Source: http://www.taxjusticeblog.org/archive/state_tax_issues/alabama/
Timestamp: 2017-05-26 07:33:10
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Matched Legal Cases: ['art 1', 'art 2', 'art 3', 'art 4', 'art 5', 'art 6']

This week in state tax news we see Louisiana's session getting started, budgets passed in New York and West Virginia, Kansas lawmakers taking a rest after defeating a harmful flat tax proposal, and Nebraska legislators preparing for full debate on major tax cuts. Nevada lawmakers may make tax decisions related to tampons, diapers, marijuana, and property before closing their session this week. And gas tax update efforts are gaining steam in Alabama, South Carolina, and Tennessee.
The Louisiana regular legislative session started on Monday, April 10, with high aspirations but uncertainty about whether the political will exists to tackle substantive tax reform. There is great urgency to act, as lawmakers have had to grapple with closing 15 budget gaps over the past nine years and the temporary sales tax hike enacted last year will expire halfway through 2018, leaving a $1.3 billion shortfall. There is no shortage of ideas. In addition to the Task Force for Structural Changes in Budget & Tax Policy's recommendations, plans from advocacy organizations, and the governor's proposal, the legislature has already begun hearings for various legislative proposals. With a high threat of political gridlock, the governor's opening remarks focused on finding bipartisan solutions.
Legislators in New York and West Virginia passed budgets last weekend. The budget agreement in New York includes a two-year extension of the state's surcharge on millionaires. It also includes an overhaul of the state's workers' compensation program and a plan to waive state college tuition for many middle-class families. By contrast, the West Virginia legislature passed a budget last weekend that includes heavy spending cuts and no tax increases. The agreement, now under consideration by Gov. Jim Justice, draws $90 million from the state's rainy day fund and cuts the medical services line item in Medicaid, higher education, regional education service agencies, and WV public broadcasting. It also lacks any teacher pay increases.
A flat tax proposal that had the support of Gov. Brownback fell flat last week in the Kansas Senate. In addition to eliminating the exemption for business pass-through income and lowering the sales tax on food, the bill would have substituted a single 4.6 percent rate for the current three rate/bracket structure. Lawmakers are on recess until May, when tax reform discussions will pick back up again.
Although major tax-cut bills in Nebraska have advanced from committee to the full legislature, some lawmakers remain displeased with the effort to slash income taxes to primarily benefit wealthy urban Nebraskans.
Delaware's legislators will return from recess in a couple of weeks to take up Gov. John Carney's budget balancing plan that includes both funding cuts and income tax increases.
Tennessee's needed gas tax update continues to be the center of controversy, as the bill advanced through a key House panel last week but some lawmakers are still working on finding ways to avoid increasing the gas tax.
Alabama appears poised to update its gas tax with a 4-cent increase this year, another 2-cent increase in 2019, and an optional increase of 3 cents in 2024. The revenue would be split between state infrastructure bond payments and city and county roads needs. The bill advanced through a House committee this week and has broad support.
South Carolina's gas tax debate is set to recommence in earnest when legislators return from recess next week, though the outcome remains uncertain. Gov. Henry McMaster has vowed to veto any gas tax increase, leading some lawmakers in the Senate to attempt to add an income tax cut to the bill to attain a veto-proof majority, while others are hoping to fill the state's $1 billion annual transportation funding gap by building and taxing new casinos.
Nebraska lawmakers have given first-round approval to a bill to collect sales taxes on online purchases, but Gov. Pete Ricketts may veto it.
Nevada lawmakers have a few issues left to settle before ending their session at the end of this week. They may still pass a fix to the state's property tax cap that has been causing major revenue problems for local governments, and are still considering bills to exempt tampons and diapers from sales tax. The state is also working out how to tax recently legalized marijuana and where to devote the resulting revenue.
Idaho Gov. Butch Otter vetoed legislation that would have excluded food from the sales tax base, stating that “the costs of this particular proposal are too high and the potential for imminent financial need too great for the small amount of tax relief it would provide.”
A tax incidence study published in Minnesota shows the state significantly narrowed gaps in the effective tax rates paid by taxpayers at varying levels of household income between 2009 and 2014, when the state enacted a new top rate of 9.85 percent on incomes greater than $150,000 if single or $250,000 if married filing jointly. Thanks to its progressive graduated rate structure and refundable tax credits, Minnesota has the fifth least unfair state and local tax system in the country.
What We're Reading... An op-ed penned by New Jersey Policy Perspective makes a good case for a change of approach to New Jersey's fiscal issues, arguing that "Instead of the annual ritual of scores of groups with important needs fighting for tiny scraps of an ever-shrinking pie of funding, New Jersey needs to take a serious look at making that pie larger." The op-ed offers a few excellent suggestions for how to accomplish this goal.
A new report by the Keystone Research Center (KRC) provides estimates of the impact of property tax elimination proposals. The analysis shows that eliminating Pennsylvania's school property taxes would increase taxes on the middle class while hampering the state's ability to adequately fund public schools. The Louisiana Budget Project has just released an analysis of Gov. John Bel Edward's tax plan—a plan that suggests adopting a Commercial Activities Tax and significant changes to the personal and corporate income taxes that would require both legislative and voter approval. If all components of the tax reform package were to be enacted, collectively these reforms would be a move toward a more adequate tax system for the state.
The Iowa Fiscal Partnership has released a brief on elements to consider when discussing tax reform and debunking some of the myths currently driving the debate.
The Georgia Budget and Policy Institute takes a look back at this year's session, noting the state avoided some harmful regressive tax cuts but also passed a number of smaller changes that add up to a significant reduction in revenue for state services. If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email. State Rundown 3/1: Will Tax Cut Proposals Be "In Like a Lion, Out Like A Lamb"?
If you like what you are seeing in the Rundown (or even if you don't) please send any feedback or tips for future posts to Meg Wiehe at meg@itep.org. Click here to sign up to receive the Rundown via email. What to Watch for in 2016 State Tax Policy: Part 1
January 26, 2016 03:13 PM
State legislative sessions are about to begin in earnest.We expect tax policies to get major playin statehouses across the nation this year with many states facing revenue surpluses for the first time in years and others having to grapple with closing significant deficits. Regardless, officials should focus on policies that create fairer, more sustainable state tax systems and avoid policies that undermine public investments.
ITEP this year once again will be taking a hard, analytic look at tax policy proposals and legislation in the states. This is the first in a six-part blog series providing analyses on the implications of policy proposals, as well as thoughtful commentary on best policy practices.
Part 2: Revenue Surpluses May Prompt Tax Cut Proposals
In some states, economies have recovered well since the economic downturn, and lawmakers are considering spending surpluses on tax cuts instead of providing much-needed boosts to public investments that were scaled back during the recession. The economic recovery has been uneven, however, and some states that find their economies still struggling or newly sputtering may consider tax cuts on high-income residents under the misguided premise that tax cuts at the top trickle-down and stimulate economic growth.
One trend we expect to see is tax cuts that take effect in small increments over a very long period based on revenue performance or some other automatic "trigger." The effect of these incremental cuts is to push the brunt of revenue losses into the future. Another trend is to move toward single-rate income taxes, negating the chief advantage of the income tax: its ability to reduce tax unfairness by requiring people with higher incomes to pay higher rates and those with less income to pay lower rates. Keep an eye in 2016 on Georgia where there is a proposal to cut and flatten the income tax and then further reduce it in future years based on automatic triggers.
Part 3: Revenue Shortfalls Create Opportunities for Meaningful Tax Reform
A number of states including Alaska, Connecticut, Delaware, New Mexico, Vermont, West Virginia, and Wyoming are grappling with current and future year revenue shortfalls. Pressed for revenue, we anticipate that some states may turn largely to spending cuts or more regressive and less sustainable tax options (like a small hike in the cigarette tax) to close their budget gaps. The scale of the problem in many of these states could also present a real opportunity for lawmakers to debate and enact reform-minded tax proposals that could raise needed revenue, improve tax fairness, and craft more sustainable state tax systems for the future. The most significant revenue downturns and best opportunities for reform are in states dependent on oil and gas tax revenue, most notably Alaska and Louisiana. Alaska Governor Bill Walker unveiled a proposal in December that would among other things bring back a personal income tax. Louisiana's new governor, John Bel Edwards, will call a special session next month to pitch short- and long-term revenue raising ideas, including much-needed reforms to the state's income tax. We are also watching Illinois and Pennsylvania where lawmakers are now more than seven months overdue on putting together a budget for the current fiscal year, largely over disagreements on how to find needed revenue to pay for public investments.
