This week we are following a number of significant proposals being debated or introduced including reinstating the income tax in Alaska and eliminating the tax in West Virginia establishing a regressive tax-cut trigger in Nebraska, restructuring the Illinois sales tax, moving New Mexico to a flat income tax and broader gross receipts tax, and updating gas taxes in Indiana and Tennessee.
State lawmakers often find themselves looking for ways to raise revenue to fund vital public services, fill budget gaps, or pay for the elimination or weakening of progressive taxes. Lately, that search has led many states to consider reforming or expanding their sales taxes.
Tennessee Gov. Bill Haslam's proposal (dubbed the IMPROVE Act) to raise the state's gas tax while cutting three other taxes is essentially a tax cut for the state's wealthiest residents and a tax increase for the lowest-income Tennesseans.
In the Tax Justice Digest we recap the latest reports, blog posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Here's a rundown of what we've been working on lately.
State Rundown 2/8: Lessons of Kansas Tax-Cut Disaster Taking Hold in Kansas, Still Lost on Some in Other States
This week we bring news of Kansas lawmakers attempting to fix ill-advised tax cuts that have wreaked havoc on the state's budget and schools, while their counterparts in Nebraska and Idaho debate bills that would create similar problems for their own states, as well as tax cuts in Arkansas that were proven unaffordable within one day of being signed into law. Meanwhile, debates over online sales taxes, Earned Income Tax Credits, and gas tax updates to fund transportation needs continue around the country.
For more than four decades, supply-side ideologues have promoted the myth that tax cuts for the wealthy are self-financing and the benefits eventually trickle down to everyone else, despite real-life evidence that tax cuts for the rich benefit the rich.
The most challenging problem that tax-cutting state lawmakers face is dealing with the budgetary tradeoffs that tax cuts require. Should education spending be reduced? Should investments in infrastructure be halted? Should the state cut back on transfers to local governments and require them to pick up the slack? Or should other taxes and fees be raised to make up for the lost revenue? Unpleasant answers to these questions have stopped many tax cut proposals dead in their tracks.
Recently, however, determined tax-cutters have figured out that it's easier to simply sidestep these questions, at least until after the tax cut is signed into law. As the Center on Budget and Policy Priorities (CBPP) details in two new reports, state lawmakers are increasingly turning to tax cut phase-ins and triggers as ways to take credit for cutting taxes without having to face the full consequences for years, decades, or in the case of term-limited lawmakers, maybe never. These policy tools push the implementation of tax cuts outside the current budget window with a predetermined phase-in schedule or a mathematical formula tied to state revenue trends.
As we described last week, many states are gearing up for challenging budget debates this year. But the need to address revenue shortfalls has not stopped lawmakers in many states from pursuing harmful tax policies that will drain critical revenues from state coffers and make upside-down state and local tax systems more regressive, leaving low- and middle-income earners paying more to finance tax cuts for the wealthy. At the same time, however, lawmakers in a handful of states are exploring meaningful income tax reforms that could improve the fairness and sustainability of their tax systems.
State tax policy can be a divisive issue, but no area has generated more agreement among lawmakers across the country than the need to raise new revenues to fund infrastructure improvements. The most common way of accomplishing this goal has been to boost gasoline and diesel tax rates paid by motorists at the pump. Nineteen states have raised or reformed their gas taxes since 2013 and over a dozen states will debate doing so this year.
This week's Rundown brings news of tax cuts passed in Arkansas and advanced in Idaho, proposals to exempt feminine hygiene products from sales taxes in Nevada and Michigan, revenue shortfalls forcing tough choices in Louisiana and Maine, and more governors' state of the state addresses and budget proposals setting the stage for yet more tax and budget debates to come.