percent of the federal EITC for eligible individuals with children.

More tax changes are likely coming to the Buckeye State. Lawmakers are considering a tax package from Gov. John Kasich and an alternative offered by leaders in the House; Senate leaders have indicated that they will draw up their own separate tax plan that will likely include elements from the governor’s proposal and the House proposal.

Kasich’s plan would cut income taxes for the third time in his administration – essentially, another giveaway to the wealthiest Ohioans. His proposal would cut income tax rates by 23 percent across the board, exempt business income for business owners with $2 million or less in annual receipts, and increase the allowed personal exemption for individuals making less than $80,000. To partially pay for these cuts, Gov. Kasich wants to means-test three deductions and credits for seniors – a progressive aspect of his plan that is unfortunately offset by the regressive nature of his rate cuts and business income exemption. A report by Policy Matters Ohio, using ITEP data, found that the governor’s plan would give the top one percent of Ohio taxpayers an average break of $13,000, while the bottom 60 percent of taxpayers would get just 15 percent of the income tax cuts.

But, more significantly, Gov. Kasich’s plan would also increase sales taxes, commercial activity taxes and cigarette taxes, as well as implement a new severance tax on oil and gas, to pay for his income tax cuts. The sales tax rate would increase from 5.75 to 6.25 percent and new services would be added to the base. The excise tax on cigarettes would increase by $1 per pack. These changes would wipe out the modest income tax cuts for the bottom 60 percent of taxpayers and leave them with higher tax bills than before.

As bad as the governor’s plan is, the alternative offered by the House isn’t much better. Policy Matters Ohio says the proposal “is tilted in favor of the wealthiest Ohioans and would increase income inequality in Ohio”. While the House budget would implement smaller income tax cuts than Kasich’s proposal – just a 6.3 percent across-the-board cut, rather than 23 percent – more than half of their cuts would go the top 5 percent of Ohio taxpayers. The bottom fifth of taxpayers would receive an average tax cut of just $2. The House plan would means-test the deduction available for Social Security income and other senior credits – a progressive feature that is, again, outweighed by regressive cuts. In total, the House plan would also expand the business income deduction currently available, another concession to wealthy Ohioans. The House’s plan would reduce tax revenue by $1.2 billion, $700 million more than the governor’s plan.

The Senate has not yet released a plan, but Senate President Keith Faber says tax cuts are definitely planned. An editorial in The Columbus Dispatch suggests that senators follow the governor’s lead and support income tax cuts with a shift to consumption taxes. But the reality is that consumption taxes are regressive and a shakier foundation on which to base state budgets.

Instead, Ohio policymakers should avoid income tax cuts – which will benefit those already doing well – and focus on funding key investments that support working families, the middle class, and businesses alike, such as public education and infrastructure. 

Interpreting corporate tax data shouldn’t be like playing “Where’s Waldo.” Analysts seeking to understand whether big corporations are engaged in tax-avoidance hijinks should be aided, not thwarted, by the information that companies make available in their annual financial reports. A long-brewing effort to require country-by-country (CbC) reporting of corporate income and taxes promises to help demysticize things a few years down the road. But meanwhile, a new, voluntary disclosure of detailed data on the location of offshore profits by the shoe manufacturer Skechers gives a tantalizing taste of just how helpful these disclosures might someday be in ferreting out offshore tax avoidance.

U.S. multinational corporations, in the annual financial reports they file with the Securities and Exchange Commission, generally report their income and taxes in two broad categories: “United States” and “foreign.” And even at this level, Skechers’ 2014 annual financial report raises red flags: how could a shoe manufacturer that says 89 percent of its property, plant and equipment (and 66 percent of its sales) are in the United States report that only 43 percent of its income is attributable to the U.S.?

But Skechers, in what to our knowledge is an unprecedented public disclosure, breaks out its foreign income further, to include the specific countries in which it reports substantial profits. It turns out that in 2014, 71 percent of what Skechers called foreign income, and 44 percent of its worldwide income, was apparently “earned” in the Bailiwick of Jersey. Yet the company reports having no meaningful sales, and no property, in Jersey. Composed of the Island of Jersey and surrounding uninhabited rocks, Jersey is generally recognized to be one of the more notorious foreign tax havens, and not a hotbed of shoe production or sales.

