Naughty

Michigan’s legislature and Governor Snyder top the naughty list by giving away more than $1.6 billion in tax cuts for business and paying for it with tax increases on low-and middle-income working and retired families.

Florida continued to dole out more corporate pork this year, including a property tax break that happens to benefit huge commercial land owners, like Disney World and Florida Power and Light, and other corporations (that also happen to be major donors to the state’s Republican governor and legislative majority party).

Minnesota’s legislature missed an opportunity to do the right thing when it rejected a tax increase on the state’s wealthiest residents. The plan was proposed by Governor Dayton and supported by 63 percent of Minnesotans over the alternative, which was cuts to spending on education, health care and other vital public services.

Anti-tax activists in Missouri were hard at work again. This year they were collecting signatures for a ballot initiative that would eliminate the state’s personal income tax and replace it with a broadened and increased sales tax.

Nice

Connecticut’s Governor Malloy and the legislature adopted a $1.4 billion tax increase that improved tax fairness in the state and protected public investments like education and health care.  Most notably, the state added an Earned Income Tax Credit, a significant tax break for low-income working families.

District of Columbia lawmakers greatly reduced the ability of corporations to dodge their fair share of taxes by adopting combined reporting (which makes it harder to hide profits in other states) and a higher corporate minimum tax. The Council also temporarily increased taxes for individuals making more than $350,000 a year and limited itemized deductions, which are most often taken by high income filers.

Hawaii lawmakers also limited upside-down tax giveaways (itemized deductions) for their state’s richest residents and passed other tax changes to raise much needed revenue.

A Little Bit Naughty and Nice

New York’s Governor Andrew Cuomo reversed his campaign vow not to raise taxes and supported a tax increase on residents earning more than $2 million a year.   The plan, passed by the legislature, also included a tax break for those with income under $300,000.

However, New York lawmakers passed the governor’s cap on property taxes this summer, which is predictably creating crises and forcing dramatic cuts in local education, medical, and public safety services.

Illinois raised significant revenue earlier in the year through temporary personal and corporate income tax rate increases, all designed to stave off harsh spending cuts, but then turned right around and gave away hundreds of millions of dollars to Sears and CME, allegedly to keep them in the state.

Minnesota lawmakers balanced the state’s budget earlier this year (after an historic government shutdown) by cutting vital programs, delaying payments to schools and issuing bonds against future tobacco settlement monies.  Of course, they have been boasting that they balanced the budget without raising taxes, but in reality all they did was pass the buck to localities.  Literally.  Their cowardice and unwillingness to consider Governor Dayton’s proposal to ask the wealthiest Minnesotans to pay a little more in income taxes is astounding and is resulting in a new kind of “trickle down” economics that we’re seeing in more and more states. 

This week the Star Tribune reported that in November a record number of  Minnesota school districts – 133 to be precise – will be asking taxpayers to support referendums to help “ward off cuts that have condensed class schedules, provoked higher pay-to-play fees and forced schools to resort to in-school advertising to make ends meet.”  Some school districts are accepting ads on student lockers and in mailings to parents. Other still have invited businesses to parent-teacher conferences to hawk their wares, and many have increased parking fees for students.  All at a time when 40 percent of school aged children in Minnesota are eligible for reduced cost meals because their parents are already facing their own hard times.  

In the St. Cloud area, some local officials are reeling from the impact of the state budget, which reduced the property tax base for some localities and cut local aid.  As St. Cloud Mayor (and former state senator) Dave Kleis put it, “There’s certainly a tendency to shift that burden onto those local communities.”

With the multiple fiscal pressures cities face, state legislators who balance their budgets by cutting local funds are putting short-term political gains over the long term economic health of their citizens.

Given the recent and unprecedented government shutdown, you’d like to think that lawmakers in Minnesota would want to make it easier, not harder, for the state to balance its budget. But some lawmakers haven’t learned their lesson and are, in fact, proposing to use the state constitution to ban any tax increase that does not receive a supermajority of votes in both chambers. 

Folks at the Minnesota Budget Project (MBP) argue, “The amendment would guarantee gridlock by creating extra hurdles for passing a responsible budget, leading to more budget gimmicks as policymakers seek to fund critical state services.” MBP also points out that surveys show that a majority of Minnesota residents want lawmakers to use both spending cuts and revenue increases to deal with deficits.

