Washington State has the most regressive tax structure in the country. No other state asks more of its poorest taxpayers and simultaneously asks so little of its wealthiest taxpayers.  The major reasons for its distorted tax structure are the state’s excessive reliance on sales taxes (along with property taxes) and the absence of any type of tax on income.

Later this month, legislators will be meeting in a special session to try to close the state’s $2 billion shortfall. Governor Gregoire has taken the uninspired and unimaginative approach of proposing only spending cuts to fill the gap. Her proposed plan will simultaneously harm working families and ensure that Washington State’s tax structure remains the nation’s most unfair.

Governor Gregoire and legislators need to think outside the box, and specifically consider  the Washington State Budget and Policy Center’s ( WBPC) proposal to tax capital gains income.

  The Institute on Taxation and Economic Policy (ITEP) found that a modest tax on capital gains income could raise as much as a $1 billion annually, and a full 97 percent of Washingtonians wouldn’t be impacted. To read more about WBPC’s proposal and ITEP’s analysis read A Capital Reform.  

Elected officials must move beyond the cuts-only rhetoric and look to budget solutions, like taxing capital gains, that help to create long term fiscal solvency and create a tax structure that works for everyone.

Photo of Governor Chris Gregoire via  WS DOT Creative Commons Attribution License 2.0

This week, the Associated Press is reporting that some lawmakers in Olympia “have been quietly exploring the logistics of a special election in February 2012 that could ask state voters to raise taxes to help fill another budget shortfall.” 

This is a very promising development. Lawmakers from Washington State to South Carolina and any state with a budget crunch should be exploring straightforward revenue raising options like this. Balancing budgets by cuts alone undermines education, health care, public safety and the myriad of other important services that government provides its constituents.

A less promising development, meanwhile, is that Governor Christine Gregoire has called the legislature back for a special session in November with the goal of finding $2 billion in budget cuts, on the heels of $4.6 billion they already passed earlier this year.

The Washington State Budget and Policy Center (WSBPC)  reminds us that there is a lot at stake in this special session. Already, state agencies have submitted budgets that reflect 10 percent across the board reductions.  Some of the real life implications of these reductions would be: over 18,000 fewer students enrolled in community and technical colleges, the loss of health care for 25,000 children, and the elimination of food assistance for 14,000 low-income legal immigrants.

WSBPC gets it right when it says, “it doesn’t have to be that way.  Policymakers can and should raise additional resources through a combination of eliminating wasteful tax breaks and temporarily increasing general tax rates or sin tax rates.

Given the harsh spending cuts that are likely coming down the pike, it’s imperative that lawmakers and the public remain vigilant and explore revenue raising opportunities in both the legislature and through the initiative process.

Photo of Washington State Capitol via Alan Cordova Creative Commons Attribution License 2.0

"Sunset" provisions (or expiration dates) recently played a big role in allowing Washington State lawmakers to eliminate special tax breaks for filmmakers, computer server farms, and newspapers.  Unfortunately, a tax break for out-of-state banks was spared from the chopping block, due in no small part to its lack of a sunset provision.

Washington does a much better job than most states in making information available about the plethora of special breaks contained within its tax code.  Oddly, however, Washington also makes it much more difficult than most states to modify or repeal any of those breaks, since it requires supermajority support in the state legislature in order to raise tax rates or repeal tax breaks.

The unfortunate effects of this supermajority requirement were recently on full display in the Washington State House of Representatives. Last week, a minority of lawmakers was able to block the repeal of a tax break for out-of-state banks, while education and health care were slashed in order to balance the state’s budget. 

The Washington Budget and Policy Center (WBPC) points out that this problem could have been eliminated going forward had voters been allowed to decide this November on a proposal that would have given a simple majority of legislators the ability to repeal narrow tax breaks.

But in Washington and other states, a different method of addressing the unwarranted bias in favor of tax breaks is continuing to garner significant attention.  Specifically, Washington was able to get three narrow tax breaks off its books — for filmmakers, computer server farms, and newspapers — by simply allowing them to sunset (or expire) as scheduled. 

In Washington’s case, the value of sunsets is particularly pronounced, since tax breaks would otherwise continue to be in effect even after a majority of lawmakers decided they were ineffective.

Even in states without such supermajority rules, sunsets can be incredibly useful in forcing action. They require lawmakers to explicitly debate and vote, every few years or so, on tax breaks that otherwise would remain safely tucked away deep in the state’s tax code.

