States With Healthy Budgets Cut Taxes to Boost Economy, Growth

Tuesday, 01 Apr 2014 09:41 PM

By Matthew Vadum

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With a surprising number of states finding themselves with budget surpluses even in a weak economy, lawmakers across the nation are cutting taxes in an effort to kick-start economic growth.

Republican governors including Scott Walker of Wisconsin, John Kasich of Ohio, and Mike Pence of Indiana have led the charge for tax cuts in their states. But Democratic governors in Minnesota and New York have also pushed for measures to reduce their states' tax burdens.

In 2013, 17 states cut taxes, according to the American Legislative Exchange Council (ALEC), a pro-limited government, nonprofit organization with more than 2,000 Republican and Democratic state lawmakers as members.

The momentum has carried over to 2014, as a number of state-level tax cuts have already been enacted this year in legislative sessions across the country.

At the urging of Walker, the Wisconsin State Assembly in March approved more than $500 million in property and income tax cuts.

By Walker's tally, taxes have been reduced by $2 billion since he took office in January 2011. Property taxes will fall $100 this year for the average homeowner, and the typical working family in Wisconsin will see an extra $522 in paychecks, he said.

In late March, Pence signed into law business tax cuts that will reduce Indiana's corporate income tax rate from the current 6.5 percent to 4.9 percent, making it the second-lowest in the nation.

The tax package also enables Indiana counties to get rid of the $1 billion-a-year business personal property tax on new equipment.

"With this bill, we give counties the opportunity to incentivize additional investment in new technology and heavy equipment," Pence said. "We make it easier for companies to expand and create jobs here in Indiana."

In Minnesota, Democratic Gov. Mark Dayton signed 10 individual income tax breaks into law in March. Revenue Commissioner Myron Frans said as many as 275,000 people will split the $49 million in reduced taxes.

In Florida, both chambers of the state Legislature recently unveiled their new proposed budgets, with the two fiscal blueprints calling for $500 million in tax relief.

"Certainly positive news that the state is recovering economically," said Republican Rep. Seth McKeel, Florida House budget chief. "We had a surplus last year and we have a little bit bigger surplus this year, so clearly Florida's economy is turning around."

In the highest-taxed state in America, New York Democratic Gov. Andrew Cuomo began the year touting a $2 billion tax relief plan that would reduce tax burdens for property and business owners, renters, and some manufacturers.

"You have got a lot of hard-working families, a lot of homeowners who are getting crushed in this state by taxation," he said at the time.

Angering some members of his own party, Cuomo expressed support for reducing the corporate income tax rate from the current 7.1 percent to 6.5 percent. He also supports increasing the estate tax exemption from $1 million to $5.25 million, so New York residents would no longer "leave the state to die."

The outlook for state-level tax cuts this year is promising, says Ben Wilterdink, a legislative analyst for the Center for State Fiscal Reform at ALEC.

"In a nutshell, it's good," Wilterdink told Newsmax. "But we'd be hard-pressed to do better than we did in 2013."

Last year, "North Carolina and Indiana did complete overhauls that were enormous in scope," while this year's tax cuts are probably going to be a bit more modest, he said.

Wilterdink pointed to Oklahoma, Arizona, and Missouri as additional states likely to pass tax-cut measures.

Wilterdink said there is a good chance that the Oklahoma State Legislature will vote to lower the current state income tax this year. Oklahoma enacted tax cuts last year, but the fiscal legislation was struck down by the state's Supreme Court.

Lawmakers in Oklahoma City are narrowing the reach of this year's tax-cut package and are optimistic it will pass judicial muster, he said.

Arizona lawmakers are trying to eliminate sales taxes on the electricity that manufacturers use, Wilterdink said. Power-intensive industries often pay a huge amount of taxes, which makes them less competitive.

Wilterdink also predicted that Missouri lawmakers will succeed this year in enacting income tax cuts after Democratic Gov. Jay Nixon vetoed tax reductions last year and an effort by lawmakers to override the veto failed.

Nixon is expected to veto this year's tax cuts as well, but lawmakers will likely be able to cobble together enough votes to quash his veto this time, Wilterdink added.

Other states have seen battles between tax-cutting governors and reluctant legislatures.

Kasich's mixed bag of tax-cut proposals is being slow-walked through the Legislature in Columbus. The governor wants an 8.5 percent cut in individual income taxes over three years, offset by revenue from a 15 percent commercial-activities tax increase, a 48 percent hike in tobacco taxes, and a new tax on shale fracking.

Lawmakers are in no hurry to consider the package and have said they may delay taking it up until after the election in November.

In Nebraska, Republican Gov. Dave Heineman — who recently chastised lawmakers for spending too much money on "special interests" and not providing enough tax relief — asked lawmakers to approve between $370 million and $500 million in tax cuts over three years.

Instead, Nebraska's unicameral Legislature sent him a package that requires the state to index income tax brackets for inflation but cuts taxes by only $23 million in the first year and about $69 million in the second.

Some of the proposals that were considered in Nebraska were similar to tax measures that took effect last year in Kansas, according to the Center on Budget and Policy Priorities (CBPP), a national left-of-center think tank.

The tax cuts in Kansas, which included a reduction in personal income tax rates and an increase in the standard deduction, have hobbled state programs, hurt the poor, and failed to deliver economic growth, the CBPP asserted.

"The tax cuts have landed with a thud," said CBPP's director of state fiscal research, Michael Leachman, one of the authors of the report. "Kansas is going backwards."

The tax reductions haven't created jobs and have curtailed state revenue, which has forced Kansas to reduce spending for schools and other services, the CBPP said.

However, Eileen Hawley, a spokeswoman for Republican Gov. Sam Brownback — who has made tax-cutting a centerpiece of his governorship — disputed the CBPP's conclusions.

"We have grown jobs, reduced unemployment, and invested in education," Hawley said, noting that Kansas has a 4.9 percent unemployment rate, one of the lowest in the country.

Hawley added that she wasn't surprised that a "liberal think tank would take exception to the success of this Republican-driven red-state model."

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