In these difficult economic times, lawmakers need more, rather than fewer, tools and options to address budget shortfalls and rising needs. In a state that just survived a horrific budget battle, it should be clear that the more options on the table, the better — for all Minnesotans.

From Duluth to Edgerton the wheels of Minnesota government will start turning soon.  Wednesday morning Governor Mark Dayton signed into law legislation that will end the nation’s longest state shutdown in a decade. The compromise legislation was passed during a marathon legislative session that started Tuesday and ended early Wednesday morning. 

Governor Dayton and the legislature finally came together in a compromise that balances the budget by delaying payments to schools and issuing bonds against future tobacco settlement monies. Despite wide voter approval, the progressive tax policy proposals that the Governor pushed during his campaign and during the budget fight never came to fruition.

The Minnesota Budget Project (MBP) reminds us that the compromise reached comes at a huge cost. For example, in the budget agreement higher education was cut by $351 million.  The compromise budget also includes a $54 million cut to transportation. Obviously, it’s a good thing that Minnesota will be up and functioning shortly, but in terms of spending and taxes, the budget is a real disappointment after Governor Dayton’s promising start.  MBP puts it best, “the compromise agreement means Minnesota will fail to maintain the investments we need to create the workforce of the future.”

Photo via Governor Dayton Creative Commons Attribution License 2.0

Twice in a span of just three days, the Wall Street Journal has run articles suggesting that anti-tax Minnesota lawmakers got their way because the voters were on their side.  This couldn’t be further from the truth.

Last week, in an effort to end an increasingly costly shutdown of the Minnesota government, Governor Dayton ended his push for a much needed tax increase on the state’s wealthiest residents.  As the Governor explained, “continuing the state government shutdown would be … destructive for too many Minnesotans.”  A budget, without the tax increase, will likely be enacted some time this week.

While it’s disappointing that the Governor was unable to secure the enactment of one his most significant campaign promises, this may have been the best outcome possible given the level of stubbornness exhibited by anti-tax Republicans.  It was not, however, the outcome that Minnesota voters wanted.

Polling from just before the shutdown made clear that a full 63% of Minnesotans wanted their elected officials to enact a tax increase on the richest 2% of taxpayers.  The same poll also showed that voters viewed Gov. Dayton much more favorably than the state legislature’s Republican majority.

With this in mind, the level of spin contained in a pair of recent Wall Street Journal opinion pieces is nothing short of astounding.

In a bizarre July 16 article that railed against “socialist holdouts,” “the welfare state,” and “perhaps the most liberal governor in the country,” one op-ed writer claimed that Republicans succeeded because they “reflected more accurately the electorate’s mood.”

Just two days later, Stephen Moore wrote in the Journal that Gov. Dayton “blinked” because “Minnesota voters seemed to understand that the state would only make its economic troubles worse” by raising taxes.

It’s true that Minnesota’s forthcoming “compromise” budget will be heavily tilted in favor of Republican legislators’ priorities, even though most Minnesotans do not share those same priorities. 

The Wall Street Journal’s opinion pages are famous for this kind of journalistic fiction.  A more interesting question is whether other news outlets will do any better in representing the opinions of ordinary Minnesotans.  The fact is, raising taxes on the richest of the rich is widely popular across the country yet strangely invisible from most media coverage of budgets and taxes.

“Relieved, but not celebrating” is one of the headlines in Friday’s StarTribune. Governor Dayton and the state legislature finally reached a compromise that would balance the budget and reopen the state by delaying payments to schools and issuing bonds against future tobacco settlement monies.

In his statement to lawmakers Governor Dayton said, “despite my serious reservations about your plan, I have concluded that continuing the state government shutdown would be even more destructive for too many Minnesotans. Therefore, I am willing to agree to something I do not agree with -- your proposal -- in order to spare our citizens and our state from further damage.”  In his statement the Governor listed three conditions:

1) The removal of social policy issues from further consideration this year (like requiring voters to bring identification to the polls or ending taxpayer funding for abortions).

2) Dropping a provision which would have required a 15 percent across the board reduction in the number of state employees.

3) Support for a $500 million bonding bill to “put people back to work throughout Minnesota.”

The details of the budget are still being worked out, but the state will likely be up and running in just a few days.

Obviously this compromise is a huge blow to tax fairness advocates. Dayton had previously campaigned on and proposed raising taxes in a progressive way to avoid making radical cuts. Delaying payments and issuing bonds is not a fiscally responsible way to solve Minnesota’s budget problems over the long term.