Part 4: Tax Shifts in All Shapes and Sizes
Tax shifts, which reduce or eliminate reliance on one tax and replace it with another source, are one bad policy idea we expect to continue to rear its ugly head. The most common tax shifts in recent years have sought to eliminate personal and corporate income taxes and make up the lost revenue with an expanded sales tax. Such proposals result in a dramatic reduction in taxes for the wealthy while hiking them on low- and middle-income households, increasing the unfairness of state tax systems and exacerbating already growing income inequality.
Lawmakers in Mississippi and Arizona have expressed support for lowering and eliminating income taxes. Changing political and revenue pictures in both of these states could lead to lawmakers finally making good on their promises in 2016. Also watch for smaller scale shifts like a plan in New Jersey where lawmakers want to pair a much needed increase in the state’s gas tax with an elimination of the estate tax to “offset” the tax hike.
Part 5: Addressing Poverty and Inequality Through Tax Breaks for Working Families
In 2016, we expect states to focus on a range of policies to support working families, building off the momentum of their 2015 reforms and national dialogue on poverty and income inequality. In particular, developments to enact or improve state Earned Income Tax Credits (EITCs) are likely in a dozen states across the country. For instance, Louisiana’s new governor John Bel Edwards called for doubling the state EITC as part of his commitment to reduce poverty. Maryland’s governor, Larry Hogan, called to accelerate the planned EITC increase. Delaware lawmakers are looking to take a step forward by making the state’s EITC refundable, but unfortunately are also considering a drop in the percentage of the credit.
Tax breaks for working families may also appear as proposals to provide targeted cuts to offset regressive tax increases in states where lawmakers plan to raise revenue. We suggest also keeping an eye on working family tax break proposals in the following states: California, Georgia, Illinois, Minnesota, Mississippi, Missouri, Oregon, Rhode Island, Utah, Virginia, and West Virginia.
Part 6: Overdue Increases in Transportation Funding
The recent momentum toward improvements in funding for transportation infrastructure is likely to continue in 2016. Governors in states such as Alabama, California, and Missouri have voiced support for gasoline tax increases, and gas taxes seem to be on the table in Indiana and Louisiana as well. These discussions on a vital source of funding for infrastructure improvements are long-overdue, as many of these states haven’t updated their gas taxes for decades. But not all transportation funding ideas being discussed are worth celebrating. Arkansas Gov. Asa Hutchinson, for example, has proposed that additional infrastructure funding come from diverting significant revenues away from education, health care, and other services. Meanwhile, lawmakers in other states (Mississippi, New Jersey, and South Carolina) would like to leverage a gas tax increase to slash income or estate taxes for high-income households. While these plans would result in more funding for transportation, their overall effect would be to worsen the unfairness and unsustainability of these states' tax codes.
“A compromise budget shouldn’t compromise North Carolina’s future. This budget does not reflect the need for the state to serve as a partner in economic development and economic opportunity for all North Carolinians.” It’s worth noting that these tax cuts cumulatively cost $1 billion, on top of the $1billion in tax cuts the legislature passed in 2013. Sadly, the only lesson North Carolina lawmakers seem to be learning is how to dig their budget hole deeper. State Rundown 9/16: Let's Make A Deal
September 16, 2015 07:20 PM
Leaders in New Hampshire voted on a final budget deal this week after months of wrangling between Gov. Maggie Hassan and legislative leaders. Hassan vetoed a budget passed by the legislature in June, and lawmakers were unable to overcome her veto. The budget dispute centered on business tax cuts pursued by the legislature but opposed by the governor. The final compromise will cut taxes by the same amount as the vetoed budget over the biennium, but the second round of tax cuts will be contingent upon state revenues meeting certain targets. If lawmakers pass the compromise budget, the business profits tax (BPT) rate will decrease from 8.5 to 8.2 percent and the business enterprise tax (BET) rate will be lowered to 0.72 percent in 2016. In 2018, the BPT rate will fall to 7.9 percent and the BET rate will fall to 0.675 percent, provided the revenue trigger is met.
Alabama lawmakers also moved to resolve a longstanding budget impasse as state leaders get closer to an October 1 deadline. There, legislators and the governor disagree over how to make up a projected $200 million budget gap. This week, the legislature passed a cigarette excise tax of 25 cents per pack and approved a permanent shift of some use tax revenue from the Education Trust Fund to the General Fund. Revenue from the use tax, a sales tax on goods purchased outside the state, tends to growth with the economy, while the General Fund revenues have remained flat since 2008. The portion of revenue moved to the general fund is projected to yield $80 million. The cigarette tax increase was opposed by some conservatives, while progressive lawmakers said the transfer of funds out of the Education Trust Fund could hurt public schools. Gov. Robert Bentley is expected to sign both measures. The state capitol was the site of dueling rallies by progressive groups and Alabama tea partiers over various tax proposals designed to close the budget gap.
West Virginians continue to urge their state legislators to exercise caution on tax reform proposals, despite Art Laffer’s encouragement. Ted Boettner of the West Virginia Center on Budget and Policy noted that “Years of austerity and tax cuts have not boosted the West Virginia’s economy,” and that previous tax cuts have not kept the state from ranking first nationally in unemployment. “Taxes pay for services businesses want and need.” Boettner echoes the advice of Commerce Secretary Keith Burdette, who said legislators should focus on other ways to make West Virginia more competitive, like workforce and infrastructure investments.
Local officials in Indiana are worried that a push from big-box retailers will spell big revenue losses for cities and towns and a higher tax bill for homeowners. The concern arises because some retailers insist that their stores should be assessed as vacant structures for sale instead of based on their value as active stores. Some retailers have successfully appealed their assessments before tax courts, forcing jurisdictions to issue millions in refunds. A legislative fix was approved by the lawmakers in Indianapolis, but the change only limits property value comparisons to vacant structures that have been up for sale for less than a year and used for similar purposes. It is unlikely the law will address the underlying dispute over property valuation, and local officials want stronger language.
State gambling revenue has been flat since the Great Recession, according to the Rockefeller Institute, thanks to a lack of interest in traditional gaming from younger consumers. Polling from the American Gaming Association finds that younger players are more attracted to table games, which bring in less casino revenue, than they are slots, which are the most lucrative form of gaming. Other studies found that younger gamers spent more on food, entertainment and drink than gambling at casinos. The studies highlight the danger of states relying on gambling revenue rather than more traditional sources not subject to industry volatility. Revenue Raising in Alabama: Another Opportunity
September 10, 2015 02:40 PM
Alabama Gov. Robert Bentley has publicly said his state has a revenue problem, not a spending problem. Perhaps this isn’t the most profound statement, but it is remarkable coming from a Republican governor who 1.) governs a state that would require a constitutional amendment to increase its low personal income tax rate, and 2.) has signed Grover Norquist’s infamous no-tax pledge.
The governor’s resolve will once again be tested this week as Alabama lawmakers reconvene for a second special session to address the state’s projected $200 million budget gap before the start of the state’s fiscal year on Oct.1. Gov. Bentley has twice proposed revenue raising packages to help set the state on a path toward fiscal sustainability and ensure vital services that improve the quality of life for all Alabamians are protected. Yet conservative lawmakers have thus far refused to compromise or put forward a plan free of damaging spending cuts.
This week’s revenue raising discussions are being greeted with anticipation and hope by many, including the 200 groups who signed on to the Stand Tall Coalition’s letter. The letter cautions lawmakers that, “Further cuts will set our state’s health system and economy on a dangerous course.” The stakes are as high as they were during the state’s regular session, if the state fails to raise new revenue,-- rural hospitals could close, funding for quality childcare could be slashed, and state troopers could close their jobs.
