Tuesday, November 29, 2022

Cash-rich states create ‘competitive environment’ with flurry of tax cuts

Must read


Anchiy | E+ | Getty Images

And this year, at least a dozen states have made cuts or are eyeing reductions, including both temporary and permanent measures, according to the Tax Foundation.  

While there have been some pushes for corporate or property tax relief, income taxes are “the heart of what’s going on,” said Richard Auxier, senior policy associate at the Urban-Brookings Tax Policy Center.

“Overall, most of the tax cut proposals have been relatively modest, and a number have been targeted,” said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers.

“Overall, most of the tax cut proposals have been relatively modest, and a number have been targeted.

Brian Sigritz

Director of state fiscal studies at the National Association of State Budget Officers

“The targeted proposals we’re seeing are directed towards helping with the impacts of the pandemic and inflation,” he said.

For example, some of these have included changes to grocery taxes, levies on retirement benefits, earned income credits, small business relief, pausing gas taxes and more.

Annual inflation grew by 7.9% in February, a new 40-year high, according to the U.S. Department of Labor, measuring the costs of food, gas, housing and more.

And “very uncomfortably high” inflation will likely last for another year, Treasury Secretary Janet Yellen told CNBC.

Bipartisan push

State budget surpluses

The flurry of state tax cuts has been driven by better-than-expected revenues after states sharply reduced forecasts at the beginning of the pandemic, Sigritz explained.

Many states bumped tax deadlines from April to July 2020, pushing a surge of unexpected income into fiscal year 2021, beginning on July 1 in most places. Plus, the American Rescue Plan, signed in March 2021, allocated $195.3 billion in federal support for states. 

Meanwhile, high-income Americans kept working through most of the pandemic, boosting state income taxes, and federal stimulus money bolstered spending in local economies, Auxier said.

“You had this whiplash of ‘the sky is falling’ to strong growth,” he said.

You had this whiplash of ‘the sky is falling’ to strong growth.

Richard Auxier

Senior policy associate at the Urban-Brookings Tax Policy Center

As a result, state revenues collectively grew by 14.5% in fiscal year 2021 compared to 2020, according to a report from the National Association of State Budget Officers.

It was a very surprising result, given the Covid-19 caseloads, local restrictions and business closures, said Tim Speiss, a CPA and partner of EisnerAmper in New York.

While much of the individual relief has made its way through local economies, there is still growth above pre-pandemic levels.

Indeed, 32 states are projecting fiscal year 2022 revenues will be above original forecasts, the National Association of State Budget Officers report shows. 

‘Competitive environment’

We’re seeing a really competitive environment where states are looking for ways to make a name for themselve.

Katherine Loughead

Senior policy analyst at the Tax Foundation

However, some policy experts worry about the long-term effects of permanent tax breaks.

“The troubling thing about rate cuts is they’re very expensive,” said Auxier, explaining how future revenues may not support these moves.

However, some income tax reductions are designed to phase in over a number of years, contingent on future revenue growth to balance budgets, Sigritz said. 

Still, while slashing taxes may be popular in an election year, states still have plenty of time to carefully allocate and spend unused American Rescue Plan funds, Auxier said.



Source link

- Advertisement -spot_img

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisement -spot_img

Latest article