Dayton closed his statement this way: “I urge the members of both of your caucuses to consider carefully the advisability of supporting alternative sources of revenue, which would provide better, long-term financial stability for Minnesota than the two sources in your offer.” It’s a real shame that his words are falling on deaf ears; by all accounts, substantial, beneficial tax reform is going to be shelved for the time being.

Photo via Governor Dayton Creative Commons Attribution License 2.0

Government functions in Minnesota shut down July 1 and that shutdown continues, nearly two weeks later, as a result of a stand off between Governor Mark Dayton and conservatives in the state’s legislature.

The Governor is using this week to talk directly with Minnesotans and share his message of taking a balanced approach to the crisis. He says, “I'm asking the wealthiest Minnesotans to pay a little more in taxes so that children with special needs don't have to be denied services ... and that's a Minnesota value.”

The Governor has recently offered an olive branch to conservative lawmakers saying he’d be willing to compromise. He’s even offered  to make his proposed tax on millionaires temporary, increase cigarette taxes, increase surcharges on hospitals and health plans and even delay payments to schools.  Yet legislators rejected these ideas and have yet to offer any alternative budget proposal of their own.

Dayton is clearly willing to negotiate (though we question the wisdom of a cigarette tax), but the uncompromising negotiation technique of the legislature leaves Minnesotans to deal with the consequences of this avoidable standoff.

Make no mistake, each day that the shutdown is allowed to continue Minnesotans and their state’s economy are harmed. Paul Anton in a recent MinnPost piece notes that “Layoffs of state workers drain about $23 million a week in purchasing power from the state’s economy. Estimates are that the state loses $1 million a week in revenue while the state parks are closed and another $1.25 million a week while the state lottery is not operating.” Of course there are tremendous incalculable impacts too.  Background checks and license renewals for health care professionals simply aren’t happening. Let’s not forgot the impact to local governments, schools districts may actually end up having to pay higher interest costs because they may need to borrow more money to balance their own budgets because of delays in state payments.

The St. Cloud Times recently opined, “We don’t support Gov. Mark Dayton traveling the state to talk about his efforts to solve the state’s budget problem. History shows these efforts tend to preach to the choir, no matter the political faith. Then again, we can’t really blame Dayton because the people he needs to talk with — Republican legislative leaders — are clearly not willing to do anything remotely constructive to end this shutdown.”

Dayton has shown he’s willing to negotiate and he’s got the right idea to raise taxes in a progressive way to ensure vital services aren’t cut. Let’s hope for the sake of Minnesota that it doesn’t take the Legislature too much longer to come to a similar conclusion.

Photo via Governor Dayton Creative Commons Attribution License 2.0

Minnesota state government is on the brink of shutting down.  Despite months of intense negotiations between the state’s Democratic governor, Mark Dayton, and the Republican controlled legislature, neither party seems prepared to budge from their preferred positions on balancing the budget. 

Their positions were staked out in last year’s campaign season and both sides are looking to deliver on their promises.  Governor Dayton wants to address the state’s budget shortfall with a combination of sensible spending reductions and increased taxes on Minnesota’s wealthiest households.  Republican lawmakers aim to block all tax increases and prefer to slash state spending to damaging levels.

An Institute on Taxation and Economic Policy opinion editorial on the budget predicament explains that the legislature’s approach disproportionately burdens Minnesota’s low- and moderate-income working families.  The piece goes on to say that Governor Dayton’s proposed tax increases on the richest two percent of Minnesotans is entirely reasonable.  “Asking the wealthiest to pay more simply means that the state will have more revenue to invest in the public structures and services provided now and over the long term.”

Update: The Government of Minnesota is now shutdown.

Early last week, Governor Mark Dayton vetoed nine budget bills passed by the Republican-led legislature and lawmakers adjourned with no spending plan for the upcoming fiscal year. Since releasing his initial budget plan in February, the Governor has called for a balanced approach to handle the state’s $5 billion shortfall.

Many Republicans in the legislature believe that the only way to fix the state’s books is to cut spending, including tax credits for low-income families.

“I chose a balanced approach to our budget," Governor Dayton said, "one that included both significant cuts, but asked the top two percent of Minnesotans to pay more to ensure our quality of life and the services millions of Minnesotans depend on.  My approach chooses not to balance the budget on the backs of the other ninety-eight percent of Minnesotans.”

