July 7, 2021
Spotlight on legislative sessions: States cut taxes to help struggling American families and businesses after the coronavirus
Many Americans are struggling to rebuild and get back to normal after the pandemic. In fact, a new Pew Research Center report shows four in 10 Americans are struggling financially. The coronavirus devastated low-income communities in particular, who often work in the restaurant, entertainment, and hospitality sector—a field that suffered the greatest job losses over the last year.
At a time when many Americans are worried about paying the rent and supporting their families, the last thing they need is a tax increase. That’s why a Network of state policy organizations has been encouraging lawmakers to reduce taxes so the economy can recover, and Americans can get back on their feet.
During the recent legislative sessions, states across the country passed policies that reduce taxes for individuals and businesses. When states made proposals to increase taxes to address budget deficits, this Network stepped in to show that economic growth, not more taxes, is the best way to resolve budget problems.
Alabama passed a law that removes impediments to business growth and modernizes the state tax code into one more attractive to business and investment. The bill also ensures coronavirus relief funds given to individuals and businesses are not taxable by the state. The Alabama Policy Institute recommended this reform in its “Restore Alabama Plan.”
The Arizona Governor signed a budget that includes a big tax cut for Arizona families. The budget moves the state from a progressive income tax to a flat tax of 2.5 percent for nearly everyone. This means everyone’s income taxes in Arizona will go down. The Goldwater Institute played a role in this win and noted this historic reform will restore Arizona’s competitive advantage as a low-tax state and provide a boost for small business owners still struggling to recover from the pandemic.
The Arkansas Governor announced he will call a legislative special session this fall to reduce state income tax rates, a priority issue of the Arkansas Policy Foundation. The governor indicated support for the idea of reducing the top income tax rate from 5.9 percent to 5.5 percent using part of an estimated $1 billion state budget surplus. The top Arkansas income tax rate has been reduced from 7.0 percent to 5.9 percent in the last decade. Policy Foundation research has noted Arkansas has improved in the last decade from the third of states with the highest income tax rates to the middle third. Cutting Arkansas’ top rate to 4.79 percent would place it among the third of states with the lowest rates, a reversal of its relative position in 2015 when it ranked among states with the highest rates.
The Grassroot Institute of Hawaii helped defeat a bill that would have given Hawaii the highest personal income tax rates in the nation, among other tax increases. Throughout the legislative session, Grassroot told lawmakers this is the worst possible time to burden Hawaii residents and businesses with more taxes.
Idaho lowered its top income tax rate from 6.9 percent to 6.5 percent. The Idaho Freedom Foundation noted that although this is a small tax reduction overall, it is still a tax reduction.
Iowa passed a comprehensive tax relief package that is expected to provide $1 billion in tax relief to Iowa residents. The Tax Education Foundation of Iowa noted that if Iowa policymakers continue to follow a path of fiscal conservatism, Iowa could become a pro-growth leader in the Midwest.
Kansas Policy Institute worked with a broad group of elected officials and advocates from around the state to further reform property taxes through much needed “Truth in Taxation” legislation. For years, elected officials have been able to hold mill rates steady while letting valuations skyrocket. KPI created a ‘bee honest’ website and a petition urging lawmakers to revisit the Truth and Transparency legislation this session. State leaders took note. The Kansas Governor signed legislation that provides property tax transparency in the Sunflower State. Kansas is now the third state in the nation with property tax transparency.
Kansas also enacted significant tax reform by overriding the Kansas Governor’s veto of pro-growth tax legislation. The new law allows businesses to deduct borrowing interest costs against taxable income, which reduces the business tax burden by better aligning taxable income with actual income. The bill also increased the standard deduction for Kansas taxpayers and allowed Kansans to itemize their deductions if they so choose.
Louisiana passed the Louisiana Tax Simplification Package—legislation that will create greater stability and predictability, lower income tax rates, eliminate the punishing franchise tax for 85 percent of filers, and guarantee that growth of state income will be used to lower rates in coming years. The package will now be sent to voters for final approval on the 2021 ballot. The Pelican Institute for Public Policy noted this will start the process of simplifying Louisiana’s overly complex and burdensome tax code that has sent jobs and opportunity to other states and hurt Louisiana’s families for far too long.
The Maine Policy Institute convinced state lawmakers to oppose a flurry of proposed tax increases during the legislative session. Some policymakers wanted to implement a three percent surtax on income earned over $200,000, a six percent digital streaming tax, a “one-time” wealth tax, and a graduated real estate transfer tax, among other proposals. Maine Policy submitted legislative testimony and activated citizens across the state to oppose these ideas. Maine residents submitted more than 9,000 emails to lawmakers, legislative committees, executive branch departments and officials. These efforts paid off—the Legislature did not enact any new tax increases this session.
The Massachusetts Governor advanced the Pioneer Institute’s recommendation to establish a two-month sales tax holiday. Pioneer explained in a March 2020 study that a longer sales tax holiday will give retailers struggling during the pandemic a much-needed cash boost.