That, of course, is the crux of the problem with refusal to increase taxes, not just in Alabama but in other states. In theory, no-tax pledges often disconnect taxes from vital public services that our taxes fund. In practice, refusal to raise revenue often comes at a steep cost to the general public. So it’s refreshing that Gov. Bentley is pushing lawmakers to send him a bill that will raise enough revenue to plug the state’s budget gap without having to slash funding for vital programs and services. The governor vetoed a cut-filled budget in June and called lawmakers back for a special session in early August to seek a revenue solution to the state’s revenue problem. However, the first special session fell apart when the House and Senate couldn’t agree on a way forward, thus lawmakers are back in Montgomery this week for a second special session.
The governor is once again proposing $260 million in revenue-raising measures that are similar to those he put forward during the first special session - eliminating the deduction for the Social Security portion of payroll taxes (taxpayers who itemize can currently deduct the full value of their payroll taxes an uncommon state tax policy practice), a 25-cent cigarette tax increase, and a few small business tax changes. The changes to the state deduction for payroll taxes is a long sought reform that will broaden the state’s income tax base and shore up revenues for the long term. An ITEP analysis found that 65 percent of the revenue raised from the payroll deduction reform will be paid by the top 20 percent of taxpayers.
On Wednesday, the House Ways and Means General Fund Committee approved bills that raised $130 million in taxes on car rentals, car titles, cigarettes, and businesses. Should this package become law, the state’s car rental tax would increase from 1.5 to 2 percent, the car title fee would increase to $28 up from $15, and the tax on cigarettes would go up to 25 cents. The full House is expected to vote on the bills Thursday. Gov. Bentley isn’t satisfied with the House committee’s tax package, but he calls the bill a “step in the right direction” and says that more must be done. He cautions, “If the gap is not closed then they (lawmakers) will be closing down some facilities in the state.”
It remains to be seen if compromise will win the day in Montgomery and if enough revenues will be raised, but the fact that House members supported revenue raising measures for the first time this week is a positive sign.
Fiscal Year Finish Line Part II: Wins for Working Families and Revenue Raising
July 15, 2015 04:31 PM
This is the second installment of our three part series on 2015 state tax trends. The first article focused on tax shifts and tax cuts, and the final article will discuss transportation funding initiatives.
July 1 marked the end of most states’ fiscal years, the traditional deadline for states to enact new spending plans and revenue changes. The 2015 legislative sessions delivered lots of tax policy changes, both big and small. Some states finished early or on time, while others straggled across the finish line after knockdown budget battles. Still others are not yet done racing, operating on continuing resolutions until an agreement is reached. As of now, four states still do not have spending plans in place for the fiscal year that started July 1 (Illinois, New Hampshire, North Carolina, and Pennsylvania. Alabama has until October to reach a budget agreement). While every state’s tax system is regressive, some states chipped away at this problem by enacting new tax policies to support working families. Most commonly, states adopted or strengthened their Earned Income Tax Credits (EITCs). But a number of proposals to enact or improve tax credits for working families stalled, including bills in Mississippi, Louisiana and Nebraska. There is still a chance that Illinois could improve its state EITC before the end of its legislative session.
In addition to policies supporting working families, a number of states, facing deep budget deficits, discussed or enacted revenue-raising plans this year. These plans will also help the public by supporting crucial services.
Check out the detailed lists after the jump to see which states created new tax policies to support working families and which states increased taxes to raise needed revenue.
California (Enacted): Lawmakers reached a deal with Gov. Jerry Brown, passing a $115.4 billion budget that includes a new EITC for working families. This new EITC is worth approximately $380 million and is expected to help 2 million Californians. Hawaii (Still Active): Assuming Gov. David Ige signs a bill approved by the state’s legislature, most low-income families receiving the state’s refundable food tax credit will see their credit grow somewhat starting in 2016. The credit is designed to offset highly regressive sales taxes on food in a state that ITEP has ranked as having higher taxes on the poor than anywhere except Washington State.
Massachusetts (Enacted): Massachusetts lawmakers included an increase in the state’s refundable EITC from 15 to 23 percent of the federal credit in their final budget agreement.
New Jersey (Enacted): The legislature increased the state EITC to 30 percent of the federal credit after a surprise endorsement from Gov. Chris Christie. As New Jersey Policy Perspective notes, the increase will help more than 500,000 working families and boost the state economy: “It’s been estimated…that the EITC has a multiplier effect of 1.5 to 2 in local economies – in other words, every dollar of tax credit paid ends up generating $1.50 to $2 in local economic activity.”
Rhode Island (Enacted): As part of the budget deal, Rhode Island lawmakers approved an increase in the state’s refundable EITC from 10 to 12.5 percent of the federal credit. Maine (Enacted): The final budget package approved by lawmakers converted the state’s nonrefundable 5 percent EITC to a refundable credit and introduced a new refundable sales tax fairness rebate, which will help to offset the impact of higher sales tax rates also included with the budget.
New York (Enacted): Gov. Andrew Cuomo, the Assembly, and the Senate all proposed separate versions of a refundable property tax credit this session – some more targeted than others. In the closing days of the session, lawmakers agreed to a compromise credit that is a sliding scale percentage of homeowners’ STAR property tax exemption, with benefits targeted to low- and moderate-income homeowners. The credit is unavailable to homeowners with income above $275,000, and those residing in New York City or other jurisdictions that do not comply with the state’s property tax cap. Unfortunately, the final agreement did not include any support for renters.
Significant Revenue Raising:
Alabama (Still Active): Lawmakers left their regular legislative session without a budget—or a needed revenue raising plan—in place (their fiscal year starts Oct. 1, so they are working on borrowed time). Gov. Robert Bentley proposed a $541 million revenue package earlier in the year, including a higher cigarette tax, higher sales taxes on car purchases, and enacting combined reporting under the corporate income tax. Unable to reach agreement on which taxes to raise and by how much to raise them, lawmakers sent the governor a budget with no new revenues, which he swiftly vetoed. Lawmakers reconvened briefly on July 13 to receive Gov. Bentley’s latest revenue raising proposal that would raise more than $300 million: eliminating a state deduction for social security payroll taxes (only taken by lawmakers), a 25-cent cigarette tax increase, and a few small business tax changes. His proclamation also suggested lawmakers could consider a soda tax as an alternative to eliminating the payroll deduction. Lawmakers are expected to review the revenue changes over the next three weeks and will meet again on August 3 to vote on the proposal.
Connecticut (Partially Enacted): Connecticut lawmakers passed a budget with more than $1 billion in new revenue to plug a budget gap and ensure the state has resources to make needed investments in education, transportation, and health care. In late June, lawmakers were called back to the capital for a special session after Gov. Dannel Malloy caved to the behest of corporate lobbyists. At issue was an increase in the state’s sales tax on computer and data processing services from 1 to 3 percent, as well as new combined reporting rules for businesses operating in Connecticut. The legislature backed down on those changes after corporations decried the measures and leaned heavily on the governor. The new deal maintains the sales tax rate on computer and data processing and delays the start of combined reporting by one year. The close to $1 billion revenue package also includes higher personal income taxes for very wealthy households, the elimination of an exemption on clothing under $50, cuts to a property tax credit, and a cap on car taxes paid in some districts. Illinois (Still Active): Gov. Bruce Rauner and lawmakers face a reckoning of their own making; the state could be headed toward a shutdown without a resolution. Rauner wants to address the state’s $6.1 billion budget gap with massive spending cuts to healthcare, education and other public services in a budget proposal denounced as “morally reprehensible” by critics in the state. The legislature and the Governor are at a standstill.
Louisiana (Enacted): State leaders grappled with how to close a $1.6 billion budget gap all session long. Eventually, they passed a package of eleven bills that will raise about $660 million in revenue. The package increases the state cigarette tax by 32 cents per pack, scales back business subsidies, and decreases many of the state’s existing tax breaks through a 20 percent across-the-board cut. Most of the new revenue raised by the package of bills will go toward preventing deep cuts to higher education and healthcare programs. To win approval from Gov. Bobby Jindal, lawmakers were forced to adopt a convoluted plan with a fake fee and fake tax credit as a smokescreen for raising revenue so that the governor could keep his promise to Grover Norquist not to raise taxes.