The budget presented to the Governor, by contrast, included proposals that would slash aid to local governments and the state’s renters' credit, which is an important anti-poverty tool.

Dayton sent a letter, along with his veto, to the Speaker of the House stating, “Your tax proposal would require most Minnesota property owners and renters to pay higher property taxes," because the massive cuts to local governments “would result in significant property tax increases.” 

Dayton’s veto letter goes on to say, “...your bill then directs over $200 million from those cuts to expanded tax expenditures for corporations and others.”

Since the legislature adjourned without a budget, it will need to meet in a special session. What is not at all clear is how the Governor and legislature will come to some sort of compromise. The Governor has said, “I’m in the middle, and they haven’t moved.” Read more about what to expect from the Minnesota Budget Project.

In Missouri and Minnesota, property tax “circuit breakers” ensure that property taxes do not take more than a limited percentage of income from taxpayers of modest means. As ITEP has explained, it is widely accepted that property taxes are passed on by landlords to renters in the form of higher rents, which is why these circuit breakers are usually available to renters, as well as homeowners. However, lawmakers in these two states have tried to change that.

Effort to Take Credit from Renters Fails in Missouri

In Missouri, a victory for tax fairness came in the form of inaction. The Missouri legislature ended its session on May 13th without passing legislation that would have eliminated the property tax credit for renters. Making the property tax “circuit breaker” unavailable for renters would have left thousands of low-income families and individuals unable to claim the credit.

The measure would have cut off $57 million in critical tax relief for individuals making less than $27,500 a year, in the name of budget austerity.

Supporters of the circuit breaker tax credit questioned the legislature’s priorities, as it sought to end this benefit for low-income individuals while showering a single air freight facility with as much as $33.4 million annually in tax credits.

New Proposal in Minnesota

Even as a temporary victory was won in Missouri, the Minnesota’s legislative tax conference committee is proposing to cut the state’s renter’s credit by a proposed $186 million next year.

According to the Minnesota Budget Project, under the proposal, seniors and people with disabilities would face an average reduction in their credit of $190, while all other families would face an average reduction of $335. In fact, about 72,500 households would lose their refund entirely.

The move to eliminate the renter’s credit will be especially harmful in Minnesota, which already ranks dead last in rental affordability among low-wage workers.

Circuit breaker property tax credits are one of the most effective ways to use the tax system to reduce poverty. During a recession, states should be considering ways to enact or expand these credits, rather than scaling them back.

A recent Republican proposal in the Minnesota Legislature would cut the state’s bottom two income tax rates over three years. Thanks to Minnesota’s ability to provide tax incidence analysis (an examination of how different income groups are impacted by policy changes) the public can be informed about the real consequences of this proposal.

After analyzing the plan, the state's Revenue Department and the House Research Department reached the same conclusion: these tax reductions would be regressive and benefit upper income families disproportionately.

Governor Dayton’s response to the Republican’s plan will warm the heart of any tax justice advocate. "It bothers me," he said, "the Republicans would present this as a tax cut targeted for lower and middle-income families when the facts are the opposite. The greatest benefit goes to upper-income Minnesota families. Once again they just have shown their values, their priorities are to benefit the richest Minnesotans at the expense of the rest of Minnesota."

While we are giving kudos to Minnesota and that state’s ability to conduct timely analyses, we should note that the Department of Revenue recently released their 2011 Minnesota Tax Incidence Study. Other states interested in improving their analytical capacity should look to Minnesota.

Last week Illinois joined New York, North Carolina, and Rhode Island by enacting legislation requiring Amazon.com and other online retailers working with in-state affiliates to collect sales taxes.  Arkansas’s Senate and Vermont’s House recently passed similar legislation, and Arizona, California, Connecticut, Hawaii, Minnesota, Mississippi, and New Mexico are considering doing the same.  Interestingly, lawmakers in each of these states are being spurred to do the right thing by major retailers like Wal-Mart, Sears, and Barnes & Noble.

In most states, Amazon and other online retailers are not currently required to collect sales taxes unless they have a “physical presence” in the state, though consumers are still required to remit the tax themselves.  Unfortunately, very few consumers actually pay the sales taxes they owe on online purchases — in California, for example, unpaid taxes on internet and catalog sales are estimated to cost the state as much as $1.15 billion per year.

