Idaho Senate leadership took a difficult stand on a high-profile issue in favor of good tax policy by refusing to give the Girl Scouts a special tax break on their famous cookies. Their counterparts in the Idaho House, however, weren’t nearly as principled, bowing to the pressure of some of the nation’s youngest tax policy lobbyists and voting 59-11 in favor of the special break. The Girl Scouts plan to return to the statehouse next year in hopes of convincing the Senate to support the new tax subsidy, which is like any other (PDF) subsidy.

Nevada lawmakers are debating whether they should join Maryland and Wyoming as the third state to raise its gasoline tax this year.  The Institute on Taxation and Economic Policy (ITEP) provides some important context with a new chart showing that even if the state’s gas tax were raised by 20 cents over the next 10 years (as the Senate is considering), the rate would still be below its historical average in value.

Texas business owners are pushing state lawmakers to repeal the state’s largest business tax, trotting out familiar arguments about the economic benefits of tax cuts. Fortunately, as the Austin American Statesman reports, “a $1.2 billion annual price tag ... appears to have doomed the effort.”

Massachusetts House lawmakers set up a showdown with Governor Patrick over transportation funding in the Bay State with the passage of their less ambitious revenue package this week. Governor Patrick’s budget includes almost $2 billion in new revenues to boost transportation and education spending raised primarily through increasing the personal income tax. The Governor’s plan also includes a sharp reduction in the state’s sales tax. The House package, by contrast, raises just over $500 million through increases in fuel and cigarette taxes as well as a few business tax changes. Governor Patrick threatened to veto any tax package from the House or Senate that does not raise significant revenue for both transportation projects and education.

(Photo courtesy Bitterroot Star)

Idaho lawmakers have opted for a dramatically scaled back tax cut on business equipment.  Rather than repealing the business personal property tax entirely as Governor Butch Otter had proposed, the House and Senate have sent him a bill that exempts the first $100,000 of property from the tax.  This change eliminates the tax for 90 percent of Idaho businesses while costing the treasury a fraction of the amount of outright repeal.

Even with the bill’s $20 million price tag, the Associated Press (AP) reasonably described it as a victory for counties and schools that would have been hit hard if the tax were repealed.  The AP also called it a “setback” for big businesses’ major lobby—the Idaho Association of Commerce and Industry (IACI).  IACI has pledged to continue lobbying for full repeal next year.

Had the business personal property tax been repealed in full, the biggest winner would have been Idaho Power, which would have seen its tax bill drop by anywhere from $10.5 to $15.3 million per year. Our partner organization, the Institute on Taxation and Economic Policy (ITEP), helped put this property tax cut into context with a report explaining that Idaho Power already pays nothing in state corporate income taxes.  Looking at nationwide state corporate tax payments, ITEP showed that from 2007 to 2011, the company actually collected a $7 million state tax rebate despite earning $623 million in profits. That amounts to an overall effective tax rate of negative 1.1 percent.

While it’s discouraging that lawmakers prioritized cutting taxes this session on the heels of last year’s regressive income tax cut, the decision to keep the business personal property tax on the books is a welcome bit of fiscal sanity.

A story in the Arkansas News show why all citizens should be concerned about the bad design (PDF) of state gasoline taxes. Arkansas’ gas tax hasn’t been raised in over a decade, during which time it has lost about a quarter of its value due to rising construction costs alone. In order to offset those losses, lawmakers are debating a bill that would transfer $2.3 billion away from other areas of the state budget in order to pay for roads and bridges over the next 10 years.  At a rally protesting the idea, Rich Huddleston of Arkansas Advocates for Children and Families ticked off just some of the state services that would have to be cut: “education, higher education, Medicaid and health services for vulnerable populations, services for abused and neglected children, juvenile justice services for kids … public safety and corrections and pre-K and child care for our youngest populations.”

Girl Scouts in Idaho are seeking out a special sales tax loophole for selling their cookies so that they can keep an extra 22 cents on every box sold. There is no tax policy reason to exempt Girl Scout cookies from the sales tax. If enacted, this break would be a true “tax expenditure” -- a state spending program grafted onto the tax code (PDF) in a way that exempts it from the normal processes used to manage state spending year in and year out.

Minnesota Governor Mark Dayton is traveling the state on a “Meetings with Mark” tour to discuss his budget and tax plans with voters. Last week the Governor unveiled a revised tax plan, but minus the sales tax base expansion from his original proposal.  Wayne Cox of Minnesota Citizens for Tax Justice supports the new proposal as it retains two crucial pieces of the original – an income tax hikes for wealthy Minnesotans and a cigarette tax hike. “Gov. Mark Dayton’s new budget is a blueprint for fairer taxes and a brighter future for Minnesota families.  His reforms pave the way for new jobs, healthier lives and a better-educated workforce. Education and health experts around the state have praised Gov. Dayton’s reforms. Future economic growth depends on these changes.”

In response to Ohio Governor John Kasich’s regressive proposal to expand the state sales tax base and lower income taxes, Policy Matters Ohio (using ITEP data) released a paper reminding Ohioans how beneficial an Earned Income Tax Credit (PDF) could be to low-income families hit hardest by an increased sales tax.

Here’s a powerful column from the Atlanta Journal Constitution citing ITEP data. Advocating against a state Senator’s proposal to raise the Georgia sales tax and freeze revenues into the future, Jay Bookman writes: [h]e has proposed two amendments to the state constitution that, if approved by voters, would lead to significantly higher taxes on the vast majority of Georgia households, while sharply reducing taxes on the wealthiest. That ought to be controversial under any circumstances. As it is, lower- and middle-income Georgia households already pay a significantly higher percentage of their income in state and local taxes than do the wealthy. The Shafer amendments would make that disparity considerably worse.”

For months, Idaho lawmakers have been seriously considering repealing the personal property tax on business equipment.  If enacted, repeal would cost local governments and public schools over $140 million a year, and would likely force cuts in public services and increases in property taxes on other taxpayers.

The single biggest winner under repeal would be Idaho Power, held by IDACorp, which will reportedly see its taxes fall by $10.5 to $15.3 million per year if repeal is enacted.  A new report from our partner organization, the Institute on Taxation and Economic Policy (ITEP), helps put this costly tax proposal into perspective by looking at the state income taxes being paid (or not) by the plan’s largest beneficiary.

According to IDACorp’s financial disclosures, the company earned $623 million in U.S. profits over the last five years (2007-11) but paid nothing in state income taxes to the states in which it operates.  In fact, the company’s effective state income tax rate across all states was actually negative.  IDACorp received $7 million in tax rebates from the states between 2007 and 2011, giving it an effective tax rate of negative 1.1 percent for the five year period as a whole.