Vermont (Enacted): In order to address a revenue shortfall, Vermont lawmakers enacted a handful of tax increases this year. Most notably, they broadened the income tax base by capping itemized deductions (mostly used by upper-income taxpayers) at just 2.5 times the value of the state’s standard deduction. Sensibly, lawmakers also eliminated the ability to deduct Vermont state income tax from, well, Vermont state income tax. They also expanded the state’s sales tax base to include all purchases of soda beverages.
Texas legislators reached a deal on transportation legislation that could send more revenue to road and bridge construction but reduce funding available for crucial investments in education and human services. House and Senate negotiators agreed on a proposed constitutional amendment that would divert $2.5 billion in sales tax revenue to roads if approved by voters. Sales tax revenue must exceed $28 billion for the measure to take effect, and the law will be on the books for 15 years. The deal also diverts 35 percent of any vehicle sales tax revenue over $5 billion to road construction, a measure that is expected to deliver an additional $250 million in new road money. State Rundown 5/8: Legislators Make Deficit Sausage
Alabama legislators moved in the direction of common sense this week. First, lawmakers decided to abandon a proposal to replace the state’s currently regressive income tax structure with an even worse flat tax. At the same time, conservative legislators announced their willingness to increase taxes on cigarettes and large businesses and fees for car titling and renting in order to address a budget deficit. While the proposed fees and taxes are mostly regressive, they are a step toward a better budget. An even bigger step would be if legislators considered the plan put forward by Gov. Robert Bentley, which would increase revenues by a far larger magnitude. State Rundown 4/30: Tax Cuts Stall, Tax Increases Advance
April 23, 2015 04:04 PM
Alabama senators have proposed a constitutional amendment that would establish a flat personal income tax and lower the corporate tax rate, despite facing a devastating budget shortfall. The proposal would lower the top income tax rate from 5 percent to 2.75 percent and reduce the corporate tax rate from 6.5 to 4.59 percent while eliminating all deductions, exemptions and credits. The bill’s sponsors claim that the measure would make the state more competitive and attract new businesses. Opponents argue that Alabama’s antiquated tax system (unchanged in 82 years) is already a flat tax in practice, since the top tax rate takes effect at $3,000 for single filers. The Montgomery Advertiser notes that “a household of four begins paying state taxes at $12,600 – well below the poverty threshold of $24,250 for that family, meaning the state taxes households operating below the poverty level.” An ITEP analysis of this plan found that the lowest-income Alabamans would see a tax hike under this change while most other taxpayers would see a small reduction.
A new poll finds that the majority of Oklahoma voters don’t want planned tax cuts to take effect because of the state’s budget deficit. The poll, commissioned by the Oklahoma Policy Institute, found 64 percent of registered voters in Oklahoma opposed moving ahead with a scheduled cut to the top personal income tax rate, while 74 percent of voters felt the state spent too little on education. Legislators in the state have vowed to let the cuts take effect next year despite a $611 million revenue gap.
Colorado Gov. John Hickenlooper wants to implement a plan that in future years would reduce the likelihood that the state would issue taxpayers a refund as mandated under the Taxpayer Bill of Rights (TABOR) amendment to the state’s constitution. Hickenlooper would reduce the share of state revenues subject to the TABOR limit by moving hospital provider fees out of the general fund and into an “enterprise account.” He would also target some TABOR refunds to low-income households via a state Earned Income Tax Credit (EITC). While conservative lawmakers have decried the move, the governor has gained the support of an important hospital lobbying group, which said the plan would "ensure that Colorado has the flexibility to support its top budget priorities, including funding for transportation and K-12 education."
Maine Gov. Paul LePage threw down the gauntlet to state legislators on Tuesday, filing a bill that would eliminate the state’s income tax by 2020 and giving leaders in the House and Senate a short deadline to announce their support. In the past, Gov. LePage has pledged to campaign against those who oppose his plans to get rid of Maine’s income tax and replace it with higher consumption and property taxes. So far, no legislative leaders have announced support for his plan. State Rundown 3/31: Tax Cut Throwbacks
North Carolina lawmakers proposed another round of personal income tax cuts last week that cost more than $1 billion when fully enacted and would slash millions of dollars in corporate income taxes. The Job Creation and Tax Relief Act of 2015 (a sure misnomer) would reduce the personal income tax rate to 5.5 percent by 2017 and replace the current standard deductions with a zero percent tax bracket on the first $10,000 in income for single filers by the same year (married couples could apply the zero percent bracket to the first $20,000 in income). The bill would also reduce the corporate income tax rate to 3 percent by 2017 even if the state fails to meet the required revenue targets included in the 2013 tax cut bill along with several other changes. Revenues are $300 million below projections this fiscal year. Opponents of the cuts note that they would do little to stimulate the state’s economy while reducing public investments and providing a windfall for already-profitable corporations.
An elaborate tax proposal from Idaho House Majority Leader Rep. Mike Moyle would cut taxes for the top one percent of Idaho taxpayers by $5,000 according to an analysis by ITEP and the Idaho Center for Fiscal Policy. Moyle’s plan would increase the state’s excise tax on gasoline by 7 cents, remove the sales tax on groceries and eliminate the food tax credit. Combined, the elements of the bill will increase taxes paid by the bottom 20 percent by $68 and taxes on middle-income earners by $192.
Alabama Gov. Robert Bentley embarked on a statewide tour to drum up support for his proposed tax increases. The plan, which received a lukewarm reception from many state legislators, would increase the cigarette excise tax by 82 cent a pack, increase the sales tax rate on automobile purchases from 2 to 4 percent, and would end some tax credits for insurance companies, banks and corporations. The combined measures would raise $541 million in new revenue. The governor argues that his plan is necessary to end the dysfunctional nature of state budgeting.
The Nebraska Legislature will consider a bill that would increase the excise tax on gasoline by 6 cents. The increase would be phased in over four years (1.5 cents per year). Gov. Pete Ricketts opposes the increase in the gas tax, arguing that the state should look to other options for road construction that do not entail tax increases.
Things We Missed:The Mississippi House defeated efforts to pass significant tax cuts this legislative session after Lt. Gov. Tate Reeves’s proposal to cut income and corporate franchise taxes by $555 million over 15 years died on the floor. Opponents of the cuts noted that they would sap K-12 and higher education budgets while shifting the burden of funding crucial services to the local level.
Utah Gov. Gary Herbert signed a package of gas and property tax increases that rank as the Utah’s largest revenue increase in 20 years. Proponents of the tax increases say they are necessary to fund important transportation projects and improvements in public education. The excise tax on gasoline will increase by 5 cents per gallon beginning in July, and will be indexed to inflation. It is expected to bring in $100 million for road and bridge repairs over the next two years. The property tax increase will add about $50 in taxes to the bill for a $250,000 house, and the revenues raised are earmarked for education.
States Ending Session This Week:Kentucky (Monday)South Dakota (Monday)Idaho (Friday)
State Rundown 3/4: Other, Less Controversial Speeches before Legislatures
March 4, 2015 01:29 PM
Pennsylvania Gov. Tom Wolf unveiled his budget proposal this week, delivering his state of the state address before a joint session of the state legislature. Wolf’s proposal would largely shift the responsibility for funding public education from local property taxes to the state sales and income tax. The flat personal income tax rate would increase from 3.07 to 3.7 percent, and the sales tax rate would rise from 6 to 6.6 percent and would apply to additional goods and services. These changes would bring in an additional $3.9 billion in general fund revenue, most of which would be dedicated to reducing property tax bills by an average of $1,000 per household. About $540 million in new revenues would go to public schools and universities. Wolf also proposed a new severance tax on oil and gas extraction that would replace the state’s one-time impact fee on drilling new wells, with new revenues also earmarked to public education. In a bid to gain bipartisan support, Wolf also proposed significant corporate income tax cuts paid for by closing loopholes and continuing former Gov. Tom Corbett’s plan to phase out the state’s capital stock and franchise tax. (Stay tuned to the Tax Justice Blog for our take on the plan.)