So why would Skechers volunteer this information? The simple answer is that the Securities and Exchange Commission (SEC) asked them to. When the SEC sent a letter to Skechers asking for more detail on the company’s foreign income, the company obliged. Having made this disclosure in a public letter to the SEC, the company presumably saw no point in not also including this information in their annual report.

Would we see similar bombshells if Apple, Microsoft, General Electric and other corporate titans were required to disclose CbC data? CTJ’s research findings on the use of offshore subsidiaries certainly suggest so. A June 2014 CTJ report found that 72 percent of Fortune 500 corporations admit having subsidiaries in known tax havens, and  a May 2014 CTJ report found that American corporations are collectively stashing more than half of their subsidiaries’ profit in just 12 known tax havens. These garish statistics pretty much have to be the product of some aggressive acts of tax dodging.

As we have noted previously, the movement for CbC reporting is gaining steam, at least abroad. And if the recent disclosure from a second-tier shoe manufacturer is any indication, lawmakers interested in real corporate tax reform should be pushing the Securities and Exchange Commission to mandate CbC disclosure for all U.S-based corporations. 

Senator and now presidential candidate Bernie Sanders has one of the strongest records of any elected official when it comes to standing up for tax fairness. In many cases, Sen. Sanders has been the lone voice in the Senate fighting for legislation that would ensure that corporations and the wealthy pay their fair share.

For example, Sen. Sanders is a long-time champion of legislation that would end offshore tax avoidance by no longer allowing multinational corporations to “defer” (forever) paying taxes on their foreign income. While some other proposals would narrow offshore loopholes, ending deferral would totally eliminate the incentive for companies to shift profits to tax havens because it would require them to pay taxes on these profits regardless of where they are held.

Adding to this, Sen. Sanders has introduced legislation that would return the estate tax exemption levels to the more robust 2009 levels ($3.5 million for individuals). This increase in the estate tax would still mean that only the top 0.3 percent of all estates (as opposed to the just the top 0.1 percent as is the case now) would owe anything in estate taxes.

Looking back, Sen. Sanders has repeatedly fought against regressive tax cuts.  During his time in the House of Representatives, he received a perfect score on the Citizens for Tax Justice “Congressional Tax Report Card” for his repeated votes against the Bush-era tax cut bills, including the 2004 bill that included a repatriation tax holiday for multinational corporations, a bill that many Democrats, like then-Senator Hillary Clinton, voted for. In 2010, Sen. Sanders spoke for nearly nine hours straight in the Senate chamber to make the case against extending the temporary Bush tax cuts.

Looking forward, Sen. Sanders’ early campaign materials indicate that tax fairness will be a major part of his presidential campaign. Sen. Sanders laments that many “major profitable corporations have paid nothing in federal income taxes” and that “corporate CEOs in this country often enjoy an effective tax rate which is lower than their secretaries.” With any luck, the addition of Sen. Sanders to the presidential race will serve to bring much needed attention to the egregious inequities in our tax system as well as to his many sensible proposals to correct these same inequities. 

A proposed constitutional amendment that would implement a flat income tax has stalled in the Alabama Senate. A vote on the measure, titled the “The Simplified Flat Tax Act of 2015,” was postponed by a Senate budget committee after sponsor Sen. Bill Hightower asked for more time to work on the measure. The bill would implement a flat income tax and eliminate some exemptions, credits and deductions. Opponents of the bill, including the advocacy group Alabama Arise, note that the changes would reduce revenue for the Education Trust Fund by hundreds of millions of dollars, and that some of the credits and deductions eliminated would impact retirees and working families. Kimble Forrister, executive director of Alabama Arise, cited ITEP data showing the bill would benefit mainly the wealthy while hurting the poorest Alabamans. He told the committee that “Alabama can’t move forward as long as we have an outdated, upside down tax system.” Sen. Hightower wants to make the bill revenue neutral and prevent any tax hikes for low-income Alabamans.

