CTJ's Tax Justice Digest, April 15, 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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An income tax cut signed into law by Alabama Governor Bob Riley this week takes an important first step towards a fairer tax system. The new law increases the state's lowest-in-the-nation income tax threshold by providing higher personal and dependent exemptions and higher standard deductions. The full benefit of the higher exemptions and deductions are only available to taxpayers with incomes under $20,000; the new tax breaks gradually phase out and higher-income taxpayers' tax bills are left unchanged. Read more about this important new change on the Talking Taxes weblog.
State lawmakers frequently resort to ill-advised revenue-raising measures in their zeal to avoid anything that can be characterized as a "tax increase." So when Minnesota Governor Tim Pawlenty pushed through a "health impact fee" that most people correctly identified as a 75-cent cigarette tax last summer, it was a mildly amusing subterfuge, but hardly news. No one is laughing now, however: the Minnesota Supreme Court is currently hearing a case that may force retroactive repeal of this "fee" dating back to its August 2005 implementation. The Talking Taxes blog has the sordid details here. The ongoing cigarette 'tax" case could blow a $360 million hole in the state's two-year budget, which in turn could scuttle legislators' plans to provide a 10 percent property tax rebate to homeowners this year. In a tightly contested election cycle (Republicans have a two-seat majority in the House of Representatives), lawmakers are understandably concerned that a tax rebate designed to arrive in Minnesota homeowners' mailboxes in October might not appear.
Some states still offer tax breaks to veterans of the Spanish American War. Seems a bit odd since the last Spanish American War veteran died in 1992. This is a relatively harmless example of a broader, quite costly tendency of special tax breaks to become a permanent drag on state tax collections. One state, Washington, has just come up with a creative solution for ensuring that tax breaks don't become permanent fixtures in the tax code: a new law requires a review of most tax breaks at least once every ten years. While the new law excludes certain politically popular exemptions from review, it's certainly a step in the right direction. A more tried and true strategy is a tax expenditure report, which many states now require but few states do well. To read more about crafting an effective tax expenditure report click here.
Several states have succeeded in enacting targeted property tax relief bills this spring. Maryland lawmakers passed a bill increasing the maximum credit allowable under the state's circuit-breaker style credit for homeowners and renters. Idaho lawmakers increased the income limits and maximum credits on their elderly circuit breaker--and as we go to press, have passed a bill increasing the state's homestead exemption by $25,000. And the Illinois legislature has sent Governor Blagojevich a bill that would expand the state's property tax "freeze" for elderly homeowners.
As this week's protests around the country illustrate, immigration is a hot button issue. A study we highlighted in a past digest from the Georgia Budget and Tax Policy Institute found that an average undocumented family in Georgia contributes between $2,340 and $2,470 in state and local taxes. Here's an article from the Albuquerque Tribune that tells about a "niche" market one tax preparer found helping undocumented immigrants file their taxes. While this debate continues, it's important to note that undocumented immigrants also contribute financially to federal and state governments.
Utah Governor Jon Huntsman has abruptly cancelled a planned May special legislative session on income tax reform. The centerpiece of the session was to have been Huntsman's flat tax proposal, which was nearly enacted during the legislative session. In canceling the session, Huntsman cited technical difficulties with the bill--in particular, an unintended $35 million tax credit-- but one observer notes that the flat-tax idea may have more flaws than Huntsman is letting on. Meanwhile, the state Tax Commission's chief economist has retired amidst speculation that he was forced out for criticizing poorly-thought-out elements of the Huntsman flat tax.
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