The proposed repeal of the personal property tax in Idaho would leave the state corporate income tax as the main means by which companies like IDACorp contribute to the public investments that allow them to do business and generate profits. Before lawmakers take such a step, they should at least know whether the state corporate tax is working to begin with. In Idaho and virtually every other state, however, neither elected officials nor the tax-paying public have access to this kind of information. Obviously, they should (PDF).

Read the report

There’s no doubt the fiscal cliff compromise reached on New Year’s Day will impact state budgets in complex ways, as CTJ’s partner organization, the Institute on Taxation and Economic Policy (ITEP) will be explaining in the coming weeks.  In the meantime here’s an important blog post from the Wisconsin Budget Project on why extending the federal estate tax cut will actually reduce Wisconsin state tax revenues.

The Roanoke Times is wrong to call Virginia Governor Bob McDonnell’s plan to eliminate the gas tax “worth debate” (we explain why here), but the editors hit the nail on the head with this: “The component of McDonnell's plan that does not merit consideration is his reliance on money plundered from education, health care, public safety and other programs to backfill transportation. The highway program is starved for money because the gas tax rate has not changed since 1987. Are teachers and their students to blame? No, they are not. Did doctors and mental health workers cause the problem? Absolutely not. Did sheriff's deputies and police officers? No. Legislators themselves are at fault, and it is shoddy business for them to strangle other services rather than accept responsibility.”

Focus on State of the State: In his combined inaugural and state-of-the-state address last week, Vermont Governor Peter Shumlin proposed cutting his state’s refundable Earned Income Tax Credit (PDF) by more than half to pay for an expanded low-income child care subsidy.  The Public Assets Institute called the governor out, observing that his proposal “would take from the poor to give to the poor.”  Rather than supporting broad-based tax increases to boost available revenue to pay for state priorities such as affordable child care, Governor Shumlin’s plan will substantially raise taxes on the very families he purports to help. From the Public Assets Institute: “...if the governor is going to insist on a zero-sum game and take from one group of Vermonters in order to “invest” in another, he should look elsewhere for the child care money. Vermont’s business tax credits would be a good place to start. The EITC was created to reduce poverty, and it’s been a great success. The same can’t be said about business tax credits and jobs.”

Focus on State of the State: During his 2013 State of the State speech, Idaho Governor Butch Otter officially outlined his intention to eliminate the state’s personal property tax. The state policy team at ITEP recently previewed this proposal (among others), saying that Idaho’s “personal property tax raises 11 percent of property tax revenue statewide, and in some counties it raises more than 25 percent. Some legislative leaders in the Senate have expressed doubts about the affordability of repeal, especially on the heels of last year’s $35 million income tax cut for wealthy Idahoans—a change that put more than $2,600 in the pocket of each member of Idaho’s top one percent (PDF), while failing to cut taxes at all for four out of every five Idaho families.”

Months after cutting the state income tax for wealthy taxpayers, Idaho’s budget situation isn’t looking good.  The Associated Press reports that “earlier this year it looked like the state had sufficient revenue to provide a $36 million tax cut, as well as give state employees a 2 percent raise” but that surplus has already evaporated. In fact, there was never real consensus about the state’s revenue projections in the first place.

Kansas Governor Sam Brownback admits his radical tax cut package is a “real live experiment.”

The South Carolina House approved a measure to keep the state running if it doesn’t have a budget by July 1 when the new fiscal year begins.  The Senate and House are currently bickering over how to implement a (regressive) tax cut for so-called "small" business owners.

It’s back! New Jersey Assembly Democrats are once again planning to introduce a millionaire’s tax into the budget debate.  Proponents of the tax on the wealthiest New Jerseyans want to use the $800 million in revenue it would raise to boost funding to the state’s current property tax credit program for low and middle-income homeowners and renters.  Governor Chris Christie has already vetoed a millionaire’s tax twice. 

The clever folks at Together NC, a coalition of more than 120 organizations in North Carolina, held a Backwards Budget 5K race this week to “to shine a spotlight on the legislature’s backwards approach to the state budget.” 

California Governor Jerry Brown’s revenue raising initiative (which temporarily raises income taxes on the state’s wealthiest residents and increases the sales tax ¼ cent) has officially qualified for the state’s November ballot. Two additional tax measures will join Brown’s plan on the ballot: a rival income tax measure pushed by a billionaire lawyer to fund education and early childhood programs; and an initiative to increase business income tax revenues by implementing a mandatory single-sales factor (PDF backgrounder) formula.

The Pittsburgh Post-Gazette editorializes in favor of capping Pennsylvania’s “vendor discount,” a program (PDF) that allows retailers to legally pocket a portion of the sales taxes they collect in order to offset the costs associated with collecting the tax.  The Gazette explains that a handful of big companies are taking in over $1 million per year thanks to this “antiquated” giveaway.  Computerized bookkeeping takes the effort out of tax collecting and a cap would only impact the national chain stores who disproportionately benefit from the program.

Talk about wrong priorities.  Earlier this month the Idaho House of Representatives approved a bill that hands the state’s wealthiest 1 percent a tax cut of about $2,600, while giving more than 80 percent of Idaho families precisely nothing.

In a new analysis, the Institute on Taxation and Economic Policy (ITEP) estimates that over half of the plan’s benefits would flow to the richest one percent of taxpayers, and four-fifths of the benefits would go to the best-off five percent of Idaho residents.

While it might seem like a bill stacked so blatantly in favor of the wealthy would be a tough sell in an election year, it actually has a real chance of passage.  The bill passed the House by a convincing 49-20 margin, it’s a top priority of Governor Butch Otter, and the state’s business lobbyists are tickled pink, referring to the cut as “manna from heaven.”

Fortunately, the plan does have some influential opponents.  The Chair of the House tax-writing committee complained about the long-term affordability of the plan, saying “That’s one-time money that we’re doing ongoing tax relief with…I don’t think it works.”  Meanwhile, the chair of the Senate’s tax committee is also cool to the idea, thanks in part to the very minimal (or even nonexistent) benefits it would provide to most families.

Supporters of the bill have predictably tried to rationalize its lopsided impact by claiming it will benefit the state’s economy, but as ITEP and Idaho-based analysts have pointed out, these claims amount to little more than a modern day snake oil sales pitch.

The Institute on Taxation and Economic Policy (ITEP) testified this week in favor of a bill that would reinstate Maryland’s recently expired “millionaires’ tax.”  As ITEP explains in its testimony, the millionaires’ tax would make the state’s regressive tax system slightly less unfair.  And despite predictable claims from the anti-tax crowd, there’s no reason to think that the tax would harm the state’s economy.

