It’s been an excellent year for state tax breaks with 10 states since … [+]
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As Americans celebrate the creation of a nation that emerged from a tax dispute, millions of people in the US will soon have more freedom to enjoy the fruits of their labor thanks to state income tax cuts that were passed in ten states year to date, with some other legislatures ready to pass significant tax breaks before the year is adjourned.
“People, I think the time has come to give the common people a tax break,” President Joe Biden said at an event on June 29 in LaCrosse, Wisconsin. Coincidentally, the Wisconsin Republican-led legislature did just that the same week President Biden was in Badger State, and so did other state-led legislatures this year.
While President Biden spoke in the state about the need for tax breaks, the Wisconsin Convention and Senate passed a new budget that will cut the state’s second-highest income tax rate from 6.27% to 5.3%. Although the budget approved by the legislature broke heavily with the budget proposed by Governor Tony Evers (D) earlier this year, it nonetheless found bipartisan support.
“The entire legislature has now passed the most conservative budget in a generation, transforming Governor Evers’ bloated political document into a responsible, bipartisan success story for our state,” Wisconsin Senate majority leader Devin LeMahieu said in a press release after the Budget allocation passage. “In addition to a $ 3.4 billion transformative tax cut, lawmakers have made targeted investments in every major function of state government, including significant new funding for schools, frontline health workers, and a fully funded transportation system, while maintaining the historically low levels Government spending was retained. “
If Governor Evers puts this new tax cut budget into effect, he will be the second Democratic governor to approve an income tax cut passed by a GOP-led legislature in 2021. Louisiana Governor John Bel Edwards (D) signed an passed income tax cut by the Republican-controlled Louisiana legislature in June that increased state income tax rates from 2% to 1.85% on the first $ 12,500 of income, down from 4% to 3.5% on the next $ 37,000 and from 6% to 4.25% on income above $ 50,000.
This Louisiana income tax break depends on voter approval of an October election that would end state withholding taxes on taxes paid to the federal government, a provision only six states have on the books. Governor Edwards also signed a law to lower the state franchise tax on businesses.
“The October election will give Louisianans the chance to take the first step in Louisiana’s comeback history by reforming the overly complex and onerous tax law of the state, and given the economic data of the past few months, those changes can’t come soon enough “Writes John Kay, vice president of the Pelican Institute for Public Policy, a Louisiana-based think tank.
Republicans took advantage of their newfound control over two state legislatures in 2020 by enacting permanent income tax cuts in 2021. The Democrats spent millions of dollars in the past year unsuccessfully to overturn control of the state legislatures. Republicans, however, gained control of the legislatures of New Hampshire and Montana along with gubernatorial competitions in both states. The new budget, which was put into effect in June by New Hampshire Governor Chris Sununu (R), is phasing out Granite State’s capital gains tax, making New Hampshire a true income tax-free state. In April, Montana Governor Greg Gianforte (R) passed a law that lowered the highest income tax rate in the state of Montana from 6.9% to 6.5%.
While President Biden is pushing for a retrospective tax hike with his proposed capital gains tax hike, Republican states are passing retrospective income tax breaks. Idaho Governor Brad Little (R), like his counterpart in Montana, cut his state’s highest income tax rate from 6.9% to 6.5%. Like the Montana income tax cut, the Idaho tax break is retroactive to the first day of 2021.
Days before Wisconsin legislature approved the largest tax cut in their state’s history, the Republican-led Ohio legislature passed the largest income tax cut in Buckeye State’s history. The new biennial state budget, approved by Ohio lawmakers on June 29, cuts state income tax by $ 1.7 billion.
With this new budget, Ohio lawmakers removed the top tier of income tax and lowered rates for the four remaining tiers, resulting in a new top rate of 3.99%. Ohio’s new budget increases the standard deduction, also known as the “zero tax bracket,” from $ 22,600 to $ 25,000.
A week that began with the passing of the largest income tax cut in Ohio history ended with a federal judge on the side of Ohio Attorney General David Yost (R) in his lawsuit against the provision in the America Rescue Plan Act (ARPA ), the $ 1.9 trillion spending bill, was approved by Congress earlier this year seeking to ban government tax breaks. On July 1, US District Judge Douglas R. Cole of the District Court for the Southern District of Ohio ruled that the ambiguity of the ARPA provision being challenged exceeded the powers of Congress under the spending clause. The US Treasury Department is expected to appeal the decision.
“We are confident the law is constitutional and the Treasury Department pledges to implement it in accordance with instructions from Congress so we can continue to promote a robust and equitable recovery,” a Treasury Department spokesman said in a statement.
“The federal government needs to stay on track, and if they don’t we are ready to push them against the guardrail and leave them where they belong,” Ohio Attorney General Yost said in response to the ruling . “Progressives will howl now because they don’t like the idea that the Ohio federal government can’t dictate what to do with their tax policies, but they’ll quote that decision soon enough to a Republican president who might want to tell a blue state how he should run his state. “
This ruling is good news for state lawmakers and governors who passed tax breaks earlier this year, as well as those preparing for it. In North Carolina, for example, taxpayers could soon receive a significant income tax cut under the new budget if approved later this summer.
The new budget, approved by the North Carolina Senate on June 24, cuts the state’s flat income tax rate from 5.25% to 3.99%. The Senate-approved budget also completely abolishes state corporation tax by 2028, making North Carolina one of only three states, Wyoming and South Dakota being the other two that don’t levy corporate or gross corporate income taxes.
“Given the strong financial position of the state after a decade of good governance, the Senate budget drafters could combine historic tax cuts with a massive infrastructure package,” said Senate Leader Phil Berger (R). “Responsible spending, tax cuts whenever possible, and saving for a rainy day have defined Republican budgets for 10 years, and the formula works.”
By lowering taxes, expanding school choices, and keeping the rise in government spending below the rate of population growth plus inflation, the bipartisan North Carolina Senate-approved budget achieves the Conservative Trinity. If the budget, which the North Carolina House passes later in July, includes the Senate-approved tax break and it becomes law likely to overturn a veto by Governor Roy Cooper (D), North Carolina will pass the 11th this year ( 12, taking into account the standard withholding increase signed by Georgia Governor Brian Kemp earlier this year).
Perhaps the most heralded state income tax cut of 2021 is the one that went into effect June 30th by Arizona Governor Doug Ducey (R). This tax reform package, passed as part of the new state budget, brings Arizona to a flat 2.5-inch% income tax mark, lowering taxes for every income tax bracket.
“Every Arizona taxpayer, regardless of income, will experience a tax cut as part of our historic tax reform,” said Governor Doug Ducey after signing the tax cut. “This means that job creators will continue to choose our state to expand their activities, working-class families will be able to choose how to spend more of their hard-earned money, and those who have served our nation will rightly get more of their own money to keep.
The Biden White House and the Democrats in Congress are using their power in Washington to push for unprecedented federal spending and historic tax increases. Republican states, meanwhile, continue to move in the opposite direction, introducing tax breaks, expanding school choices, and keeping spending in check. As with the reforms that expand school choices, it was also a parade year for government tax breaks, and it’s only half over.