CTJ's Tax Justice Digest, January 6, 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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As part of the Katrina tax relief package passed earlier this fall, Congress made it easier for the wealthiest taxpayers to use their charitable contributions to reduce their income taxes. In particular, limits on deductions for charitable contributions have been suspended. As the Fort Worth Star-Telegram explains, Congress's effort to steer private donations to areas affected by the hurricane was poorly targeted enough that it will reward any charitable donation made by wealthy Americans. In the wake of the federal government's clear under-funding of important infrastructure in Louisiana, one might imagine less circuitous ways of channeling federal dollars to hurricane relief.
Nearly lost amidst the ruckus surrounding the capital gains and dividends tax cuts and AMT debate in Congress last month is the January 1 phase-in of two new high-end federal tax cuts. The cuts were part of the Bush administration's 2001 tax cut, but only start phasing in at the beginning of 2006. The Chicago Tribune has this overview of the cuts. CTJ's analysis of the cuts' impact can be found here.
Until this year, Wisconsin and North Carolina levied state gasoline taxes that depended partially on the price of gas, rather than the flat per-gallon approach used by most states. This approach has the advantage of allowing gas tax revenues to more adequately fund the growing cost of transportation funding--but has the disadvantage of imposing tax increases when gas prices reach high levels. North Carolina lawmakers now seem likely to hold a special January session to debate repealing this automatic tax hike-- and Wisconsin has already voted to do so. Meanwhile, New Jersey lawmakers facing a crisis in transportation funding are considering a hike in their gas tax.
2006 legislative sessions in Indiana and Iowa seem destined to focus on property tax cuts. Louisiana faces a very different property tax challenge: new estimates suggest that New Orleans may have lost more than half of the taxable value of properties in the city in Hurricane Katrina. Meanwhile, Maine lawmakers took a giant step towards affordable, targeted property tax cuts with the expansion of its "circuit breaker" tax credit last year. A new analysis by the Maine Center for Economic Policy provides a readable discussion of how the new credit works and shows that the circuit breaker is a good solution for states seeking to achieve property tax cuts without breaking the bank.
The Supreme Court of Arkansas has ruled that the state is not living up to its constitutional mandate to provide children with an adequate public education. Governor Huckabee is not fond of the idea of dipping into the budget surplus to meet immediate needs so a special legislative session is likely in the offing.
A Councilwoman in Hawaii wants to enact a property tax circuit breaker sooner than planned. Local lawmakers, facing fast-growing property values, spent a good portion of 2005 debating options for property tax cuts -- and ultimately settled on a targeted circuit breaker, rather than less well-targeted homestead exemptions or rate cuts. Circuit breakers are a great form of property tax relief because, unlike a broad based homestead exemption, they're targeted and based on a homeowner's ability to pay. This local action is especially notable because the state government does not allow a circuit breaker.
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