Confirming our fears, it looks like Idaho lawmakers’ plan to cut taxes for the wealthiest and businesses in Idaho is moving forward. Legislation to reduce the top income tax rate passed out of the House Revenue and Taxation Committee.  In more bad Idaho news, it will not be joining the ranks of states with an Amazon tax this year as the bill failed to gain enough support.

It’s only March, yet Sales Tax Holiday season is already rearing its head. Alabama Governor Robert Bentley supports a “storm gear” holiday in advance of tornado season.  Lawmakers in Georgia are combining a sales tax holiday (bad idea) with a proposal to require online retailers to start collecting sales taxes from Peach State e-shoppers (good idea) in an effort “to kill any talk that a tax increase is afoot.”  And, Florida House members have already approved another year of a back to school tax holiday planned for August. 

ITEP’s Who Pays study was cited in an Associated Press article about heroic efforts to start taxing capital gains and other reforms in Washington State.  Because Washington has no personal or corporate income tax, and instead relies heavily on sales taxes, it has the most regressive tax system in the country.  At a press conference this week in support of the capital gains tax, Rep. Laurie Jinkins said, “Our fundamental problem in this state, in terms of revenue long term, has to do with fairness, adequacy of resources and stability of the resources that we bring into this state.”

• In this upside down world where closing a corrupt tax loophole is called a tax hike (like that’s a bad thing), some states are moving towards amending their constitutions to require a two thirds supermajority to raise taxes or borrow money. This is a shame. New Hampshire Senators, for example, are expected to vote on a supermajority proposal later this week. Here’s an excellent editorial from the Idaho Statesman and a new report from the Center on Budget and Policy Priorities about the perils of supermajorities.

• It’s been just over a month since Kansas Governor Brownback unveiled his tax plan and the criticism continues. His plan, which would raises taxes on the bottom 80 percent of the income distribution, was recently called “radical and troubling.” Attention is shifting to the House, where leaders are now introducing their own tax proposal which includes the most costly and regressive elements of the Governor’s proposal.

• Kudos to Kentucky Governor Steve Beshear for appointing his 23 member blue ribbon commission to study the  state’s tax system and propose ways to reform it.  Let’s hope they heed the governor’s call for "a tax system that produces adequate revenue that meets the needs of our people," and his admonition that there comes a time "when slashing programs and services starts a downward spiral from which recovery is too difficult and too steep."

• Good news from Nebraska, where it looks like support is weak for the Governor’s proposal to eliminate the inheritance tax.  Legislators know that revenue from this tax goes directly to counties, which would have to cut services or make up the revenues with regressive tax increases.

• Finally, in planning your Valentine’s dinner, you might think twice about eating at a Yum Brands restaurant (KFC, Taco Bell, and Pizza Hut) or serving Campbell Soup, H.J. Heinz or ConAgra Foods products.  Our Corporate Tax Dodging in the Fifty States, 2008-2010 found that, despite being profitable, these companies didn’t pay any federal corporate income taxes in at least one year between 2008-2010.

Note to Readers: Over the coming weeks, ITEP will highlight tax policy proposals that are gaining momentum in states across the country.  This article takes a look at efforts to roll back business taxes in states based on the shopworn, erroneous argument that tax cuts are good for the economy.

Robust corporate income taxes ensure that large and profitable corporations that benefit from publicly subsidized services (transit that delivers customers, education that trains workers, electricity that powers industry, etc.) pay their fair share towards the maintenance of those services. But, as ITEP’s recent report, Corporate Tax Dodging in the Fifty States, 2008-2010, found, twenty profitable Fortune 500 companies paid no state corporate income taxes over the last three years, and 68 paid none in at least one of those three years, even as state budgets are stretched to the point of breaking.  

As a new legislative season gets underway, too many political leaders are bashing taxes in general and business taxes in particular.  Here are some states to watch for more bad business tax policy (followed by a few glimmers of hope).

South Carolina – South Carolina Governor Nikki Haley is following through on her misguided campaign promise and recently proposed eliminating the state’s corporate income tax over four years. This despite the fact that South Carolina’s corporate income taxes as a share of tax revenue are among the lowest in the country, at a mere 2.4 percent.

Kentucky – State Representative Bill Farmer has filed legislation that, instead of strengthening the tax, would repeal the state’s corporate income tax entirely. Farmer worked as a “tax consultant” and has been an anti-tax crusader in the Kentucky legislature since 2003.

Nebraska – Governor Dave Heineman recently unveiled his plan to reduce the top corporate income tax rate from 7.81 to 6.7 percent (and eliminate other key state revenue sources, too).

Florida – In his recent State of the State address, Governor Rick Scott said that taxes and regulations were “the great destroyers of capital and time for small businesses.”  And – no surprise here – he also called for lowering business taxes.

Idaho – Governor Butch Otter has called for $45 million in tax cuts but is leaving the details to the legislature.  Of course, when a lobbyist from the Idaho Chamber Alliance of businesses calls the governor’s position “manna from heaven,” there’s a good chance some of those cuts will be given to business.

A few signs of sanity. In Connecticut , the governor is looking to improve the return on tax-break investment for the Nutmeg state. Perhaps he’s learned from states like Ohio, where a recent report issued by the attorney general showed that fewer than half of all companies receiving tax subsidies actually fulfilled their commitments in terms of job creation or economic growth.   We also see combined reporting getting attention in a couple of states.  It’s smart policy that discourages companies from creating multi-state subsidiaries to shelter their profits from taxes. We will report on other positive developments as warranted – so watch this space.

Photo of Rick Scott via Gage Skidmore and Photo of Nikki Haley via Mary Austin Creative Commons Attribution License 2.0

Ill-conceived tax ideas are coming out of statehouses and governors’ mansions at a faster rate than we’ve seen in quite a while.  Here’s a quick summary on recent proposals receiving serious consideration in Arizona, Florida, Idaho, Maine, Michigan, Minnesota, New Jersey, Ohio, and Wisconsin.

Arizona: Business tax breaks and property tax breaks are being pushed by the Arizona Chamber of Commerce, and legislative leaders are taking them seriously.  The specifics have yet to be worked out, but expect at a minimum to see tax subsidies ostensibly aimed at boosting business hiring and investment.  As the Center on Budget and Policy Priorities (CBPP) has explained, however, states cannot stimulate their economies by cutting taxes.

Florida: Newly elected Governor Rick Scott continues to insist that “the way to get the state back to work is to cut property taxes and phase-out the corporate income tax, and we’re going to get that done.”  The state’s enormous budget gap has caused Senate President Mike Haridopolos to approach the issue more cautiously, though he still claims that “if we see some opportunities for tax relief that we feel absolutely confident will create more jobs and actually grow the economy, we’re open to them.”  Haridopolos is also pushing a “Taxpayer Bill of Rights” (TABOR) proposal similar to the one that decimated Colorado’s education funding stream.