Alabama Gov. Robert Bentley presented his budget proposal to the state legislature this week under the cloud of a $700 million deficit. The governor proposed $541 million in tax increases across eight areas, including the corporate and individual income taxes, excise taxes on tobacco products, and sales and rental taxes for cars. The cigarette tax would increase by 82.5 cents per pack, with commensurate increases for other tobacco products, bringing in $205 million in additional revenue. Increasing the tax rate on automobile sales and rentals from 2 to 4 percent would increase revenues by $231 million. The governor’s finance director assured legislators that the proposed changes would still leave Alabama near the bottom in rankings of tax revenues per capita, but Bentley’s plan will do little to address the regressive nature of the state’s tax system. (Stay tuned to the Tax Justice Blog for our take on the plan.)
Florida Gov. Rick Scott was the third governor to give a state of the state address today, pitching a combination of tax cuts and spending increases to leery legislators. Scott touted his “Keep Florida Working” budget proposal, which includes $673 million in tax cuts from a variety of sources, including the tax on communication services, sales taxes on college textbooks, and taxes on businesses and manufacturers. The bulk of the cuts -- $470.9 million in lost revenue – come from decreasing the tax rate on communication services (cell phones, cable, and satellite television) by 3.6 percent. Scott also pushed for more education funding and a tuition freeze on postgraduate education at state universities.
A new report from the North Carolina Budget and Tax Center reveals that tax cuts pushed by Gov. Pat McCrory (who is expected to release his budget plan this week) and the state legislature have hurt economic growth by starving the state of needed revenues. According to the report, if tax levels in the state were at pre-recession levels, North Carolina would have $3.2 billion additional dollars to invest in early childhood education, access to higher education, anti-poverty measures for senior citizens, affordable health care, wage subsidy programs and court access. The Budget and Tax Center also points out that even though middle- and low-income families saw their overall tax responsibility increase, the massive cuts for wealthy individuals left the state with an annual $1 billion budget gap.
States Starting Session This Week:Alabama (Tuesday)Florida (Tuesday)
State of the State Addresses This Week:Alabama Gov. Robert Bentley (watch here)Florida Gov. Rick Scott (watch here)Pennsylvania Gov. Tom Wolf (watch here)
Governors’ Budgets Released This Week:Alabama Gov. Robert Bentley (read here)Pennsylvania Gov. Tom Wolf (read here)North Carolina Gov. Pat McCrory (Thursday)
State News Quick Hits: Potential Fracking Tax in Pennsylvania, and Va. Says No to House of Cards
April 28, 2014 04:26 PM
The natural gas extraction industry’s free ride in Pennsylvania may finally be coming to an end. Five years after natural gas companies entered the state to take advantage of the Marcellus Shale, legislators are considering an extraction tax (aka, a severance tax) to make up for lower than expected revenues and an otherwise tight budget. Drillers currently face what’s called an “impact fee,” but it raises little revenue, especially when compared with other energy-producing states. While a severance tax is still far from becoming law (the Governor still needs to be convinced, for example), some savvy observers are convinced the coming debate will not just be idle talk.
For years, state lawmakers have been falling all over themselves trying to get Hollywood to come to their states to make movies. But even Virginia, which has a film tax credit, recognizes that not every potential tax credit deal is a good investment for their economy. When Maryland decided not to expand its film tax credit, Netflix’s “House of Cards” began looking into whether it should film somewhere else. But Virginia’s Film Office thinks the show is asking for too many incentives without offering enough in return.
John Archibald of the Birmingham News had a great column last week on Alabama’s tragic policy of taxing the poor deeper into poverty. As he explains, “We like to imagine Alabama a low-tax state…. But it's not a low tax state if you're broke.” This is because Alabama relies heavily on the regressive sales tax, making the state’s tax system one of the most upside-down in the country. Archibald’s column comes a few weeks after a similarly powerful editorial in the Montgomery Advertiser, arguing that while state taxes may be low, public investments are suffering as a result.
Starting Thursday May 1, Amazon.com will finally begin collecting sales taxes on purchases made by Florida residents. As a result, the percentage of Americans living in a state where Amazon must collect sales tax will increase from 60 to 65 percent. Until the U.S. House of Representatives acts on the Marketplace Fairness Act, however, enforcement of state sales taxes on purchases made over the Internet will not be possible on a comprehensive basis.
State News Quick Hits: State Lawmakers Not Getting the Message
Less than a year after enacting a significant (and progressive) revenue raising tax package, Minnesota Governor Mark Dayton signed off last week on more than $400 million of tax cuts. The new legislation repeals several changes put into place last year including removing warehouse storage and 2 other primarily business services from the sales tax base and eliminating a new gift tax. The tax cuts also include reductions in the personal income tax via aligning the state’s tax code more closely to federal rules. Low- and moderate-income working families will also see a small benefit from two changes made to the state’s Working Families Credit (Minnesota’s version of a state Earned Income Tax credit (EITC).
A mother of two in Kentucky has made an impassioned plea to her state legislators to support the creation of a state Earned Income Tax Credit (EITC). More than half of all states have enacted such a credit, which is proven to increase workforce participation and improve health outcomes for children. As Jeanie Smith writes in her op-ed, “I know that we could have put that tax credit to good use. We could have used it toward the textbooks for my husband, or to take the stress out of a month's bills.” There are lots of strong arguments for adding a state EITC to Kentucky’s quite regressive tax code (PDF), and the Governor has proposed establishing a state EITC as part of his tax reform plan. Hopefully, Jeanie’s articulation of what a state EITC would mean for her and other families like hers will persuade those not yet on board.
The Montgomery Advertiser recently ran a very powerful editorial about the problems with low taxes. Lawmakers should give careful thought to one of the questions the editors pose in the piece: “We don’t pay a lot in taxes in Alabama and historically have taken a perverse pride in that. But is this really a bargain, or is it a fine example of false economy, of short-changing public investment to the detriment of our people?”
Our colleagues at the Institute on Taxation and Economic Policy (ITEP) have long been critical of gimmicky sales tax holidays that provide little help to the poor or the economy. But Florida lawmakers don’t appear to have gotten the message, as the state House’s tax-writing committee recently advanced four “super-sized” sales tax holidays for purchases as varied as school supplies and gym memberships. Altogether, the package would drain $141 million from the state’s budget that could otherwise be been spent on education, infrastructure, and other public investments.
Newspapers in Oregon and North Carolina published editorials using data from ITEP and CTJ’s latest report on state corporate income taxes to highlight the need for corporate tax reform in their states. Check out The Oregonian’s editorial, “Extremes of Corporate Tax System Show Need for Reform” and one from the Greensboro News & Record, “Next to Nothing.”
Quick Hits in the State News: Taxes Don't Scare Millionaires, and More
A new report from the Political Economy Research Institute at UMass Amherst examines the research on potential responses to states raising taxes on wealthy households. They conclude that while it can lead to tax planning changes among the more affluent, a permanent reasonable tax increase will improve a state’s revenue picture and, contrary to conventional wisdom, will not cause wealthy residents to flee to lower tax states.
Legislation pending in Maryland would require the state to evaluate whether its tax credits are achieving the goals for which they were enacted. The vast majority of states still have no system in place for determining the costs and benefits of tax credits. As in Oregon, the legislation would use sunset provisions (or expiration dates) to force lawmakers to review the evaluations before allocating more funds. The Institute on Taxation and Economic Policy (ITEP) has a policy brief on accountability in tax credits and testified in support of a similar bill in Rhode Island last year.
The grassroots group Alabama Arise is getting positive news coverage for a rally they organized in Montgomery last week calling on lawmakers to exempt groceries from the sales tax and replace the revenue by eliminating a tax break that primarily benefits the wealthiest Alabamians.
In response to Ohio Governor John Kasich’s proposal to cut income taxes (paid for by increased taxes on gas mining) Policy Matters Ohio released a brief showing that Ohioans in the top one percent would get an annual tax cut of about $2,300 while middle income Ohioans ($32,000 to $49,000) would only get about $42. Meantime, the powerful House Finance Chairman, Rep. Ron Amstutz, is postponing action on the Governor’s proposal, saying, “the more the members of our caucus have learned about this particular proposal, the more concerned I’ve become that there are key questions that cannot be sufficiently answered and resolved within the available legislative time frame.”
