CTJ's Tax Justice Digest, April 10, 2006Welcome to CTJ's Tax Justice Digest, our regular survey of new and interesting trends in state and federal tax policy. Click here to browse through archived editions of the Digest. |
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New Jersey Governor Jon Corzine's budget proposal includes $1.5 billion in new taxes-- and bond rating agencies are loving it. All three of the major bond rating agencies have given Corzine a thumbs up for proposing long-term structural reforms to help dig the state out of its budget hole-- a refreshing departure from the state's recent practice of relying on temporary patches to shore up the state's budget.
State houses around the nation considered income tax reforms last week. Iowa Democratic lawmakers unveiled a proposal to repeal the state's deduction for federal income taxes. Lawmakers would use some of the revenue for low-income tax cuts, but would also exempt all pension benefits for Iowans earning less than $100,000 a year. Nebraska lawmakers passed a bill which will create the nation's twentieth state Earned Income Tax Credit. But in this election year, the bill includes a variety of other less well-targeted giveaways. A Missouri legislative committee considered a truly progressive income tax reform. The bill would increase state revenues by $1 billion while reducing taxes on the poorest sixty percent of the state's income distribution. Read ITEP's testimony here. Meanwhile, in the Ocean State, Rhode Island lawmakers asked tough questions about a proposal to flatten the state's income tax rates.
A growing number of states are asking tough questions about unintended loopholes in property tax breaks for farmers which are allowing real estate developers and speculators to sharply reduce their own property tax bills. In South Carolina, Florida, and Idaho lawmakers have struggled this year to tighten eligibility for the "use value" property tax break for farmers to ensure that the benefits are available only to farmers. But a new post on the Talking Taxes weblog argues that reforming the use value tax break may be akin to rearranging deck chairs on the Titanic.
After months of debate--and two vetoes by Governor Haley Barbour-- Mississippi lawmakers went home without enacting the "tax swap" (cutting the sales tax on groceries and making up the revenue loss with a cigarette tax hike) that dominated the state's tax policy discussion this year. While Barbour's vetoes have drawn scathing reviews in the state, the good news is that lawmakers who are truly interested in progressive state tax reforms will have plenty of time to cast a wider net for truly revenue-neutral, fairness-enhancing options.
Since Michigan lawmakers voted to repeal the state's only major tax on corporations in 1999, state leaders have struggled to come up with a way of paying for this major tax cut. Lawmakers initially put off this thorny question by phasing in the repeal over ten years. Earlier this year, the state legislature voted to accelerate the Single Business Tax repeal by two years, to the end of 2007. As in 1999, the legislature refused to come up with a way of paying for this $1.8 billion tax cut-- Republican leaders say they've got until the end of 2007 to do so. Last week, Governor Jennifer Granholm vetoed the bill -- and lawmakers are already gathering signatures for a legislative initiative to repeal the tax. (If this initiative passes, the Governor cannot veto it.) Both sides anticipate that the 2006 legislative and gubernatorial elections may shape up to be a referendum on the wisdom of unpaid-for business tax cuts. But state editorial boards think this strategy shouldn't work for Republican leaders.
In Washington, Congress was unable to agree last week on a tax-cut package including extension of capital gains tax breaks (which expire in 2009) and Alternative Minimum Tax relief (which expired three months ago). Lawmakers are now on their way home for a two-week recess, after which it is expected that negotiations will resume. A New York Times article (based on a CTJ analysis) from last week shows that the capital gains and dividends tax cuts enacted in 2003 nearly doubled the tax breaks enjoyed by the very wealthiest Americans in 2003, while providing peanuts to low- and middle-income taxpayers.
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