But sunset provisions are not the norm in Washington.  According to a recent WBPC analysis, only 37 of Washington’s 301 tax breaks include an expiration date.  That’s why Senator Jeanne Kohl-Welles has proposed legislation that would sunset all tax breaks in the state.  The proposal is similar to requirements that already exist in Nevada and Oregon, and to a bill that ITEP recently testified on in Rhode Island.

Using more effective sunset provisions in Washington, and elsewhere around the country, would provide lawmakers with an extremely valuable tool for slowing the proliferation of tax breaks that are too often ineffective, unfair, or both.

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.

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.

Earlier this week, voters in states across the nation voted overwhelmingly against implementing major changes to their states’ tax codes. Voters in Massachusetts defeated an effort to slash the state’s sales tax, preserving much-needed revenue to fund education, public safety and other vital services. In Colorado, three anti-tax measures that would have wreaked havoc on the state’s budget were also soundly defeated. Washington State voters rejected a plan that would have created an income tax while rolling back other taxes.

In other states, big business successfully used its money to influence the outcomes of ballot measures on tax issues. Voters in Missouri and Montana passed initiatives designed to ensure that neither state could implement a tax on the transfer of real estate. Neither state currently has a real estate transfer tax, yet the real estate lobby spent millions trying to pass the initiatives. In Washington and Massachusetts, the beverage and alcohol industries poured millions of dollars into campaigns to see that sales taxes levied on their products were rolled back.

And in California, corporations spent millions to defeat a ballot measure that would have repealed several poorly-thought out corporate tax breaks. As the New York Times noted earlier this week, Fox News aired a critical piece on the ballot measure as part of their "War on Business" series, as parent company News Corporation gave $1.3 million to defeat the measure. Fox executives said they "didn't know" the parent company had made these contributions.

Unfortunately, voters in a number of states also ratified measures that will make it harder to raise revenues going forward. California and Washington each face tighter supermajority constraints on revenue-raising, Indiana voters enshrined property tax caps in their constitution, and voters in Massachusetts and Washington retroactively rejected small tax increases enacted by state legislatures in the past year.

Here are the results of initiatives we’ve been following.

Personal Income Tax

Washington: Initiative 1098 - FAILED
Initiative 1098 would have introduced a limited personal income tax applicable only to the richest Washingtonians, reduced the state property tax and eliminated the Business and Occupation tax for many businesses.

Colorado: Proposition 101 - FAILED
Proposition 101 would have reduced Colorado’s income tax rate and eliminated various fees resulting in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Business Tax Breaks

California: Proposition 24 - FAILED
Proposition 24 would have eliminated several business tax breaks enacted in 2008 and 2009 and would have increased state revenues by more than $1.3 billion.

Super Majority Voting Requirements

California: Proposition 25 - PASSED
California: Proposition 26 - PASSED

The passage of California’s Proposition 25 removes the current two thirds super majority requirement needed to pass the state budget (replacing it with a simple majority vote). However, Proposition 26 institutes a new super majority requirement for raising certain fees (classifying them as taxes, which still require a two thirds vote).

Washington: Initiative 1053 - PASSED
Initiative 1053 will ensure that all tax increases (no matter their size) be approved either by a two thirds majority in the legislature or a public vote of the people.

Earnings Tax

Missouri: Proposition A - PASSED
Proposition A requires voters to decide whether two local earnings taxes levied in St. Louis and Kansas City should exist and also prohibits other localities from levying a local income tax.

Sales Taxes

Massachusetts: Question 1 – PASSED
Massachusetts: Question 3 - FAILED

Question 3 would have cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 removes the sales tax on alcohol, which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 - PASSED
Initiative 1107 repeals a recently enacted sales tax increase on a variety of goods including soda, bottled water, and candy.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 - PASSED
This constitutional amendment fully exempts disabled prisoners of war (POWs) from paying property taxes.

Virginia: Question 2 - PASSED
Question 2 changes Virginia’s constitution to exempt disabled veterans and their surviving spouses from paying property taxes.

Property Tax Caps

Indiana: Public Question #1 - PASSED
The amendment to Indiana’s state constitution permanently limits property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. These limits already existed in statute. This ballot measure simply makes them more difficult to repeal.

Colorado: Amendment 60 – FAILED
Amendment 60 would have taken away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes and require school districts to cut property tax rates in half over the next ten years, replacing the lost revenue for K-12 schools with state funding.

