As of today, 27 States are eyeing for reductions and eliminating taxes altogether or the “Tax Cut Fever”.
Several state senators intend to move on with permanent, regressive tax cuts that would disproportionately benefit the wealthiest at the expense of low- and middle-income households despite conflicting economic signals for 2023, including a potential recession.
These budget cuts or tax cuts would put the state’s finances in danger and further reduce public expenditures on health, transportation, and education—all of which are essential for building inclusive, thriving communities where everyone, not just the wealthy, can live in security and flourish. These outcomes would be hastened and magnified in the event of a recession.
State officials should seize this chance to create more fair tax systems that can weather probable economic volatility in 2023 and beyond, rather than doubling down on regressive tax cuts that burden the poorest families the hardest. They can achieve this by:
• Opposing costly, long-term tax cuts that disproportionately favor the wealthy at the expense of low- and middle-income households.
• Finding new sources of funding from the rich and huge corporations to address pressing challenges like the cost of higher education, preschool access, the climate crisis, and our aging infrastructure.
• Developing or increasing specific, refundable tax credits for Americans with low and moderate incomes who are struggling with debt and unpredictable economic conditions.
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The National Organization of State Budget Officers reports that states have seen widespread budget surpluses for the past two years, thanks in large part to “recent state policy moves to build their reserves,” including billions in federal assistance as a result of the pandemic. Reserves stood at $70 billion in 2020; by 2023, they are anticipated to nearly treble to $136 billion.
The Institute on Taxation and Economic Policy (ITEP) claimed that many states are currently experiencing “tax cut fever” and are considering offering property tax cuts and rebate checks, lowering income tax rates, and in the cases of Mississippi and Arkansas, completely eliminating state income taxes.
According to CBS, state lawmakers have given several justifications for the decision, including “to make their states more economically competitive with others; to boost economic growth; or to boost taxpayers who are struggling with inflation.” In particular for Mississippi and Arkansas, having no state taxes would be a benefit to entice businesses as well as new households.
Here are the 27 states considering tax reductions and their corresponding ideas:
Arkansas — complete repeal of the state’s personal income tax.
$200 million in property tax relief will go to Colorado.
Connecticut – reducing the amount of personal taxes due.
Georgia will receive $1 billion in payments to combat inflation and an additional $1 billion in property tax relief.
$120 million in property tax relief for Idaho.
Indiana: decreasing the proportion of personal taxes due and lowering property taxes.
Iowa has reduced property taxes and a flat income tax rate of 3.9%.
Kansas — either flat income taxes or lower sales taxes, as well as a reduction in Social Security income taxes.
Kentucky will reduce its flat income tax from 5% to 4% by the end of the next year.
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Louisiana has considered removing the income tax while making modifications to the property and sales taxes.
Michigan: Elimination of a retirement tax, $180 tax rebate for all state filers, and increased state-level matching of the federal Earned Income credit.
Elimination of Social Security tax in Minnesota.
Mississippi: complete repeal of the state’s personal income tax.
Missouri – lowering sales, real estate, and income taxes.
Montana residents receive tax rebate checks of $1,250 or more, extra $500 for homeowners.
Nebraska – lowering income tax rates and completely exempting all Social Security income.
Residents of New Mexico will get checks for a $750 tax rebate.
North Carolina – lowering the rate of personal income tax.
North Dakota — completely exempts low- and middle-income people from paying any personal income tax.
Ohio is changing its income tax from progressive to flat.
Oklahoma — lowering the rates of the state’s income tax and food levies.
Fast-tracking tax cuts that lower the rate owed and bracket modifications in South Carolina.
Utah: Residents receive tax rebate cheques for at least $100 and the state’s income tax rate is reduced.
Vermont – eliminating tax on veteran pensions and increasing Social Security tax exemptions.
Virginia – lowering tax rates for individuals.
West Virginia: a 50% reduction in personal tax rates over the following three years.
Wisconsin should either implement a flat tax or lower taxes on middle-class income.
Legislators now have a fantastic opportunity to reinforce the investments that support our business and society as a result of the recent increase in state revenue. States should put their most vulnerable families at the center of their decision-making rather than wasting those funds on tax cuts for the rich and businesses. The use of tried-and-true programs like Earned Income Tax Credits and Child Tax Credits by lawmakers is encouraged, as is the strengthening of state revenue systems through changes that place greater burdens on the wealthy families who have recently enjoyed exceptional success. The coming year will be rife with economic uncertainty, but with the appropriate fiscal changes and a little bit of luck, states have a real chance to finish the year in a considerably better financial position than they did.