A committee in the Connecticut General Assembly passed a bill that would raise revenues in the state. Members on the Finance Revenue and Bonding Committee voted to approve a tax package that increases personal income tax rates for the wealthy and broadens the sales tax base. The top marginal income tax rate would increase to 6.99 percent for individuals making $500,000 or more and joint filers making $1 million or more. The measure also creates a new supplemental tax on capital gains income of 2 percent for the same group. The state sales tax rate would be reduced from 6.35 to 5.35 percent, while the base would expand to include more services, including engineering, veterinary services, laundries and dry cleaners, golf courses, and accountants. The measure is expected to raise $1.7 billion over the next two fiscal years, and would reverse many of the deep cuts proposed in Gov. Dannel Malloy’s budget. The bill incorporates some of the progressive tax changes proposed by Connecticut Voices for Children, which incorporated ITEP analysis into their report.

Efforts to repeal the Hall Income Tax have failed again in Tennessee after the legislature failed to 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.

A measure to raise the sales tax in Iowa advanced out of a Senate subcommittee on Monday, while a parallel bill is being discussed in the House. Senate Bill 1272 would increase the sales tax by three-eighths of one percent to generate new revenue for natural resources and outdoor education – as much as $150 million annually, according to its sponsors. The bill has wide support, including “representatives of conservation, environmental, farm and outdoor recreation groups.”

Do you have a story you think should be in the next Rundown? Email sdpjohnson@itep.org with your idea!

New Hampshire business leaders, nonprofits and civic organizations have come together to oppose business tax cuts proposed in the legislature, arguing that they would jeopardize needed investments in education, infrastructure and other areas. The inclusion of business leaders in the coalition led by the New Hampshire Fiscal Policy Institute represents a rare but growing alliance between businesses who understand that investments are needed for economic growth and progressive organizations that advocate on behalf of working and middle-class families. The state Senate passed two bills in March that would cut corporate tax rates. One would reduce the business profits tax from 8.7 to 7.9 percent, while the other would reduce the business enterprise tax from 0.75 to 0.675 percent.

Kansas lawmakers want to take another look at Gov. Sam Brownback’s tax exemption on pass-through business income after more than 300,000 Kansans claimed the exemption at a cost of millions in state revenue. Initial estimates suggested that fewer than 200,000 taxpayers would be eligible for the exemption, a key part of the governor’s 2013 tax cuts. Many lawmakers, including members of Brownback’s own party, believe the business pass-through exemption is unfair because it has “created situations where a business owner may not pay tax on income, but an employee making less would.” Other legislators believe the exemption has contributed to structural imbalance in the budget, which currently has a $400 million hole.

Minnesota Gov. Mark Dayton rejected a budget proposal from legislators in the state House, saying the $2 billion tax cut package is a “non-starter” because of its fiscal irresponsibility. The House plan would give many Minnesotans a temporary income tax break, permanently phase out the statewide business property tax and reduce taxes on Social Security benefits. The governor refuses to begin budget negotiations until House leaders come up with a plan that is closer to his own targets. Dayton also asserted that the House plan would cost $4 billion annually once implemented, turning the state’s $1.9 billion surplus into a deficit. Gov. Dayton’s budget plan would use the surplus to shore up investments in education, particularly on a push for universal pre-kindergarten.

Nebraska Gov. Pete Ricketts and state legislators are headed for a showdown over a 6 cent-per-gallon increase in the state’s gasoline excise tax that, if approved, would raise $180 million after four years. The measure has already passed the initial hurdle in the state’s unicameral legislature, but two additional votes are needed before it is sent to the governor’s desk. Ricketts has said he does not support the measure. A recent article in the Omaha World-Herald found that inflation has eroded the buying power of Nebraska’s gasoline excise tax by $1 billion since 1995. ITEP’s Carl Davis, who was interviewed for the article, noted that “It’s an inevitable fact that if gas tax rates are not updated from time to time, the tax is not going to keep pace with construction costs.” 