Real Estate Transfer Fees

Montana: Constitutional Initiative 105 - PASSED
Initiative 105 prohibits the state from enacting any type of real estate transfer tax.  

Missouri: Constitutional Amendment 3 - PASSED
Amendment 3 prohibits the state from enacting any type of real estate transfer tax.

Government Borrowing

Colorado: Amendment 61 – FAILED
Amendment 61 would have prohibited or restricted all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.

California: Proposition 22 – PASSED
Proposition 22 amends California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.

Last week, the Associated Press took a close look at how local-level tax increases have fared on the ballot leading up to this week’s election.  Out of the 39 states surveyed by the AP, 22 of them held local primary elections or special elections where tax measures were voted on in 2010, and a whopping 19 of those states saw their residents approve more than half of all proposed local tax increases.

Some of the more interesting results highlighted by the AP include the approval of 83% of local tax increases in Louisiana, 72% in Ohio, and 66% in Arizona.  Kansas, Nebraska, and Washington also approved particularly high percentages of local tax increases.

It’s important to note that the AP study was conducted before this week’s election, and therefore doesn’t tell us how local measures fared on November 2.  Moreover, as the AP points out in their review, there is no single source for information on the results of local ballot measures, and even most states fail to publicize local results in a centralized location. 

Unless and until a study of this week’s local measures is completed, we’ll be left to wonder whether trends from earlier this year have continued to hold.  If they have, there could very well be many more stories of local ballot successes like this one in Colorado.

The stakes will be high for state tax policy on Election Day, with tax-related issues on the ballot in several states. With a couple of notable exceptions (a new income tax in Washington and rollback of corporate tax breaks in California), these ballot initiatives would make state taxes less fair or less adequate (or both).

Personal Income Tax

Colorado: Proposition 101 would reduce or eliminate various fees and immediately reduce the state’s income tax rate from 4.63 to 4.5 percent and eventually to 3.5 percent).  If passed, Proposition 101 will result in an estimated loss of $2.9 billion in state and local revenue once fully implemented.

Washington: Initiative 1098 would introduce a personal income tax, reduce the state property tax and eliminate the Business and Occupation tax for small businesses. If passed, this legislation would improve tax fairness in the state with the most regressive tax structure in the country.  For more read CTJ's Digest articles  about this initiative.

Business Tax Breaks

California: Proposition 24 would eliminate several business tax breaks enacted in 2008 and 2009 and increase state revenues by more than $1.3 billion.  For more details on these tax breaks, read the California Budget Project's Budget Brief on the initiative.

Super-Majority Voting Requirements

California: Proposition 25 would remove the current two-thirds super-majority requirement needed to pass the state budget (replacing it with a simple majority vote), while Proposition 26 would institute a new super-majority requirement for raising certain fees (classifying them as taxes).  For more details on these initiatives, read the California Budget Project’s initiative summaries.

Washington: Initiative 1053 would, if approved, ensure that no tax increases (no matter their size) become law without either approval by a two-thirds majority in the legislature or a public vote of the people. The Washington Budget and Policy Center gives a helpful summary of the initiative and its potential impact.   

Earnings Taxes

Missouri: Proposition A, if approved, would require that voters be asked every five years to decide whether or not local earnings taxes levied in St. Louis and Kansas City should exist. (If voters then decide to not allow them, they will be phased out over a ten-year period). The Proposition would also exclude any other local government from levying its own earnings taxes. For more on Proposition A, read Missouri Budget Project’s fact sheet.

Sales Taxes

Massachusetts: Question 1 and Question 3
A diverse coalition of businesses, advocacy organizations, citizens groups and political leaders have joined together to defeat Question 3, an initiative that would cut the state’s sales tax rate from 6.25 to 3 percent, resulting in an annual revenue loss of $2.5 billion.  Question 1 would remove the sales tax on alcohol which was just added last year in order to raise $80 million for substance abuse programs.

Washington: Initiative 1107 would repeal the new sales taxes on a variety of goods including soda, bottled water, and candy. For more information, read CTJ's Digest article on the issue and the Washington Budget and Policy Center’s summary.

Despite the regressive nature of the sales tax, it's an important revenue source. Slashing it in either Washington or Massachusetts without replacing the lost revenue with another source would cripple the ability of those states to provide core services such as education and public safety to their residents.