Alabama's Tax System Redistributes Wealth from the Poor to the Rich -- and Alabama Lawmakers Apparently Like it that Way
April 9, 2010 04:27 PM
Is progressive state tax reform "class warfare?" Alabama Representative Mac Gipson thinks so. House Bill 1 is a revenue-neutral "tax shift" that would eliminate the state grocery tax and fully pay for it by paring back an income tax giveaway for the best-off taxpayers. As House members prepared last week for a floor debate over HB 1, Gipson sputtered, "the whole bill is a redistribution of wealth."In response to this claim, an ITEP report released earlier this week shows that in fact, the Alabama tax system does redistribute income -- but in exactly the opposite way from what Gipson appears to believe. A regressive tax system actually redistributes income from the poor to the rich -- and Alabama's tax system is one of the most egregious examples of this "Robin Hood in reverse" approach to taxation. The ITEP report shows that the best-off Alabamians enjoy 19.6 percent of statewide income -- but only pay 11.5 percent of the Alabama taxes falling on Alabamians. Conversely, the poorest 80 percent of Alabamians earned 41 percent of statewide income -- but paid 54 percent of Alabama taxes. The result? A tax system that actively shifts wealth away from low- and middle-income families to the best off. The top 1 percent of Alabamians enjoy 19.6 percent of income before taxes -- and 20.2 percent of the income after taxes. By contrast, the middle 20 percent of Alabamans have 11.4 percent of statewide income before tax, and 11.1 percent of the income after tax. The tax shift proposed in HB 1 has been seen before in Alabama: Rep. John Knight has annually sponsored a similar bill for much of the past decade. And Alabama media outlets, laudably, are now familiar enough with the proposal to understand that it would be a major step forward for the state. The state's largest newspaper, the Birmingham News, editorialized strongly in favor of the bill on Thursday, and the second-largest state paper had a virtually identical view.Unfortunately, editorial boards can't vote on the floor of the House: while more house members voted for it than against it, the 54-to-42 vote was not enough to achieve the three-fifths majority needed for passage, likely signaling the end of the road for progressive tax reform legislation in Alabama this year.
Pro-Tax Rally in Baldwin County, Alabama Provides Glimpse at Oft-Overlooked Side of American Public Opinion
March 19, 2010 02:39 PM
Anti-tax and anti-government advocates seem to have captured a lot of the attention in recent months when it comes to organizing and public displays of attitudes toward government. But backers of a robust government (and the higher taxes needed to fund that government) have been making their voices heard just as consistently.The most dramatic example, of course, is the convincing victory of a variety of progressive tax proposals that were on the Oregon ballot this past January. Another example recently highlighted in the Digest is the support for higher taxes among Utahns demonstrated by recent polling. And of course, there’s the $32 billion in state tax increases that various states’ elected representatives have enacted to help balance state budgets during this current recession.A recent blurb that ran in the Montgomery Advertiser regarding a pro-tax, pro-education rally in Baldwin County, Alabama (hardly a traditional bastion of “liberal,” “big government” sentiment) provides yet another gentle reminder of the continuing support for government services that persists in the hearts and minds of so many Americans. It may not be as eye-catching as the “tea party” shenanigans, but it represents an equally genuine expression of Americans’ feelings toward government.
ALABAMA: Tax System Still Regressive, Knight Still Trying to Make it Less So
November 20, 2009 03:42 PM
Alabama’s tax system has long been among the least fair in the nation. Indeed, the latest edition of ITEP’s flagship publication, Who Pays?, indicates that it is the tenth most regressive tax system among the fifty states, as it forces low- and middle-income residents to pay effective tax rates that are roughly twice that faced by the very wealthy.The sources of such inequities are readily apparent. Alabama is one of just a handful of states that continue to tax groceries, an exceedingly regressive approach to generating revenue. It is also one of just a few states that offer an unlimited deduction, as part of its state income tax, for the federal income taxes that Alabamians pay. Since upper-income individuals and families tend to pay more in federal income taxes, they, by definition, reap the largest windfalls from this deduction, thus subverting the progressive intent of the federal income tax. Repealing both these policies would go a long way towards achieving greater tax fairness in Alabama. For some time now, Representative John Knight has championed legislation that would do just that – and he appears ready to put forward such a measure in the fast-approaching 2010 legislative session as well. In addition to removing groceries from the sales tax base and eliminating the deduction for federal income taxes paid, the Knight proposal could also raise the level of income at which families begin to pay income taxes in the state, a change that would also help to make Alabama’s tax system more fair. To learn more about the proposal and about tax and budget matters in Alabama, visit Alabama Arise Citizens’ Policy Project.
Happy Holidays? Reconsidering Sales Tax Holidays
August 10, 2009 04:25 PM
So-called sales tax holidays, normally two- or three-day events that encourage shoppers to purchase back-to-school items tax-free, are bad policy for a variety of reasons. The holidays are poorly targeted, costly, and lull legislators into thinking that they've done something substantial to help reduce the regressivity of sales taxes.
The bottom line is that given the choice between targeted sales tax reform that takes into account one's ability to pay and a three-day sales tax holiday, lawmakers should always opt for targeted reform.
Last weekend a handful of states from Alabama to New Mexico held their sales tax holidays. (The Federation of Tax Administrators keeps a complete list of holidays here.) But because of the recent economic downturn, some legislators and economists are questioning the wisdom of not collecting sales taxes a few days a year.
Former chairman of South Carolina's Board of Economic Advisors Harry Miley certainly has his doubts about the effectiveness of sales tax holidays. He says that shoppers don't need incentives to go back-to-school shopping, and the cost to the state is quite high. He says, "The idea of a tax holiday for essential items doesn’t make any sense to me." For more on why sales tax holidays aren't all they are cracked up to be, see ITEP's Policy Brief.
Try, Try, Try Again. Next Year.
May 8, 2009 03:41 PM
As we've discussed in recent digest articles,
this year saw a flurry of activity in the debate over state deductions
for federal income taxes paid. Presently, seven states (Alabama, Iowa, Louisiana, Missouri, Montana, North Dakota, and Oregon)
offer state taxpayers some form of income tax deduction for the federal
income taxes they pay. This basically undoes, at least partially, the
progressivity of the federal income tax. The upper-income taxpayers who
pay more in federal income taxes receive the largest deductions on
their state income taxes, even though they have the greater ability to
pay. Proposals to reform the deduction for federal income taxes paid
in Alabama and Iowa came up short this year, but state lawmakers are
vowing to bring up the issue again next year.
Removing the sales tax on food and offsetting the revenue loss by phasing out
the deduction for federal income taxes paid for wealthier Alabamians
was the number one priority for Democratic lawmakers, but this week the
House came up just one vote shy of the three-fifths needed to debate a
bill before the state's budget passes. The bill's sponsor,
Representative John Knight, has vowed to bring up the bill again next
year and says, "I consider this an economic incentive package for working families of this state." Lawmakers
in Iowa proposed to completely eliminate the deduction and use the
revenue generated to fund a reduction in state tax rates. The debate
over the proposal was quite heated. According the Des Moines Register,
"The debate included a rowdy public hearing where hundreds of Iowans --
most of whom opposed the plan -- were escorted from the House chambers
by Iowa State Patrol troopers after they persisted in booing, hissing
and applauding speakers." Despite support from the House Speaker Pat
Murphy and Senate Majority Leader Michael Gronstal, the legislation
didn't have enough support and ultimately wasn't debated in either the
House or the Senate. Senator Gronstal is predicting that the
legislation will be introduced again next year, saying, "There are
times when issues are right but they're not ripe." CBPP Report on Tax Expenditure Reporting Encourages Smarter Thinking About Special Tax Breaks
State Deductions for Federal Income Taxes: A Step Forward in Iowa, a Standstill in Alabama
March 27, 2009 04:44 PM
At present, seven states (Alabama, Iowa, Louisiana, Missouri, Montana, North Dakota, and Oregon)
offer state taxpayers some form of an income tax deduction for the
federal income taxes they pay. This basically undoes, at least
partially, the progressivity of the federal income tax. The
upper-income taxpayers who pay more in federal income taxes receive the
largest deductions on their state income taxes, even though they still
have the greater ability to pay.
to limit or to repeal these deductions -- and to use the additional
revenue to provide tax reductions for low- and moderate-income
taxpayers -- have been underway in two such states. In Alabama, Representative John Knight
has proposed legislation to pare back his state's federal income tax
deduction in order to finance a sales tax exemption for groceries.