Idaho: Legislators in Idaho — including the House majority leader — are preparing to revive an idea they first proposed toward the end of last year’s session: slashing the state’s corporate income tax rate from 7.6 percent to 4.9 percent.  Idaho legislators are also discussing cutting the state’s top personal income tax rate from 7.8 percent to 4.9 percent.  Each of these changes would drastically reduce the amount of revenue available to pay for vital state services, though by proposing that these changes be phased-in gradually over the course of the next decade, legislators are hoping to avoid having to spend too much time thinking about what state services will eventually have to be cut.

Maine: State Tax Notes (subscription required) reports that the chairman of Maine’s Senate tax committee plans to make cutting the state’s personal income tax rate his top priority.  Unlike the tax reform package that Maine voters recently rejected, this cut would be paid for not by broadening the state’s tax base, but by cutting spending and hoping for strong revenue growth.  Maine’s legislators are also apparently contemplating a constitutional amendment that would require supermajority support in the legislature in order to raise taxes.  A supermajority requirement of this type would result not only in lower state services, but also in more tax loopholes.  This is because such a requirement would prevent a simple majority of legislators from eliminating a tax loophole unless they also enlarged another loophole or lowered tax rates in a way that resulted in no net revenue gain.

Michigan: House and Senate leadership on both sides of the aisle in Michigan have inexplicably come to an agreement that the state’s EITC should be cut.  It’s unclear why tax increases on low-income families have suddenly become so popular in Michigan.  If Governor Rick Snyder gets his way, some of the revenue generated by taxing low-income families will likely to be used to pay for his proposed $1.5 billion cut in state business taxes.

Minnesota: The Republican leaders of Minnesota’s state legislature made clear this week that business tax cuts will be one of their top priorities.  One Senate leader has proposed cutting the state’s corporate income tax rate in half by 2017 and freezing statewide taxes on business property.  Fortunately, Minnesota Governor Mark Dayton is likely to vigorously oppose these cuts.

New Jersey: Democratic legislators are seriously considering a move to single sales factor apportionment for their corporate income tax.  The bill has already cleared the relevant committee, and will move to the full Senate soon.  See ITEP’s policy brief criticizing the single sales factor for state corporate income taxes.

Ohio: Ohio’s House and Governor have declared repealing the state's estate tax to be a top priority.  Local governments receive a majority of the revenue generated by Ohio’s estate tax, and therefore oppose its repeal.  Ohio’s House leaders would also like to create a business tax credit for hiring new employees.

Wisconsin: Governor Scott Walker has proposed a variety of business tax breaks and, as in Maine, the creation of a supermajority requirement to raise taxes.  More bad ideas are almost certain to come from Wisconsin in the weeks ahead, as Governor Walker made clear during last year’s campaign that he supports the outright repeal of Wisconsin’s corporate income tax.

For a review of the most significant state tax actions across the country this year and a preview for what’s to come in 2011, check out ITEP’s new report, The Good, the Bad, and the Ugly: 2010 State Tax Policy Changes.

"Good" actions include progressive or reform-minded changes taken to close large state budget gaps. Eliminating personal income tax giveaways, expanding low-income credits, reinstating the estate tax, broadening the sales tax base, and reforming tax credits are all discussed.  

Among the “bad” actions state lawmakers took this year, which either worsened states’ already bleak fiscal outlook or increased taxes on middle-income households, are the repeal of needed tax increases, expanded capital gains tax breaks, and the suspension of property tax relief programs.  

“Ugly” changes raised taxes on the low-income families most affected by the economic downturn, drastically reduced state revenues in a poorly targeted manner, or stifled the ability of states and localities to raise needed revenues in the future. Reductions to low-income credits, permanently narrowing the personal income tax base, and new restrictions on the property tax fall into this category.

The report also includes a look at the state tax policy changes — good, bad, and ugly — that did not happen in 2010.  Some of the actions not taken would have significantly improved the fairness and adequacy of state tax systems, while others would have decimated state budgets and/or made state tax systems more regressive.

2011 promises to be as difficult a year as 2010 for state tax policy as lawmakers continue to grapple with historic budget shortfalls due to lagging revenues and a high demand for public services.  The report ends with a highlight of the state tax policy debates that are likely to play out across the country in the coming year.

Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.

If the recent rumblings about eliminating Idaho’s grocery tax credit become more than talk, the state will join a handful of others (Virginia, New Jersey, Minnesota, and Georgia) to address budget shortfalls on the backs of their most vulnerable residents. 

Some lawmakers seem to think the Gem State can no longer afford the annual $100 million cost of the grocery tax credit.  But, a growing number of Idahoans are living in poverty (the state’s poverty rate increased from 12.9% in 2008 to 14.3% in 2009) and those individuals can also ill-afford what amounts to a regressive tax increase as they work to make ends meet during challenging economic times.

When Idaho first adopted a state sales tax in the 1960's, lawmakers decided to leave groceries in the sales tax base and created a refundable grocery tax credit to partially offset the cost of sales taxes paid on the most basic of goods. 

Recently, the per person credit was increased and made available for the first time to those too poor to owe income taxes but who still must pay sales taxes on groceries.  While the credit is available to households at all income levels, taxpayers with taxable income under $1,000 and older adults receive a slightly larger amount per person. 

Understanding that fiscal times are tight, limiting the grocery credit to low- and moderate-income households, those who are most impacted by the regressive nature of the sales tax, is a smarter approach than outright eliminating the credit.

ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.

Candidates for governor in Idaho have been debating the appropriate scope of the state sales tax base, while the debate in Minnesota has focused more on issues of progressivity.  In Alaska, the bandwagon in favor of cutting taxes to “create jobs” continues to gain speed.

Idaho: Recent polling shows that 48 percent of Idahoans would support raising taxes to avoid cuts in education spending, while only 38 percent would oppose taking that route.  With this new information in hand, both Democratic gubernatorial candidate Keith Allred and Republican incumbent Butch Otter may want to rethink their positions on sales tax reform. 

Governor Otter insists that Idaho’s plethora of sales tax exemptions are vital to businesses in the state and should be left intact, while candidate Allred claims that a huge number of these breaks are politically motivated giveaways that should be eliminated to pay for a reduction in the sales tax rate.  While Allred’s opposition to sales tax exemptions is encouraging, his insistence that every dollar raised be used to lower the sales tax rate (as opposed to using some of it to boost education spending) is more than a little disappointing.