Property Tax Exemptions

Missouri: Constitutional Amendment 2 would exempt fully disabled prisoners of war (POWs) from paying property taxes. Read Missourians for Tax Justice’s take on this issue.

Virginia: Question 2 would change Virginia’s constitution to exempt veterans and their surviving spouse from paying property taxes if the veteran is 100 percent disabled.

Property Tax Caps

Colorado: Amendment 60 would take away the ability of voters to opt out of Colorado’s TABOR limitations as they relate to property taxes.  Currently, voters can approve an increase in property tax rates above the constitutional limit which caps increases at the rate of inflation plus a small measure of local growth.  The amendment would also require school districts to cut property tax rates in half over the next ten years and replace the lost revenue for K-12 schools with state funding (an estimated $1.5 billion will be required from the state, meaning reductions will have to made to other services to support an increase in K-12 spending).

Indiana:  Public Question #1 will ask Indianans to decide if their state's constitution should be permanently altered to limit property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. Voters may find it helpful to read this brief from the Indiana Institute for Working Families.

Real Estate Transfer Fees

Missouri: Constitutional Amendment 3 would prohibit the state from enacting any type of real estate transfer tax. Missouri currently doesn’t levy any such tax.  Placing the question before voters is seen as a preemptive move by the Missouri Association of Realtors to ensure that the state can’t create a transfer tax.

Montana: Constitutional Initiative 105 would, if approved, prohibit the state from enacting any type of real estate transfer tax.  The state currently doesn’t levy such a tax. The Billings Gazette has weighed in on this Initiative.

Government Borrowing

California: Proposition 22 would amend California’s Constitution to take away the state’s ability to borrow or shift revenues that fund transportation programs.  For more information, read the California Budget Project’s brief on the initiative.

Colorado: Amendment 61 would prohibit or restrict all levels and divisions of government from financing public infrastructure projects (such as building or repairing roads and schools) through borrowing.

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.

Earlier this summer the Census Bureau released data that revealed which states can be considered "low tax" states. We took a closer look at the data and found that while a handful of states could be considered low tax states overall, their taxes are not low for poor and middle-income families.

In fact, in six states — Arkansas, Arizona, Florida, Tennessee, Texas, and Washington — there is a fundamental mismatch between the Census data and how these supposed low tax states treat people living at or near the poverty line. One of the major reasons for this is that these states have largely unbalanced tax structures. Florida, Tennessee, Texas, and Washington rely heavily on property and sales taxes because they don't have a broad-based personal income tax. (For more on a Washington ballot initiative to introduce an income tax, see our Digest article below.) Despite having income taxes, Arkansas and Arizona rely heavily on sales taxes, thus making their tax structures balanced on the backs of low- and middle-income taxpayers.

Now that the primary election dust has settled and signature gathering deadlines have come and gone, we have a clear picture of the good and bad tax initiatives voters in a number of states will have an opportunity to support or oppose.  Over the coming month, the Tax Justice Digest will provide updates on tax-related ballot campaigns including links to the best resources to help voters understand what to expect when they hit the polls in November.

Indiana voters will soon decide if their state's constitution should be permanently altered to limit property taxes to 1 percent of assessed value for owner occupied residences, 2 percent for rental and farm property and 3 percent for business property. The state legislature has already approved this short-sighted measure twice.

Voters would find it helpful to read this brief from the Indiana Community Action Association which dispels false claims about the benefits of these property tax caps, including claims that all homeowners are likely to benefit, that having these caps in the constitution will prevent taxes generally from being raised, and that the caps are well-designed in the first place.

Missouri voters will be asked to decide on Proposition A and the fate of the city earnings taxes levied in Kansas City and St. Louis. If Proposition A is approved, voters will be asked every five years to decide whether or not these earnings taxes should exist. (If voters then decide to not allow them, they will be phased out over a ten year period). The revenue generated from these earning taxes represents about 30 percent of the cities' general fund budgets.

A key supporter (and bankroller) of the initiative, Rex Sinquefield, has said that the money "has to be replaced" if the earnings taxes are eliminated, but he doesn't actually say how that money will get replaced. "That was the reason that we proposed a 10-year phase-out," he says, "so you have a lot of time to figure this out."