Things We Missed:

• Arizona ended its legislative session on Saturday, April 25th.
• North Dakota Gov. Jack Dalrymple signed Senate Bill 2349, which cut the state’s corporate income tax rate by 5 percent and the personal income tax rate by 10 percent. This is the ninth straight year that the state’s leaders have cut income taxes. The House also passed a tax cut for oil companies.

States Ending Session This Week:
Montana (Monday)
Indiana (Wednesday)
Florida (Friday)
North Dakota (Friday)

Guest Post by John Ruoff of the Ruoff Group, Click here for orignal post

Who will pay to fix our roads? The burden, as a percentage of income, will fall hardest on those making less than $19,000 a year. Facing massive shortfalls in repairs and maintenance on our state roads and highways, the General Assembly is looking at ways to fund those needs. Everyone understands that, in the end, new revenues to fund the roads are needed. The Governor, seeing an opportunity to pull off a massive income tax cut, proposed that massive cut tied to a much more modest increase in the gas tax. Three proposals have been placed on the table: the Governor’s, a House-passed Plan that combines some tax increases with a much more modest income tax cut and a Senate Finance plan which increases revenues without an income tax cut.

In order to figure out who will pay for these changes, we asked the Institute on Taxation and Economic Policy (ITEP), a Washington, DC, based think tank that produces widely-respected tax incidence studies to model these changes. Their Who Pays? provides detailed analyses of which income groups pay what shares of their income towards various taxes. You can see the most recent analysis of South Carolina here. The ITEP modeling allows us to look at gross income, unlike the estimates from the Office of Revenue and Fiscal Affairs which are based on taxable income.

They modeled three plans:

• Governor Haley proposes trading a 10 cent per gallon gas tax increase for an eventual reduction in marginal tax rates of 2 %. That translated, according to the SC Office of Revenue and Fiscal Affairs, to $1.7 billion reduction in General Fund Revenue by 2025.
• The House version combines an effective 10 cent per gallon increase in the gas tax and raises the cap on sales tax for cars from $300 to $500 with a broadening of income tax brackets that produces a maximum $48 per year tax cut. Other provisions were not modeled.
• The Senate Finance Plan contains no tax cut but increases the gas tax by 12 cents per gallon and the sales tax cap on cars to $600. Other provisions were not modeled.

The Governor’s plan creates a very large tax cut for those with higher incomes. In the Top 1 % of incomes, the tax cut,on average, is $6,893. Meanwhile, those in the lowest 20 % of incomes would face, on average, a tax increase of $34.

The House and Senate Finance plans raise taxes and revenues across the board. The House Plan, netted for a modest income tax cut, raises on average the  annual taxes for the lowest income group, which averages $12,000 a year, by $39. The Top 1 %, which averages $987,000 in income, would pay on average an additional $414.

As a share of income, the various plans hit harder on the most vulnerable. The Senate Finance Plan would cost our lowest income quintile, on average, .4 % of their income, compared to .1 %, on average, of the income of the Top 1 %. The House Plan calls on the poorest in our state to pay, on average, an additional .3 % of income while costing our wealthiest 1 % only, on average, .04 %. As percent of income, the Governor would raise taxes on taxpayers in the Lowest 20 % by .3 %, on average, while cutting them for the Top 1 % by, on average, .7 %.

Legislative debates frequently resound with arguments that the rich pay the most taxes and lower income people “don’t pay taxes”. They, of course, mean that most lower income taxpayers don’t pay income taxes. We all pay taxes and we have increasingly in South Carolina relied on regressive sales taxes that take a larger cut of poor people’s income than rich people’s. ITEP’s most recent statewide analysis of actual tax burden (Who Pays?, 5th Ed., Jan. 14, 2015) shows that in South Carolina the lowest income group pays, on average, about 7.5 % of income for all state and local taxes. The Top 1 % pay only, on average, 4.5 % of their income in state and local taxes.

Advocates of cutting taxes repeatedly argue, often to the accompaniment of anecdotes, that cutting income taxes drives in-migration of rich people who bring or start companies. The actual evidence suggests, at best, a very modest relationship between income taxes and economic development. That relationship is far outweighed by the effects of spending on things like infrastructure and education.