Minnesota: Minnesota’s legislature has known for some of the time that the state is in need of progressive tax changes.  Unfortunately, the veto pen of Governor Tim Pawlenty has so far been able to prevent any progress on this issue.  With Pawlenty finally on his way out of office, Democratic-Farmer-Labor (DFL) candidate Mark Dayton has made clear that he would take Minnesota in a different direction, if elected, by vigorously supporting progressive tax reform.  More specifically, in a debate last week Dayton reemphasized his support for a higher tax bracket on the state’s wealthiest residents. 

Republican candidate Tom Emmer, in contrast, repeated the same tired line about using tax cuts to boost economic growth.  But as Dayton pointed out during the debate, the League of Minnesota Cities actually found that candidate Emmer’s proposal to cut both taxes and spending would result in higher local property taxes.

Alaska: When it comes to taxes, there aren’t many choices on the Alaska ballot.  Democratic candidate Ethan Berkowitz recently proposed an almost $40 million cut in the state’s corporate income tax, which according to the Anchorage Daily News, Berkowitz claims he would pay for by doling out even more corporate welfare through tax credits that could allegedly boost the state’s economy.  Rather than criticize Berkowitz’s proposal or offer an alternative, Republican Sean Parnell’s campaign has taken the position that Berkowitz is lying, and that if elected Berkowitz would in fact do everything within his power to raise both taxes and spending.

The vast majority of the attention given to the Bush tax cuts has been focused on changes in top marginal rates, the treatment of capital gains income, and the estate tax.  But another, less visible component of those cuts has been gradually making itemized deductions more unfair and expensive over the last five years.  Since the vast majority of states offering itemized deductions base their rules on what is done at the federal level, this change has also resulted in state governments offering an ever-growing, regressive tax cut that they clearly cannot afford. 

In an attempt to encourage states to reverse the effects of this costly and inequitable development, the Institute on Taxation and Economic Policy (ITEP) this week released a new report, "Writing Off" Tax Giveaways, that examines five options for reforming state itemized deductions in order to reduce their cost and regressivity, with an eye toward helping states balance their budgets.

Thirty-one states and the District of Columbia currently allow itemized deductions.  The remaining states either lack an income tax entirely, or have simply chosen not to make itemized deductions a part of their income tax — as Rhode Island decided to do just this year.  In 2010, for the first time in two decades, twenty-six states plus DC will not limit these deductions for their wealthiest residents in any way, due to the federal government's repeal of the "Pease" phase-out (so named for its original Congressional sponsor).  This is an unfortunate development as itemized deductions, even with the Pease phase-out, were already most generous to the nation's wealthiest families.

"Writing Off" Tax Giveaways examines five specific reform options for each of the thirty-one states offering itemized deductions (state-specific results are available in the appendix of the report or in these convenient, state-specific fact sheets).

The most comprehensive option considered in the report is the complete repeal of itemized deductions, accompanied by a substantial increase in the standard deduction.  By pairing these two tax changes, only a very small minority of taxpayers in each state would face a tax increase under this option, while a much larger share would actually see their taxes reduced overall.  This option would raise substantial revenue with which to help states balance their budgets.

Another reform option examined by the report would place a cap on the total value of itemized deductions.  Vermont and New York already do this with some of their deductions, while Hawaii legislators attempted to enact a comprehensive cap earlier this year, only to be thwarted by Governor Linda Lingle's veto.  This proposal would increase taxes on only those few wealthy taxpayers currently claiming itemized deductions in excess of $40,000 per year (or $20,000 for single taxpayers).

Converting itemized deductions into a credit, as has been done in Wisconsin and Utah, is also analyzed by the report.  This option would reduce the "upside down" nature of itemized deductions by preventing wealthier taxpayers in states levying a graduated rate income tax from receiving more benefit per dollar of deduction than lower- and middle-income taxpayers.  Like outright repeal, this proposal would raise significant revenue, and would result in far more taxpayers seeing tax cuts than would see tax increases.

Finally, two options for phasing-out deductions for high-income earners are examined.  One option simply reinstates the federal Pease phase-out, while another analyzes the effects of a modified phase-out design.  These options would raise the least revenue of the five options examined, but should be most familiar to lawmakers because of their experience with the federal Pease provision.

Read the full report.

State budget woes appear to be spurring an increasing amount of interest in re-examining state tax breaks.  The Governors of both Michigan and Idaho have taken steps to ramp up the scrutiny directed at their state’s tax breaks, while a new report out of Oklahoma and an editorial highlighting legislation in Georgia this week have urged similar actions.

In Michigan, the Detroit Free Press urged the adoption of Governor Granholm’s proposal to thoroughly analyze the merits of every tax break, and to saddle most breaks with sunset provisions that would force lawmakers to either debate and renew these breaks, or to let them expire.  This proposal would help to remedy the lack of scrutiny given to tax breaks because of their exclusion from the appropriations process.  Notably, the proposal’s use of sunsets as a mechanism for forcing review seems to resemble a law enacted in Oregon just last year.

In Georgia, the need for additional scrutiny of tax breaks is even more desperate.  Because the state lacks a tax expenditure report, Georgia lawmakers are not even aware of the full range and cost of special breaks that their tax system provides.  SB 206, which was endorsed by a Macon Telegraph editorial this week, would remedy this problem by finally requiring the creation of such a report.  The editorial rightly points out that the bill could be strengthened by requiring an analysis of each tax break’s effectiveness, but at this point, even simply producing a list of tax breaks and their costs would be a major step forward.  The Georgia Budget and Policy Institute has been pushing for the creation of such a report for many years.

Idaho governor Butch Otter has also shown some tentative interest in figuring out whether his state’s tax breaks are worth their cost.  While Governor Otter continues to hold out hope that the state’s revenues will rebound soon, he also recently directed the state’s Tax Commission to study sales tax exemptions in the event that closing some of those exemptions becomes necessary to fill the state’s budget gap next year.  If done carefully, the studies produced by the Tax Commission could provide a wealth of information on breaks that have so far received a relatively small amount of scrutiny.
    
The Oklahoma Policy Institute has also added to the progress being made on this issue with a new report outlining what should be done to scrutinize tax breaks in a systematic fashion.  Their report, titled “Let There Be Light: Making Oklahoma’s Tax Expenditures More Transparent and Accountable,” provides twelve specific recommendations for realizing this vision.  Among those recommendations are: improving the state’s existing tax expenditure report, sunsetting all tax incentives, requiring the extension of a sunsetting incentive to undergo a “performance review,” and developing a unified economic development budget.