If passed, the initiative would exclude any other local government from levying their own earnings taxes, further limiting the ability of local governments to raise funds in a progressive way. Missouri voters would be wise to take a step back and heed this warning from the St. Louis Post Dispatch editorial board: "The loss of (earnings tax) revenue would reverberate beyond the residents of St. Louis and Kansas City. Voters throughout both metropolitan regions would face increased uncertainty as their core cities struggled to find replacement revenue. As go the metro areas, so goes Missouri."

For more on the harmful ramifications of Proposition A, read this fact sheet from the Missouri Budget Project.

Washington State voters will soon have the rare opportunity to improve their state's tax and budget structure in a dramatic way. If Initiative 1098 passes, the state's property tax will be cut by 20 percent, the state's unique Business and Occupation tax will be eliminated for small businesses and a new income tax on the wealthiest of Washingtonians will become the law of the land. The Seattle Post-Intelligencer has endorsed I-1098 "as a big step toward tax fairness and reform, as well as a way of putting teachers into classrooms and poor families onto the state's Basic Health Plan. " ITEP's report Who Pays found that Washington has the most regressive tax structure in the nation and badly needs a tax reform of this sort.

Californians will have the opportunity to repeal three costly business tax breaks by voting to support Proposition 24, “The Tax Fairness Act”.  Enacted in 2008 and 2009, the three business tax cuts — elective single sales factor, tax credit sharing, and net operating loss carrybacks — are scheduled to go into effect in 2011 at an estimated cost of $1.3 billion.  As a new Budget Brief from the California Budget Project explains, these tax breaks benefit relatively few corporations and come at a time when the state can ill afford such a significant loss of revenue.  

In Colorado, most Democratic and Republican lawmakers are united in their opposition to three anti-tax initiatives on the state’s ballot which would drastically reduce state and local revenue and hinder the state’s ability to pay for education, health care, public safety, and other core services. 

Amendment 60 would require school districts to cut property taxes and replace the lost revenue. Proposition 101 would slash the state’s income tax and cut other fees. Amendment 61 would limit or disallow government borrowing.  A Colorado Legislative Staff analysis of the combined impact of the three measures found that the state would lose about $2.1 billion in revenue, while taking on $1.6 billion in K-12 education funding to make up for the local property tax cuts.  As a result, education spending would constitute nearly 99% of the state’s general fund budget.

Efforts are underway in a variety of states to give voters the opportunity to change their state's tax structure for the better. Advocates are laying the ground work for tax reform in Colorado. Tax justice advocates in Arizona can celebrate that a Proposition 13-like initiative didn't garner enough signatures to be placed on the ballot. California voters will get the chance to repeal various corporate tax loopholes while Washington is closer than ever before to introducing a personal income tax.

In Colorado, folks are thinking about the 2012 ballot already. Representatives of the Colorado Fiscal Policy Institute (CFPI) have filed two initiatives that are currently being reviewed to determine if they abide by the state's "single subject" per initiative rule. According to The Denver Post, "the measures also call for reducing the state sales tax but taxing services as well as goods, changing the income-tax system to a graduated system and making a tax credit for low-income workers permanent." Specifically the proposal would change Colorado's flat rate income tax into a graduated system with a least five brackets. Carol Hedges with CFPI recently said of the initiatives that "the overriding objective is to have our tax system more appropriately matched with economic realities."

Arizonans swerved and missed the tax policy equivalent of a Mack truck slamming into them when it was announced that "Prop. 13 Arizona" failed to garner enough signatures to qualify for the 2010 ballot. The proposal was modeled after California's Proposition 13. The measure would have rolled back the assessed value of property sold before 2004 to 2003 levels, limited property value increases, and taken away voters' rights to override levy limits. This is the second time that the proposal failed to garner enough signatures. For more on capping assessed value, see ITEP's primer on the subject.

In November, California voters will get to vote on the Repeal Corporate Tax Loopholes Act. The measure, if passed, would eliminate several business tax breaks enacted in 2008 and 2009. They include elective single sales factor, tax credit sharing, and net operating loss carrybacks. For more details on these tax breaks, see California Budget Project's Budget Brief on this issue. Perhaps more upsetting than these tax breaks actually passing is the way they were passed. Initially, according to the California Budget Bites Blog, these tax deals were of the "dark-of-night" variety. Now Californians themselves will decide if these costly corporate tax breaks should remain the law of the land.