Unfortunately, House Republicans may have successfully prevented further consideration of the bill this session, voting en bloc to keep it from coming before the House for debate. Meanwhile, in Iowa,
momentum is building for a plan that would repeal the deduction
outright while also lowering tax rates across the board and increasing
a pair of tax credits. House Speaker Pat Murphy recently voiced his support for the changes and the Senate seems poised to act as well.
For more on efforts in Alabama and Iowa to improve tax fairness, see the web sites for Alabama Arise and the Iowa Policy Project. Three States Focus on Eliminating Regressive Deduction to Raise Much Needed Revenue
Tax Amnesty: States' Lack of Self-Control Diminishes Tax Fairness
February 9, 2009 02:25 PM
their obvious unfairness, tax amnesties are a tool frequently used by
states during tough budgetary times. By waiving late fees and
sometimes reducing the interest rate charged on overdue taxes, state
policymakers can provide their state with a quick band-aid fix without
having to make the much harder choice of raising taxes or cutting
valued services. But penalizing similar taxpayers at different rates
dependent only upon whether they decide to pay up during an amnesty
period is plainly unfair. The problems associated with amnesties
become even worse, however, as soon as a state establishes a habit of
repeatedly offering amnesties during tough economic times. With
the possibility of another amnesty always on the horizon, delinquent
taxpayers will think twice before settling their debts with the state
during normal times, and at normal penalty rates. Creating multiple
sets of penalties (one for normal times, and one, lower penalty when
budgets shortfalls are projected) therefore reduces fairness by
penalizing similar taxpayers differently based only on the timing of
their payment, and can also reduce the effectiveness of enforcement
efforts and the tax system broadly. These effects can continue long
after the most recent amnesty period ends. (Note that this is very
similar to the argument against
allowing corporations to "repatriate" their profits to the U.S. at a
lower rate, a proposal which was recently rejected at the federal
level). Despite the obvious problems, Maryland and New Mexico
are both considering legislation to once again provide temporary tax
amnesty programs some time in the coming months. New Mexico last
provided an amnesty less than a decade ago, while Maryland's last
amnesty came in 2001. After that 2001 amnesty, the Maryland
comptroller's office noted that "repeated use of amnesties is likely to
create cynicism among law-abiding taxpayers, and lessen the need for
voluntary compliance with state tax laws, which is vital for our system
of taxation". Should another amnesty be offered less than a decade
after the 2001 amnesty, growth in taxpayer cynicism seems unavoidable,
especially in light of the fact that a similar program offered in 1987
in the state was billed as a "once-in-a-lifetime" opportunity for delinquent payers. Without a doubt, the momentum in favor of such programs is strong. Alabama is already in the mist of an amnesty period (the state last offered an amnesty in 1984). Massachusetts is currently in the process
of deciding upon a date for its amnesty program (Massachusetts last
provided amnesty in 2003). Connecticut's program is already slated to take effect on May 1st (Connecticut's last amnesty took place in 2002). And Oklahoma just recently closed its most recent amnesty period, just seven years after its 2002 amnesty. In this environment, it is extremely important for state policymakers
to not only oppose more amnesties, but also to convincingly state that
another amnesty will not be offered any time in the near future. For
states looking to responsibly close their tax gaps, stepping-up
enforcement spending is often a route that can produce sizeable
returns, and is undoubtedly much more fair than trying to get something
for nothing by arbitrarily waiving penalties in an effort to boost
voluntary "compliance". For more specific alternatives to the tax
amnesty approach, take a look at these recent enforcement recommendations from Oregon's Department of Revenue.
Alabama Case Contests Discriminatory Property Tax Restrictions
June 20, 2008 03:52 PM
Progressives have long contested the unfairness of depending on local property taxes for school funding. Property taxes are fundamentally regressive and many localities do not even have the tax base to adequately fund their local school district. But for some jurisdictions the only alternative funding mechanism is sales taxes, which are even more regressive. That means that localities' ability to raise property taxes to fund education is particularly important. Thus, a new court case is challenging Alabama's ultra-low property tax caps which are rooted in the state's archaic 1901 Constitution. Read much more about the case and Alabama's deeply disturbing history of racially motivated tax discrimination on our blog here.
How States Can Avoid Losing Revenue as a Result of the Corporate Tax Cuts in the Stimulus Law
May 9, 2008 03:54 PM
Alabama's House of Representatives passed a bill on Tuesday that would decouple the state tax rules regarding depreciation from the depreciation rules in the federal tax code. If enacted, this will prevent a revenue loss that will otherise occur because of the federal stimulus law enacted in February.
That stimulus bill included Congress's latest round of "accelerated depreciation" corporate tax cuts passed under the guise of helping the economy rebound. It allows companies to claim a "bonus" depreciation tax break that lets them deduct the cost of their investments much faster than would otherwise be allowed.
Since virtually every state's corporate tax laws are based on federal rules, this tax break will create an automatic tax loss for states unless (as Alabama is in the process of doing) they take steps to "decouple" from the federal tax break. The Alabama bill, HB 455, is estimated to save the state over $50 million in the current fiscal year. The Center on Budget and Policy Priorities reports that as many as 22 other states could take the same loophole-closing step to help shore up their corporate income tax base -- and their budgets.
Alabama House Takes First Step Toward Helping Low- and Middle-Income Families
The Alabama House of Representatives this week passed a constitutional amendment that would improve the states tax system in three very important ways. Though the vote was contentious, with the amendment gaining only the bare number of votes needed to pass, each of the changes would result in a tax cut for the vast majority of Alabama families and would bring the state tax system closer in line with what most other states have been doing for years.
The centerpiece of the proposal is an elimination of the state's regressive sales tax on groceries. Alabama is currently one of only two states that provides no tax relief whatsoever for groceries, and a majority of states already exempt groceries completely from the sales tax.
Additional tax cuts would be given to almost all Alabama families by tying the state standard deduction to the larger, federal standard deduction. The personal and dependent exemptions would also be increased, though they would not increase with inflation. The most important impact of these changes would be a reduction or elimination of state income taxes for low-income families, but all Alabama families paying the income tax would see a benefit.
Revenue loss associated with these progressive cuts would be offset by ending the state's rare and regressive state income tax deduction of federal income taxes paid. The beneficiaries of the existing deduction are primarily those wealthier taxpayers who have the largest federal income tax liabilities. Unfortunately, there are already rumblings that this change may have to be scaled back in order to get the amendment through the full legislature. Instead of entirely repealing the deduction, it may be the case that the deduction is capped at some amount. Though this would preserve the benefits of this proposal for middle-income taxpayers while eliminating huge tax cuts currently being handed to the rich, it would would produce only a fraction of the revenue generated by a full repeal. Without the revenue created by a full repeal, ending the grocery tax and increasing the standard deduction and exemptions would be much more difficult. Additionally, scaling back the deduction for federal income taxes paid may be seen by some as enough, and could serve to stall a needed repeal of the entire deduction in the future.
An additional problem for the amendment may be a dispute over whether it was fairly passed. The Alabama legislature has a history of allowing other people to cast legislators votes for them when they cannot be in attendance. In this instance, however, there was some question about whether legislators votes were cast in the opposite direction from what they intended. One Democratic legislator admitted to voting in favor of the amendment on other legislators machines, though after this was discovered a motion to reconsider the bill failed and the passage of the amendment was not reversed.