In at least three states, lawmakers are ignoring fiscal reality and advocating for cuts in one of the most progressive taxes levied by states -- the corporate income tax. The general consensus among experts is that most states aren't out of the woods yet when it comes to economic recovery. That means their budget gaps are going to be a problem for some time. Yet, legislators in Florida, Idaho, and Iowa are pushing the same old proposals to reduce state revenue in order to benefit corporations.

For example, Florida Governor and U.S. Senate hopeful Charlie Crist is crafting a plan that would cut the state's corporate income tax. Details remain sketchy, but he is quoted as saying that he'd "love" to reduce the tax "because I think it would help job stimulation."

Actually, any business person will tell you that he or she wants to hire workers whenever there is demand for their products. If no one is ready to buy orange juice, Tropicana is not going to create jobs regardless how many tax cuts Governor Crist throws at them. Further, there is ample evidence that corporate taxes aren't a major factor in business location decisions because those decisions are affected by numerous other factors. (For instance, Tropicana will not try growing oranges in Alaska just because Alaska offers a tax break.)

The corporate tax cut madness has popped up in other parts of the country. Idaho Representative Marv Hagedorn is proposing cutting both the personal and corporate income tax rates by a third. However, it appears that more sensible minds will prevail. The House Revenue and Tax Commmittee chairman calls the proposal "more political statements than they are reality. I just think it's a tough sell to say we're going to reduce somebody's taxes -- I don't care who it is -- when we're cutting programs left and right."

Cutting taxes is also a hot topic in the Republican primary for Iowa Governor, as the candidates attempt to outdo each other with little thought to the impact that their proposals will actually have on the services Iowans depend on. Two of the Republican candidates are reportedly open to the idea of completely eliminating the state's corporate income tax.

This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

With legislative sessions starting in just a few months, advocates and the press are weighing in on the options available to cash-strapped states. Kentucky lawmakers are urged to find a real solution to the state's fiscal woes. Idaho's Governor is suddenly open to delaying an improvement in an important tax justice tool. Maryland advocates urge a balanced approach to this year's budget, Arizona researchers offer insight into the cost of previous tax cuts, and Ohio lawmakers rethink their own previously enacted tax cuts.

Kentucky

Late last week, Kentucky's Lexington-Herald Leader published an editorial urging lawmakers to reform that state's tax code, saying "Our representatives and senators turned to a 'smoke and mirrors' approach to budgeting because they simply lacked the backbone to do the right thing: Pass the kind of real tax reform that could provide state government with a stable, sustainable revenue base." They fear that during this session lawmakers will continue to cut important programs instead of fixing the state's revenue stream. The paper warns the lawmakers appear to be on track to continue "robbing Peter to pay Paul...Only this time, Peter is a schoolchild."

Idaho

Tax fairness advocates in Idaho may be facing a similar uphill battle. Governor Butch Otter, once a strong proponent of the state's grocery tax credit (which helps to offset the state's sales tax on food), has now left the door open for delaying an increase in the credit amount in order to save the state $15.5 million. Of course, now is precisely the wrong time to delay such an important credit specifically targeted to help offset the state's regressive sales tax on food. While it's important to keep all options on the table, during this time of fiscal upheaval delaying the increase in this credit is an option that should be quickly dismissed.

Maryland

Recently the Maryland Budget and Tax Policy Institute released a paper urging lawmakers to approach the state's budget woes in a balanced way. The report makes a strong case against a cuts-only budget. "An all-cuts budget solution would sacrifice too many of the things that make Maryland such a great state." The report goes on to offer a list of concrete revenue-raising options available to lawmakers interested in preserving the state's education, health, and transportation programs.

Arizona

Arizona's budget woes are dire. A new report from the Arizona Children's Action Alliance describes the state's budget crater, which is projected to be $1.5 billion for FY10 and $2.5 billion in FY11. The report is useful for any Arizona advocate interested in understanding the impact that previous rounds of tax cuts have had on the resources available to fund public services. It explains "why any [budget] package that results in further net loss to the state general fund endangers the common benefits that Arizona counts on." The report goes on to offer ten reasons why the state should freeze and reverse the harmful tax cuts from recent years.

Ohio

Last week, the Ohio House of Representatives voted to suspend the state's scheduled income tax rate reductions for two years to help plug a budget hole. Governor Ted Strickland congratulated members of the House, saying they "acted quickly, courageously and responsibly to protect Ohio schools from devastating cuts while reducing their own pay in solidarity with struggling Ohio families and businesses." Now the legislation moves to the state's Republican controlled Senate. Let's hope lawmakers there follow in the House's footsteps and put the needs of Ohio first.

Recently, the Idaho House of Representatives voted nearly unanimously (68-1) in favor of legislation to allow nonitemizers to write off their property taxes, but this week the Senate defeated the measure. In Idaho, currently only taxpayers who itemize on their state income tax forms are eligible for the deduction. Ultimately the Senate defeated the legislation because of its $2 million price tag. But folks really interested in property tax reform would be wise to stay away from poorly targeted deductions and instead take a second look at expanding Idaho's elderly property tax circuit breaker (a credit designed to assist low income taxpayers with their property tax bills) and expand the credit to include nonelderly homeowners and renters.

The debate over whether and how to tax food has been in the news a lot lately. On the one hand, policymakers need the revenues generated from applying sales taxes to a broad base of goods and services. On the other hand, taxing food is regressive, and lawmakers always believe they will benefit politically from eliminating some portion of taxes. The result is that only a handful of states tax food.

This is currently a topic of a debate in Utah, where Governor Jon Huntsman wants to remove the sales tax on food entirely. But according to the Senate Majority Leader Sheldon Killpack, "(There's) really not much of an appetite for removing the rest of the sales tax." Governor Huntsman's plan to replace the revenue lost from removing the 2.75 percent sales tax on food is to increase the cigarette tax to $3.00 a pack. There are many reasons why increasing the cigarette tax is a lousy idea, regressivity and declining base being the most serious. Utah policymakers should follow the lead of other states like Idaho which tax food just as other goods are taxed, but then offer a targeted grocery tax credit ensuring that low-income folks receive some assistance for paying sales taxes.

Speaking of Idaho, Governor Butch Otter recently championed an increase in the state's grocery tax credit, but now that scheduled increase is threatened because the state is having difficulty balancing its budget. Kudos to Governor Otter for backing the scheduled increase in his State of the State address, rightly saying, "Idaho taxpayers are struggling. And that means we must fulfill our commitment to keep increasing the grocery tax credit. The budget I'm submitting today does just that and holds us to a principle-based policy that empowers Idahoans." While it may be tempting to delay the scheduled credit increase because of budget concerns, it's necessary that those most in need receive an increase in the credit that helps offset the sales tax they pay on food. For more on low-income credits and sales tax relief, read ITEP's policy brief.