The so-called “Amazon laws” recently adopted in Illinois, New York, North Carolina, and Rhode Island are all designed to limit this form of tax evasion by broadening the class of online retailers that must pay sales taxes.  Specifically, under these new laws, any retailer partnering with in-state affiliate merchants is required to pay sales taxes on purchases made by residents of that state.

Up until recently, the reaction to these laws has been mostly hostile.  Grover Norquist has branded them a (gasp) “tax increase,” despite the fact that they’re designed only to reduce illegal tax evasion.  More importantly, Amazon has challenged the New York law in court, and has ended relationships with affiliates in North Carolina and Rhode Island in order to avoid having to pay sales taxes on sales made within those states.  Amazon has also promised to severe ties with its Illinois affiliates, and has threatened to do the same in California if a similar law is adopted there.  These tactics mirror a recent decision by Amazon to shut down a Texas-based distribution center in order to avoid having to remit taxes in that state as well.

But Amazon may not be able to bully state lawmakers for much longer.  Since New York passed its so-called “Amazon law” in 2008, North Carolina, Rhode Island, and now Illinois have already followed suit despite all the threats.  And it appears that Arkansas and Vermont may very well do the same — as proposals to enact Amazon laws in each of those states have already made it through one legislative chamber.  In addition, at least seven other states (listed in the opening paragraph) have similar legislation pending.

According to State Tax Notes (subscription required), Wal-Mart, Sears, and Barnes & Noble are each attempting to partner with affiliate merchants recently dropped by Amazon.  Even more importantly, several of the large retail companies (like Wal-Mart, Target and Home Depot) are joining forces to lobby in favor of Amazon laws. These companies’ interest is in large part due to the fact that they already have to remit sales taxes in the vast majority of states because of the “physical presence” created by their large networks of “brick and mortar” stores.  If more traditional retailers begin to voice support for Amazon laws, the progress already being made on this issue is likely to accelerate.

For more background information on the Amazon.com tax controversy, check out this helpful report from the Center on Budget and Policy Priorities.

It seems that each week brings another round of regressive tax proposals from the states, but there are a few bright spots. As previously reported, the governors in Connecticut, Hawaii and Minnesota have been strong proponents for taking a balanced approach to their state’s budget gaps and have unabashedly supported raising revenue in mostly reform-minded and progressive ways.  More details emerged this week on the Connecticut and Minnesota governors’ revenue-raising proposals.   Also, Illinois Governor Pat Quinn, who recently backed a successful initiative to increase the state’s flat personal income tax rate, started sending positive messages this week about the need to make his state’s tax system fairer.

On Wednesday, Connecticut Governor Dan Malloy released his plan to deal a budget gap exceeding $3 billion. As promised, his plan would not to rely solely on spending cuts to close the gap. He offered a $1.5 billion package of new revenues including reforms to the personal income tax, sales tax, business taxes, and estate tax.
  
Under his plan, the state’s personal income tax would expand from 3 to 8 brackets, the top marginal rate would increase from 6.5 to 6.7 percent, and the bottom marginal rate of 3 percent would phase out for high-income earners.  The plan also eliminates an existing property tax credit which is most beneficial to middle-income families. 

Perhaps most significantly, Governor Malloy would buck a recent trend by adding a refundable state Earned Income Tax Credit (EITC) set at 30 percent of the federal program.  If enacted, Connecticut would become the 26th state to have an EITC.
 
Governor Malloy also proposed expanding the sales tax base by taxing several services, including pet grooming, boat repairs and hair cuts, eliminating the exemption on clothing under $50, and imposing an additional 3 percent sales tax on “luxury items.  The state sales tax rate would increase from 6 to 6.25 percent. 

Governor Malloy also supports positive changes to business taxation including adopting what is known as the "throwback rule," which mandates that sales into other states or to the federal government that are not taxable will be “thrown back” into the state of origin for tax purposes.  His plan would improve the estate tax by lowering the taxable estate threshold from $3.5 million to $2 million.

Minnesota Governor Mark Dayton ran on a pro-tax platform, promising to increase taxes on his state’s wealthiest households in order to stave off massive spending reductions.  Governor Dayton released a plan this week to raise $4.1 billion in new revenues over the next two years to help solve a $6.2 billion budget shortfall.   Sticking to his campaign pledge, the majority of the new revenue would be raised from the wealthiest 5 percent of taxpayers in the state. The plan would add a new top income tax bracket, charge a 3 percent surtax on filers with taxable income above $500,000, and add a new statewide property tax on homes valued at more than $1 million.