Recognizing both that road funding is a critical need for all of us and that gas and sales taxes hit harder on lower than upper income South Carolinians, there are additional approaches which could meliorate these effects on our most vulnerable taxpayers.

A refundable State Earned Income Tax Credit (EITC) has many desirable policy effects. Ronald Reagan and many conservative policy leaders recognize the EITC as the most effective anti-poverty measure we have. The EITC encourages personal responsibility by rewarding work, since only working people get the EITC.  In addition, a state EITC keeps money in the hands of folks who will spend it in local communities with local businesses. It’s good for the economy. An EITC pegged at 10 % of the federal EITC, would cut taxes for the Lowest 20 % receiving the credit by, on average, $262 and $331 and $190 to the next two quintiles according to another analysis by ITEP.

Rather than raising the cap on sales taxes on cars (not to mention yachts and airplanes), flipping the cap so that it was a floor would provide relief to folks who can only buy cheap cars while shifting more tax burden to those better able to afford it. That way, instead of stopping the tax when a car’s price reaches $6,000, $10,000 or $12,000, it would start at one of those points. Either of these approaches would reduce revenues for roads overall, but would make the tax system fairer.

The Governor’s Plan appears to be a nonstarter in the General Assembly. The House and Senate Finance plans are not that far apart. A critical flaw in our gas tax has been its failure to adjust for inflation and both legislative plans make provisions for indexing the gas tax (within limits) to inflation. That is a good thing.

What is absolutely clear is that something needs to be done to raise funds to ensure future economic development and safer roads. Clearly, income tax cuts are not the answer, although the House’s approach is far preferable to the Governor’s massive tax cut masquerading as a road funding plan. Equity for our poorest taxpayers needs more legislative attention, since all of these plans ask them to contribute a larger share of income to fixing the roads than their better-off fellow taxpayers.

Alabama senators have proposed a constitutional amendment that would establish a flat personal income tax and lower the corporate tax rate, despite facing a devastating budget shortfall. The proposal would lower the top income tax rate from 5 percent to 2.75 percent and reduce the corporate tax rate from 6.5 to 4.59 percent while eliminating all deductions, exemptions and credits. The bill’s sponsors claim that the measure would make the state more competitive and attract new businesses. Opponents argue that Alabama’s antiquated tax system (unchanged in 82 years) is already a flat tax in practice, since the top tax rate takes effect at $3,000 for single filers. The Montgomery Advertiser notes that “a household of four begins paying state taxes at $12,600 – well below the poverty threshold of $24,250 for that family, meaning the state taxes households operating below the poverty level.”  An ITEP analysis of this plan found that the lowest-income Alabamans would see a tax hike under this change while most other taxpayers would see a small reduction.

A new poll finds that the majority of Oklahoma voters don’t want planned tax cuts to take effect because of the state’s budget deficit. The poll, commissioned by the Oklahoma Policy Institute, found 64 percent of registered voters in Oklahoma opposed moving ahead with a scheduled cut to the top personal income tax rate, while 74 percent of voters felt the state spent too little on education. Legislators in the state have vowed to let the cuts take effect next year despite a $611 million revenue gap.

Colorado Gov. John Hickenlooper wants to implement a plan that in future years would reduce the likelihood that the state would issue taxpayers a refund as mandated under the Taxpayer Bill of Rights (TABOR) amendment to the state’s constitution. Hickenlooper would reduce the share of state revenues subject to the TABOR limit by moving hospital provider fees out of the general fund and into an “enterprise account.” He would also target some TABOR refunds to low-income households via a state Earned Income Tax Credit (EITC). While conservative lawmakers have decried the move, the governor has gained the support of an important hospital lobbying group, which said the plan would “ensure that Colorado has the flexibility to support its top budget priorities, including funding for transportation and K-12 education.”

Maine Gov. Paul LePage threw down the gauntlet to state legislators on Tuesday, filing a bill that would eliminate the state’s income tax by 2020 and giving leaders in the House and Senate a short deadline to announce their support. In the past, Gov. LePage has pledged to campaign against those who oppose his plans to get rid of Maine’s income tax and replace it with higher consumption and property taxes. So far, no legislative leaders have announced support for his plan.