Washingtonians are closer than they have ever been to establishing a personal income tax. Washington has repeatedly been named by ITEP as the state with the most regressive tax structure largely because of their high reliance on sales taxes and absence of a personal income tax. Initiative 1098 introduces an income tax that has two brackets targeted at high income Washingtonians, reduces the state property tax, and reforms the business and occupation tax. Supporters of the initiative this week turned in well over the 241,000 signatures required to get on the ballot. It appears that Washingtonians will have an exciting and historic opportunity to reform their state's tax structure this fall.

Voters this November in a variety of states may have the opportunity to vote against anti-tax initiatives, as well. Right-wing activists were successful recently in gathering signatures for a handful of misguided anti-tax initiatives in Colorado, Massachusetts and Washington.  

Colorado voters are going to have a congested ballot come November. Proposition 101 and Amendments 60 and 61 have all qualified for the ballot and would have an enormous impact on Coloradans' way of life. About these three proposals the Denver Post opines, "The operating language within each one is a virus that would cripple the ability of our local and state governments to provide the most basic of services — from building schools for our children to supplying clean water to our homes. Both Democratic and Republican politicians have joined leaders in business and community organizations to oppose the initiatives."

According to the Ballot Initiative Strategy Center: "Amendment 60 would overturn voters' decision to opt out of Colorado's TABOR limitations. The initiative also cuts property tax rates in half over a ten-year period. The statutory Proposition 101 would slash state and local revenues to the tune of $1.7 billion by reducing the state income tax, motor vehicle fees, and telecommunications fees." Amendment 61 would prohibit all levels and divisions of government from bonding, even if they previously had the authority to do so. These measures would have a disastrous impact on Coloradans' way of life.

The Boston Herald is reporting that an initiative proposing to reduce the Massachusetts sales tax from 6.25 to 3 percent is likely headed to the November ballot. The proposal would cost the state a jaw-dropping $2.4 billion annually. Proponents of the legislation delivered more than the required 11,099 signatures to the Secretary of State's office Wednesday. In somewhat brighter news, none of the four candidates for governor appear to support the initiative and have said that if it passes, deep cuts in state and local services would be all but guaranteed. Despite the regressive nature of the sales tax, it's important because slashing it would cripple Massachusetts' ability to provide for its residents.

Another initiative that reportedly has enough signatures to appear on the November ballot, backed by beer and wine wholesalers, would eliminate the new sales tax on alcohol.  Last year, state lawmakers removed the sales tax exemption on beer, wine and liquor and added them to the state’s sales tax base in order to raise $80 million for substance abuse programs.

Tim Eyman, Washington state's notorious anti-tax crusader, is up to his old, tired tricks again. Initiative 1053 would permanently re-establish the requirement for a two-thirds supermajority vote in the Legislature or a statewide popular vote in order to pass tax increases.  A similar measure won at the ballot in 2007, but that measure allowed the legislature to repeal the rules by a simple majority vote after two years.  Facing a $2.8 billion budget gap this year, Washington legislators suspended the requirement in February for 16 months to pass tax increases to mitigate cuts to vital state services.  If passed this initiative impairs the ability of Legislators to do what they were elected to do — legislate.

Eyman is also supportive of Initiative 1107, which would roll back the new state taxes on a variety of goods including soda, bottled water, and candy. (Advocates of both initiatives turned in over 700,000 signatures to see that these issues will be placed before the voters in November.) Of course sales taxes are regressive, but the cost of removing the sales tax from these items is pretty stark. According to the Children's Action Alliance, "The choice for us is clear, a few extra pennies or the loss of essential services for kids."

Not surprisingly, the main financial backer of Initiative 1107 is the American Beverage Association, which has reportedly spent more than $1 million on the ballot effort thus far.

Washington recently joined with 30 other states to tax candy. If you want to see how your state taxes candy, see Washington State Budget and Policy Center's handy map on the subject.

Washington State has the most regressive tax structure in the country according to ITEP's recent Who Pays? report, which analyzed the tax structures of all fifty states. Not only does the state's tax structure hit low- and middle-income families the hardest, but it's also unsustainable because it doesn't generate enough revenue to fund public services.

The introduction of an income tax targeted at wealthy taxpayers would go a long way to solving both of these problems. Such a proposal is being touted by Bill Gates Sr. and a large coalition of groups promoting an initiative that, if put on November's ballot, would raise taxes on couples earning more than $400,000 ($200,000 for singles).

According to a recent poll from the University of Washington, the state's voters favor this tax reform by a 58 to 30 percent margin. If the initiative passes, Washington would join the vast majority of other states that have income taxes.