At the state level, the usual response to recommendations that taxes be increased to preserve vital state services has generally been: "Now is not the time". The most notable exception to this trend so far has been with the cigarette tax, as we've explained before. Increasingly, however, policymakers appear to be coming around to the idea of boosting gas tax rates in order to raise the revenue needed to maintain our nation's infrastructure. Given that most state gas taxes haven't been increased for quite a few years, and that during that time inflation has significantly eroded the value of most gas tax rates, our only response can be, "It's about time."

In Maryland, for example, the Senate President recently expressed an interest in raising the gas tax, urging that "there's got to be an increase in the transportation trust fund somewhere, and there's got to be a way we can find people with the political will to make it happen". Numerous governors have echoed this call as of late, most recently in Massachusetts, and Idaho.

In Idaho, especially, the Governor was able to hit the nail on the head with his observation that, "[we last raised] the fuel tax... 13 years ago. And now here we are trying to accomplish 2009 goals with 1996 dollars. Everyone in this room or listening to me throughout Idaho today -- everyone who has a household budget or runs a business -- knows that just doesn't work".

In response to this problem, Idaho Governor "Butch" Otter has recommended bumping the gas tax upward by 2 cents in each of the next 5 years. Addressing the root of the problem even more directly, Wisconsin Governor Jim Doyle has proposed indexing the gas tax rate to inflation -- a practice that had existed in Wisconsin up until 2006. Maine and Florida continue to index their gas tax rates today, with very favorable results in terms of providing each state with a somewhat more adequate and sustainable source of transportation revenue.

Importantly, the federal gas tax is not indexed to inflation, meaning that the Federal Highway Trust Fund is suffering from many of the same problems we see plaguing the states mentioned above. The federal gas tax has not been increased in over 15 years. President Obama's new Energy Secretary, Steven Chu, has previously gone on the record as supporting raising the gasoline tax. The views of Transportation Secretary Ray LaHood are not yet clear. What is clear, however, is that something will have to be done at the federal, as well as the state level, if gas tax revenues are to be restored to their previous purchasing power.

Of course, the gas tax is not perfect. Aside from the long-term issues arising out of improved fuel efficiency (which we need to begin planning for now), the regressivity of the tax is very worrisome, especially in these difficult times. Fortunately, low-income gas tax credits, as we've advocated on multiple occasions, are very capable of remedying this shortcoming.

Idaho Governor Butch Otter this week signed legislation expanding the Gem State's grocery tax credit and correcting a major flaw that had plagued the credit for some time. The measure, which is projected to reduce state revenue by $122 million once fully implemented, will ultimately increase the value of the refundable credit to $400 for a family of four or $240 for an elderly couple. More importantly, though, taxpayers who are too poor to owe income taxes but who still must pay sales taxes on their groceries will finally be able to receive the credit. Until the Governor signed this latest bill, married couples earning less than $17,500 were ineligible for the credit, unless they were elderly or disabled. As this policy brief from ITEP points out, the new law is only one of several steps Idaho should take towards making its tax system more fair.

Advocates in Kentucky have long been pushing for the implementation of a state Earned Income Tax Credit (EITC). The EITC is a popular, targeted tax credit that offers assistance to working families. Similar credits have been enacted in 22 states and the District of Columbia. The House Budget Committee passed a bill that would introduce a credit equal to 7.5 percent of the federal EITC, coupled with a broader state estate tax. The bill will now go before the full House.

Policymakers in Connecticut have revived their efforts - stymied by a veto by Governor Jodi Rell - to enact a refundable EITC equal to 20 percent of the federal credit. A bill creating such a credit was approved by the General Assembly's Human Services Committee in late February; see this recent testimony from Connecticut Voices for Children on the measure's potential impact.

The state of Washington, despite lacking a personal income tax, could also be moving towards adopting a version of the EITC. Called the Working Families Credit, it would provide as many as 350,000 Washington residents with a credit amounting to 10 percent of their federal EITC, thus offsetting some of the impact of Washington's highly regressive tax system.

In more low income tax relief news, the Idaho House Revenue and Taxation Committee voted this week to increase the state rebates offered to offset the state's sales tax on groceries. Currently Idaho residents receive a $20 credit as an offset to the sales tax on groceries (more for seniors). The proposal being debated in the House would provide increased and targeted tax relief. For example, the new expanded credit would offer $50 per family member if the family's income is less than $25,000. The value of the rebates would increase each year until the maximum credit of $100 is reached. By 2015 the proposal is expected to cost about $122 million. Read more about options states have to provide targeted tax relief in ITEP's policy brief.

Idaho

Idaho Governor Butch Otter's State of the State included one good tax policy idea, but failed to provide additional information on one terrible idea that the Governor has championed in the past. In his January 7 speech, the Governor once again proposed improvements to the state's innovative "grocery tax" credit, which seeks to offset some of the impact of the sales tax on food purchases, but suffers from a serious flaw: the poorest taxpayers in the state are unable to receive it. He neglected, however, to discuss his proposal to follow the disastrous lead of Florida and other states and limit the growth of a house's value for property tax purposes until it is sold. Such limitations allegedly help state residents afford to the pay the property taxes on their homes, but, as the experience in Florida has shown, they end up leading to enormous inequities within the property tax, not to mention constraining the revenue needed to provide public services.

Four states - Mississipi, Tennessee, Arkansas, and Idaho - are currently debating ways to reduce the sales taxes paid on food. But how (or whether) to pay for the cuts and who should benefit remain key sticking points.

On Thursday, the Mississippi House of Representatives passed (91-27) a "tax swap" bill that would cut the state's sales tax on groceries in half and raise the tax on cigarettes to $1 per pack. The bill still faces significant challenges before becoming law, however, since key members of the Senate oppose it and Governor Haley Barbour vetoed a similar bill last year. Although the plan's reliance on revenue from cigarette taxes is not a long-term solution, it does offer a temporary mechanism to make up the revenue that would be lost from a cut on the sales tax on food.

In Tennessee, a similar "tax swap" is under consideration. However Gov. Phil Bresden has expressed reluctance to link a cigarrette tax increase with a grocery tax reduction, and has instead proposed using revenue from a cigarette tax increase for education funding.

Arkansas Gov. Mike Beebe signed a grocery tax reduction into law on Thursday that will reduce the state's sales tax on groceries from 6% to 3% effective July 1st. However, no funding mechanism was enacted to make up for the decreased revenue, as lawmakers instead decided to rely on a projected surplus to pay for the proposal.

In Idaho, Gov. Butch Otter continues to struggle with the state legislature over how best to enact a grocery tax credit. Otter's proposal would target low-income Idahoans with a credit of up to $90, while the House's newly passed version would give a smaller grocery tax credit (up to $50) to a broader range of residents.