The Minnesota Budget Project had the following to say about Governor Dayton’s proposal: “The Governor’s tax proposal seeks to add balance to the state’s tax system. Over time, the state has cut progressive taxes (like the income tax) during good times and increased regressive taxes (like property taxes) during the bad times. These policy changes, combined with economic trends, have led to a tax system that has shifted more of the responsibility for funding state and local services on to low- and moderate-income Minnesotans. People at the highest income levels pay a smaller share of their income in state and local taxes (8.9 percent) than the average for all Minnesotans (11.2 percent).”

Illinois lawmakers should be applauded for temporarily raising the state’s flat income tax rate from 3 to 5 percent in January to help fill a $15 billion budget gap. However, they missed an opportunity to fix the state’s broken, outdated, and unfair tax system rather than just raise rates.  But the opportunity may still be available.  This week, Governor Pat Quinn asked state lawmakers to consider modernizing the tax system and making it fairer.  He did not offer specific suggestions on how to achieve this goal, but explained that Illinois’ tax system is regressive, requiring more from its poorest residents than from the rich. 

In response to his call for reform, some Democratic lawmakers offered a few suggestions, including moving the state to a graduated income tax, expanding the sales tax base to include services, and relying less on property taxes to pay for schools.

Some politicians in state capitals across the U.S. seem convinced that tax cuts for businesses and the wealthy are the best way to accelerate economic recovery. In two states, governors are proposing instead to cut taxes on groceries, which is a more effective, though not exactly flawless, way to help ordinary families. The tradeoff to any tax cut, of course, is unaffordable cuts to essential services including education, public safety, and health care.

In Wisconsin, state lawmakers agreed on a business tax cut that would add about $50 million to the budget deficit.  The Republican controlled legislature and newly elected Governor Scott Walker believe that the tax cuts will leave everybody with more money and leave the state with an improved economy.  Incredibly, Walker’s proposal rests on the assumption that the tax cuts will lure businesses away from Illinois, which recently saw an increase in its income tax, rather than fostering young, developing businesses. 

In Iowa, where a similar $300 million business tax cut is being discussed, critics of Governor Terry Branstad point out that essential social services are being axed in favor of pro-business policies.

In Arizona, Governor Jan Brewer is proposing to cut taxes on high-wage industries while further reducing funding for Medicaid, universities, community colleges, and K-12 education.  

Similar tax cuts are being proposed in New York, Washington, Michigan, Minnesota, and South Carolina. All of these plans prioritize tax breaks for business over providing essential services to those most affected by the economic downturn.  

The Governors of West Virginia and Arkansas have arrived at an entirely different tax-cutting proposal: reducing the sales tax on groceries.  Like lawmakers who support business tax cuts, Governors Tomblin and Beebe believe their brand of tax cuts will circulate quickly throughout the economy, providing necessary relief to the taxpaying public while stimulating the economy. 

Governor Mike Beebe of Arkansas wants to cut the sales tax on groceries by a half-cent and has said it is the only tax cut he will consider this year.  In West Virginia, Governor Earl Ray Tomblin wants to reduce the grocery sales tax from 3 to 2 cents and would ultimately like to see it eliminated entirely.

While the proposals to cut the sales tax on groceries are a welcome development compared to proposed tax cuts for businesses and the wealthy, there are still two problems with them. 

First and foremost, states are in dire need of revenue this year as they face the most significant budget challenge yet since the start of the recession.  Every dollar lost to a tax cut will have to be made up by an even deeper cut in spending. 

Second, reducing the sales tax on groceries is not the most targeted approach available to state leaders looking to support working families.  The poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries. 

Enacting or increasing a refundable state Earned Income Tax Credit (EITC) or other low-income refundable credit would be a more affordable and better targeted alternative to ensure that tax cuts reach low- and middle-income working families.  Tax cuts that directly benefit low-wage workers are especially beneficial to the general economy because low-wage workers immediately spend their refunds out of necessity.  By pumping the money back into the economy, the tax cut goes further in stimulating the economy than tax cuts for the wealthy or businesses.

Instead of pursuing tax cuts for businesses and wealthy individuals, state lawmakers should be working to alleviate hardship on the most vulnerable.  Indeed, the governors in West Virginia and Arkansas may end up being much more efficient at helping their state economies rebound than the “business friendly" governors in Wisconsin and Iowa.

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.