March 31, 2022
While the end-of-session surprises will likely let up soon, one thing that is not surprising is Fitch Ratings’s analysis of 2022 state tax cut plans, as they note that there could be serious effects if states are unable to sustain current levels of revenue growth.
Major State Tax Proposals and Developments
The GEORGIA Senate revealed their long-awaited tax cut plan following the House’s $1 billion flat tax proposal. The Senate plan would replace the state’s graduated rate structure with a flat 4.99 percent tax rate over the next decade, given certain fiscal conditions. The plan also includes a nonrefundable 10 percent state Earned Income Tax Credit, increases personal exemptions and caps the film tax credit to $900 million a year.
MISSISSIPPI leaders came to an agreement on a tax that will replace the state’s current tax brackets with a flat 4 percent income tax rate over four years. While far better than full income tax elimination, the permanent tax cut will reduce state revenues by nearly $200 million in the first year and $525 million once fully phased in. The final plan does not include a grocery tax cut as proposed in earlier versions.
As of March 31, 2022, NEBRASKA lawmakers are actively debating a last-ditch attempt to cut the top rates of the personal and corporate income taxes.
Late last week, the OKLAHOMA House passed more tax cut bills that would phase out and ultimately eliminate personal and business income taxes. They would also expand sales tax rebates and create a new, one-time $125 tax rebate that would be issued ahead of the November general election. This comes one day after approving nearly $500 million in tax cuts.
State Roundup
CALIFORNIA legislators voted down a proposed gas tax suspension and turned to considering two alternative approaches. Gov. Gavin Newsom’s proposal would send $400 debit cards to vehicle owners, provide grants to transit agencies to fund three months of free rides, suspend a part of the diesel tax, and pause inflation adjustments on fuel taxes. Another proposal would also send rebates to drivers, combined with a new tax on gas suppliers when their prices are out of proportion with crude oil prices.
CONNECTICUT lawmakers approved a gas and sales tax holiday bill quickly last week as expected, cutting into possible funding for more targeted proposals like Gov. Ned Lamont’s proposed property tax credit increase.
DELAWARE lawmakers have agreed on sending residents who filed a 2020 tax return $300 direct payments instead of adopting a gas tax holiday. The rebates will cost the state $187 million in revenue.
An attempt to pass a constitutional amendment that would require supermajorities to raise taxes in KANSAS failed in the Senate.
Senators in KENTUCKY have passed House Bill 8 which cuts Kentucky’s flat individual income tax from 5 to 4 percent. Triggers are included in the bill that could further reduce the rate.
A MAINE bill that would have suspended the state’s 30 cent gas tax for the rest of 2022 has been blocked after losing support, including support from Gov. Janet Mills, who has proposed $850 in direct relief to residents.
Although revenue projections in NORTH DAKOTA have exceeded expectations, a revenue-spending gap that is filled by tapping into funds from oil taxes remains. About 21 percent of the 2021-2023 budget comes from oil revenue and the gap has been partially caused by income tax reductions from 2009 to 2015 that cut rates by 50 percent.
An OHIO bill that would double the amount of historic preservation tax credits from $60 to $120 million cleared the Senate.
TENNESSEE Gov. Bill Lee proposed suspending the state and local grocery sales tax for thirty days, which would reduce state revenues by $80 to $110 million.
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