On Wednesday newly elected Arkansas Governor Mike Beebe kept a campaign promise and proposed a cut in the state's sales tax on food. The proposal would cut the state's 6 percent sales tax, as it applies to groceries, by half. The Governor hopes to eventually repeal the tax on food altogether. However, the price tag for this cut is over $200 million and the benefits from this tax cut aren't targeted towards those who need it. Also, despite the state's recent higher-than-expected revenues, many advocates are worried the funding for the tax cut could come from education or other programs.

A similar discussion is taking place in Idaho, where Governor Butch Otter is proposing a more progressive approach to this issue. His proposal would keep the grocery tax and would instead offer a low-income tax credit designed to offset it. For more on the relative merits of exemptions and credits as strategies for making sales taxes less unfair, check out this ITEP Policy Brief.

While the Democratic takeover of the House of Representatives (and apparently also the Senate) on Tuesday has has given new hope to advocates of progressive tax policies at the federal level, the results of ballot initiatives across the country indicate that state tax policy is also headed in a progressive direction.

In the three states where they were on the ballot, voters rejected TABOR proposals, which involve artificial tax and spending caps that would cut services drastically over several years. Washington State defeated repeal of its estate tax. Several states also rejected initiatives to increase school funding which, while based on the best intentions, were not responsible fiscal policy. Two of four ballot proposals to hike cigarette taxes were approved and the night also brought a mixed bag of results for property tax caps.

Taxpayer Bill of Rights (TABOR):
Maine - Question 1 - FAILED
Nebraska - Initiative 423 - FAILED
Oregon - Measure 48 - FAILED
Voters in three states soundly rejected tax- and spending-cap proposals modeled after Colorado's so-called "Taxpayers Bill of Rights" (TABOR). Apparently people in these three states had too many concerns over the damage caused by TABOR in Colorado. Property Tax

Caps:
Arizona - Proposition 101 - PASSED - tightening existing caps on growth in local property tax levies.
Georgia - Referendum D - PASSED - exempting seniors at all income levels from the statewide property tax (a small part of overall Georgia property taxes. (The Georgia Budget and Policy Institute evaluates this idea here.)
South Carolina - Amendment Question 4 - PASSED - capping growth of properties' assessed value for tax purposes. The State newspaper explains why the cap would be counterproductive.
South Dakota - Amendment D - FAILED - capping the allowable growth in taxable value for homes, taking a page from California's Proposition 13 playbook. (The Aberdeen American News explains why this is bad policy here - and asks tough questions about whether lawmakers have shirked their duties by shunting this complicated decision off to voters.)
Tennessee - Amendment 2 - PASSED - allowing (but not requiring) local governments to enact senior-citizens property tax freezes.
Arizona's property tax limit will restrict property tax growth for all taxpayers in a given district. South Dakota's proposal was fortunately defeated. It would have offered help only to families whose property is rapidly becoming more valuable, and those families are rarely the neediest. Georgia's is not targeted at those who need help but would give tax cuts to seniors at all income levels. The Tennesse initiative, which passed, is a reasonable tool for localities to use, at their option, to target help towards those seniors who need it.

Cigarette Tax Increase:
Arizona - Proposition 203 - PASSED - increase in cigarette tax from $1.18 to $1.98 to fund early education and childrens' health screenings.
California - Proposition 86 - FAILED - increasing the cigarette tax by $2.60 a pack to pay for health care (from $.87 to $3.47)
Missouri - Amendment 3 - FAILED - increasing cigarette tax from 17 cents to 97 cents
South Dakota - Initiated Measure 2 - PASSED - increasing cigarette tax from 53 cents to $1.53. While many progressive activists and organizations support raising cigarette taxes to fund worthy services and projects, the cigarette tax is essentially regressive and is an unreliable revenue source since it is shrinking.

State Estate Tax Repeal:
Washington - Initiative 920 - FAILED
Complementing the heated debate over the federal estate tax has been this lesser noticed debate over Washington Stats's own estate tax which funds smaller classroom size, assistance for low-income students and other education purposes. Washingtonians decided it was a tax worth keeping.

Revenue for Education:
Alabama - Amendment 2 - PASSED - requiring that every school district in the state provide at least 10 mills of property tax for local schools.
California - Proposition 88 - FAILED - would impose a regressive "parcel tax" of $50 on each parcel of property in the state to help fund education
Idaho - Proposition 1 - FAILED - requiring the legislature to spend an additional $220 million a year on education - and requiring the legislature to come up with an (unidentified) revenue stream to pay for it.
Michigan - Proposal 5 - FAILED - mandating annual increases in state education spending, tied to inflation - but without specifying a funding source. The Michigan League for Human Services explains why this is a bad idea.
Voters made wise choices on education spending. The initiative in California would have raised revenue in a regressive way, while the initiatives in Idaho and Michigan sought to increase education spending without providing any revenue source. Alabama's Amendment 2 takes an approach that is both responsible and progressive.

Income Taxes:
Oregon - Measure 41 - FAILED - creating an alternative method of calculating state income taxes. Measure 41 was an ill-conceived proposal to allow wealthier Oregonians the option of claiming the same personal exemptions allowed under federal tax rules and would have bypassed a majority of Oregon seniors and would offer little to most low-income Oregonians of all ages.

Other Ballot Measures:
California - Proposition 87 - FAILED - would impose a tax on oil production and use all the revenue to reduce the state's reliance on fossil fuels and encourage the use of renewable energy
California - Proposition 89 - FAILED - using a corporate income tax hike to provide public funding for elections
South Dakota - Initiated Measure 7 - FAILED - repealing the state's video lottery - proceeds of which are used to cut local property taxes
South Dakota - Initiated Measure 8 - FAILED - repealing 4 percent tax on cell phone users.

United Vision for Idaho Report

Property tax is a major issue in Idaho. One proposal put forward by the Governor would repeal one property tax levy and increase the sales tax. On August 25, a special session of the Idaho Legislature will consider Governor Risch's proposal, which would result in a net tax increase for most Idaho families.

Several states are debating ways to spend budget surpluses.

Arkansas Governor Mike Huckabee has "tax reformation" plans which include putting more money in a rainy day fund and rebating money to taxpayers in the form of a tax credit.

In response to the surplus in Idaho, legislators are debating ways to shift the tax burden from property taxes to regressive sales taxes.

North Carolina legislators are taking notice of the financial hit that mental health services took during the previous recession and both houses have passed budgets that would provide more funds for these services. Of course, if any of these states had a Colorado-style TABOR policy there wouldn't even be a question about how to spend state surpluses because TABOR takes these important budget decisions out of the hands of elected officials.