During the 2021 legislative session, Montana lawmakers lowered the he top marginal income tax rate from 6.9 to 6.75 percent. Thanks to the Frontier Institute, Montana also adopted a Conservative Montana Budget—protecting taxpayers by putting firm limits on spending growth.
Nebraska has the eighth highest property tax rates in the country. At the beginning of 2021, Platte Institute polling showed most Nebraska voters were unsure or unaware about public hearings where local governments set these tax rates. But these voters told the Platte Institute they would like to be notified about how to express their concerns.
Thanks to a successful Platte Institute legislative effort, Nebraskans will now have the opportunity to make their voices heard with the state’s new Truth in Taxation law. Under this policy, property owners will receive direct notification of property tax hearings by mail. The transparency requirement, based on a successful law enacted in Utah in 1985, will require postcards to be mailed to taxpayers with information about a public hearing when cities, counties, school districts, or community colleges seek a property tax increase greater than two percent, plus real growth, resulting from rising property valuations. The Platte Institute is now preparing taxpayers to make use of the first Truth in Taxation hearings, which will begin in the summer of 2022.
Nebraska also passed a tax reform bill. The legislation maintains Nebraska’s favorable treatment of business net operating losses and bonus expensing for new investments, both of which were priorities of the Platte Institute. The bill also cuts Nebraska’s top corporate income tax rate from 7.81 percent to 6.84 percent, putting it more in line with Nebraska’s neighboring states.
Still in session, the North Carolina Legislature is considering several tax measures. The John Locke Foundation noted the biggest item would distribute $1 billion in grants using federal money from the American Rescue Plan Act (ARPA) to businesses that received earlier rounds of coronavirus relief. The Legislature also introduced a tax cut plan that would empower workers by allowing them to keep more of their paychecks and likely lead to higher worker wages. The Foundation noted the plan includes a reduction of the personal income tax rate from 5.25 percent to 4.99 percent, an increase in the standard deduction of nearly 20 percent, and an increase in the child tax credit. The Foundation also noted the most contentious part of the plan is a phaseout of the state’s corporate income tax beginning in 2024, with its final elimination slated for 2028.
New Hampshire passed a budget that phased out the state’s interest and dividends tax over five years—which would put New Hampshire on the path to becoming the ninth state to have no tax on personal income. The Josiah Bartlett Center for Public Policy noted becoming truly income-tax-free would improve New Hampshire’s competitive position, not just in New England, but internationally. The budget also included measures that provide tax relief for small businesses and cut the statewide property tax while increasing aid to municipalities.
Thanks to the efforts of The Buckeye Institute, Ohio businesses are avoiding a $1.5 billion tax increase. Buckeye encouraged state policymakers to use money in the American Rescue Plan Act (ARPA) to pay off Ohio’s unemployment insurance debt to the federal government. Unemployment insurance debts are usually paid off by increasing taxes on business payrolls. This legislation will relieve Ohio businesses of the payroll tax increase that would otherwise pay off this unemployment trust fund debt. The Ohio Governor also signed a new budget that includes a three percent across the board tax cut and the elimination of the top tax bracket. Buckeye noted these reforms will make Ohio more economically competitive, spur the state’s economic recovery, and save Ohio taxpayers more than $1.6 billion.
This legislative session, Oklahoma lowered its top income tax rate from 5 percent to 4.75 percent. The Oklahoma Council of Public Affairs noted that the ideal situation would involve full elimination of Oklahoma’s income tax, but cutting the rate is a step in the right direction.
Texas passed a responsible state budget that holds the budget’s increase to $4.3 billion below population growth plus inflation and maintains property tax relief. The Texas Public Policy Foundation praised lawmakers for adopting this budget and noted it continues the effort to not overspend so that the state economy and families can have more opportunities to flourish. The state also passed a stronger spending limit—which will also enhance opportunities for people to prosper in the Lone Star State.
The Thomas Jefferson Institute for Public Policy helped stop the Transportation and Climate Initiative (TCI), a proposal to implement a gasoline tax to curb carbon emissions. The Institute explained the economic costs of the TCI exceed any of the potential benefits from reduced carbon emissions. After writing a dozen commentaries in papers including The Washington Post and the Richmond Times-Dispatch, releasing two major studies, and producing an online video, the Virginia Legislature has yet to take up the proposal, and a promised vote on the measure is unlikely.
The Wisconsin Legislature passed historic tax reform totaling $3.4 billion in tax cuts. Notably, the legislation reduces third income tax bracket from 6.27 percent to 5.3 percent, which, as the Wisconsin Institute for Law & Liberty (WILL) points out, equates to a $2.4 billion cut over the two-year budget. WILL added the Wisconsin Governor would be wise to sign these reforms in the state budget proposal and give much needed relief to Wisconsin taxpayers.