Progressive Tax Reform Gains Ground in Alabama and Illinois
March 7, 2008 04:56 PM
Ideas are being floated in Alabama and Illinois to address the regressive nature or their tax structures. Proponents of a revenue-neutral plan that has gained some attention in Alabama claim that it would cut taxes or keep them at their current level for 80% of taxpayers, while increasing taxes on only the wealthiest 20% of payers. Since the Alabama tax system is incredibly regressive, this would be a very welcome change. Under the proposed plan, the income tax would be made more progressive by increasing personal exemptions and standard deductions, at a cost of about $250 million per year. Additionally, the regressivity of the Alabama sales tax would be reduced by exempting groceries. The grocery exemption would bring Alabama closer in line with the overwhelming majority of states, as Alabama is one of only two states that makes no effort to mitigate the regressive effects of the grocery tax. The $550 million price tag attached to these tax cuts would be paid for by eliminating Alabama's regressive tax deduction for federal income taxes paid. Only two other states allow for a full deduction of federal income taxes paid. Eliminating this deduction would increase taxes the most for those wealthiest Alabamians who have the highest federal income tax liabilities. The reforms proposed in Illinois, and just recently approved by a Senate committee, would result in a net tax increase of about $3.8 billion to be used to fund education, early childhood programs, pensions, health care, and construction projects. Given that Illinois is projected to have budget deficits this year and for years to come, progressive tax increases seem like a very good idea. To ensure tax fairness, revenues would be raised by the most progressive tax available - the income tax. The personal income tax rate would increase from 3% to 5%, and the corporate income tax rate would rise from 4.8% to 8%. Offsetting much of this tax increase would be property tax cuts (a minimum of 20% of the school portion of property tax bills) and income tax credits for low-income families. Unfortunately, the governors in each of these states are opposed to the plans (primarily to the tax increases for wealthier taxpayers). This means that if tax reform is to occur in 2008, it could be much less progressive than what has been proposed thus far. It's certainly refreshing, however, to see state lawmakers discussing these kinds of relatively major tax overhauls with fairness considerations obviously on the top of their agendas.
More Tax Cuts in Alabama?
February 8, 2008 03:17 PM
Alabama Governor Bob Riley recently unveiled his legislative agenda which included targeted tax cuts for families with incomes less than $100,000. In his State of the State address delivered on Wednesday Riley said, "Our proposal builds on our earlier tax cut and will make the first $15,000 of income for a family of four tax-free. With this plan, 90 percent of Alabama's families will receive a tax cut."
But as the editorial board at the Tuscaloosa News points out, there are better strategies for making Alabama's tax system less unfair. A plan sponsored by state House member John Knight, and championed by Alabama Arise, would tie the state's low standard deduction to the (much higher) federal deduction amount. This approach is preferable to the Governor's plan not only because it would immediately increase the "no tax floor" for low-income families more than the Riley plan, but also because it would eliminate the state sales tax on groceries and pay for these tax cuts by repealing the state's unlimited deduction for federal income tax payments -- a high-end tax loophole that only two other states allow.
Alabama Could Learn Some Lessons From Michigan Study
June 1, 2007 03:56 PM
An extensive study of the Michigan Economic Growth Authority's (MEGA) business tax incentives that were distributed between 1996 and 2004 found that incentive programs frequently don't result in the job creation they promise. As the study explains, "since 1996, MEGA has put together 230 incentive agreements. Under these agreements, 127 projects should have produced 35,821 direct jobs by 2005. In fact, these deals have produced about 13,541 jobs, or 38 percent of original expectations. This represents roughly 0.3 percent of Michigan's total work force." Perhaps Alabama lawmakers hadn't read the MEGA study because they are currently rejoicing in having won a new ThyssenKrup manufacturing facility. What will Alabama get in return? In the short-term, Alabama taxpayers have doled out $461 million in direct financial aid, including land acquisition, site preparation, worker training, and road improvements and an additional $350 million in "abatements of sales, property and utility taxes by state and local governments." But if results like those found in the MEGA study are replicated in Alabama, lawmakers and taxpayers may wish that they hadn't been so generous. For more on this topic, visit Good Jobs First.
Hall of Shame: Study Names States that Levy Income Taxes on Poor Families
March 30, 2007 02:23 PM
Despite a growing consensus that imposing income taxes on families living in poverty is a terrible idea, many states continue to do so. According to a new Center on Budget and Policy Priorities report, " The Impact of State Income Taxes on Low-Income Families in 2006," 19 states collect income taxes on two-parent families of four who live below the federal poverty level. The report discusses some of the options available to states to prevent those in poverty from having to spend their limited resources on income taxes, including state Earned Income Tax Credits (EITCs), no-tax floors, and personal exemptions and standard deductions.
The good news is that states are increasingly seeking to avoid imposing their income tax on those who can least afford to pay it. A promising example of this is in Alabama, where the efforts of Alabama Arise have helped to spearhead state income tax changes that have decreased the income tax on those living in poverty by increasing the income filing threshold used to determine whether income taxes are owed (from an unbelievably low $4,600 to a still egregious $12,600). Although the state still ranks at or near the bottom in terms of the state income tax imposed on its poor, additional reform proposals have been made this year that would further increase the income threshold to $15,600 or $15,800. Another positive development has occurred in Virginia, where lawmakers recently enacted a law that will raise the state income tax filing threshold from $7,000 to $11,950 for individuals and from $12,000 to $23,900 for couples. Alabama and Virginia represent two examples of positive developments in decreasing the disproportionate tax imposed on the working poor by nearly every state. An even better solution to this problem would include refundable tax credits, like those found in the federal (and increasingly within state) EITC's.
New Tax Proposal in Alabama
December 21, 2006 02:33 PM
Alabama Governor Bob Riley is once again talking about lowering taxes on working families. But his latest proposal isn't without controversy and comes with quite a price tag. The Governor's proposal includes lowering taxes on families making less than $100,000 annually and eliminating the state income tax on the first $10,000 of retirement income. His plans take five years to fully implement and would cost $205 million. Some in the education community are concerned that these tax cuts will be paid for by cuts to the State's education budget. Questions also remain about whether or not the proposal provides targeted tax relief for Alabama families in need. Let's hope Governor Riley actually does more than talk about tax fairness and finds a way to pay for cuts without harming Alabama's children. Voters Reject TABOR, Estate Tax Repeal and Regressive Education Funding Proposals; Some Regressive Property Tax Caps and Cigarette Tax Hikes Approved
The all-important first step towards an equitable property tax is figuring out how much each home and business is actually worth. To do this perfectly, a tax assessor would need to visually inspect the inside and outside of every home... which, of course, no one actually does. But as a recent New York Times article notes, governments from Philadelphia to Florida are now relying on computerized aerial images (taken from a small plane) to detect changes in the outside appearance of homes and businesses. A Philadelphia tax administrator notes that the computerized system, which costs the city about $100,000 a year, "probably paid for itself within about two weeks." Assessment by low-flying planes may seem intrusive, but at the end of the day this is how the property tax is supposed to work. This approach is in stark contrast to the head-in-the-sand approach to property tax administration proposed by Alabama Democratic gubernatorial candidate Lucy Baxley, who has proposed ending the annual reassessment of Alabama homes. Property Taxes: What to Do About Rising Home Values?
August 10, 2006 02:35 PM
A New York Times article reports that for many homeowners, property taxes are growing much faster than income. New Jersey Governor Jon Corzine blames this trend on the property tax being "imposed without any regard to income or ability to pay." This isn't quite true, of course: a well-administered property tax will be based on a homeowner's actual home value, which is a decent, if imperfect, measure of ability to pay for most people. And for lower-income families, an income-sensitive circuit-breaker credit can make the property tax even more responsive to ability to pay considerations. Unfortunately, state lawmakers typically respond to rising property values by freezing or capping assessed values, which further warps the relationship between property taxes and ability to pay. A gubernatorial candidate in Alabama wants to put an end to a recently adopted reform requiring annual reassessment of properties, and at least one county in South Carolina has taken the step of throwing out the results of its most recent reassessment. The likely outcome of this misguided tax deform is a tax shift away from homes that are appreciating rapidly and toward homes whose values are stagnant or declining. Facing a localized home-value boom of its own, Mississippi policymakers are discussing imposing another, equally misguided approach: capping the allowable annual growth in homeowner property taxes. Find out more about why tax caps are counterproductive here. ITEP Speaks Out On Sales Tax Holidays