Jefferson City, Missouri (AP) - Driven by the largest surplus in state history, the Republican-led Missouri legislature devised a $500 million plan to send a one-time tax refund to millions of families. To the shock of some, Republican Governor Mike Parson objected.
Parson’s objection: He wanted a bigger, longer-term tax cut.
“Now is the time for the largest income tax cut in our state’s history,” Parson announced as lawmakers called for a special session in September. To consider a permanent $700 million tax cut.
Upon potential approval, Missouri will join at least 31 states that have already enacted some type of tax cut or cut this year — an astonishing influx of billions of tax dollars into people. Idaho lawmakers are meeting Thursday to consider more tax breaks, and Montana lawmakers are considering a special tax break session.
With the influx of federal aid against the pandemic and its growing tax revenue, states have lowered income tax rates for individuals and businesses, extended tax cuts for families and retirees, lowered property taxes, waived sales taxes on groceries, and suspended taxes on motor fuels to offset inflationary price spikes. Many also offered instant tax rebates.
Republicans and Democrats alike joined the trend of lowering taxes during the midterm election year.
However, divisions have emerged over how far we should go. While Democrats have generally favored targeted tax breaks and one-time cuts, some Republicans have pushed for permanent income tax cuts that could lower tax bills — and state revenue — for years to come. Parsons describes it as “real and lasting comfort.”
Some budget analysts warn that permanent tax cuts could strain states during downturns in the future. The US economy has shrunk for two consecutive quarters This year, meet one unofficial sign of recession.
said Amy Bloen, president and CEO of the Missouri Budget Project, a nonprofit that analyzes financial policy.
For some countries, the current surpluses are unlike anything they’ve seen before.
Fiscal year 2022, which ended on June 30 for most states, was the second consecutive year of significant growth in tax collection after economic shutdowns led to declines early in the coronavirus pandemic. Several states have reported the largest surpluses ever, according to the National Association of State Budget Employees.
“I don’t think there’s ever been a time in history when states were more prepared to emerge from a potential recession,” said Timothy Vermeer, senior analyst for state tax policy at The Tax Foundation, a Washington, DC-based think tank. “The majority, if not all, of our rainy day boxes are in a really healthy position.”
The income tax rate was lowered in 13 states this year, already equaling last year’s historic total, according to the Tax Foundation. Republicans control legislatures in all those states except New York, where Democrats in power have accelerated the schedule for a previously approved tax rate cut.
Republican-led Arkansas was the latest to take action during a special session in August. A new law will speed up the gradual reduction of the income tax rate enacted last year and provide a one-time inflationary tax credit. Republican Governor Asa Hutchinson called the $500 million package a “transfer of wealth from government to taxpayers” that “could not have come at a more important time.”
Nationally, inflation is at its highest level in 40 years, driving up prices for most goods and services and compressing incomes.
At least 15 states have agreed to one-time deductions from their surpluses, including 10 states led by Democratic governors and legislatures, four by Republicans and one — Virginia — with divided partisan control.
Democratic-led California, which posted a record $97 billion surplus, is sending out rebates Between $200 and $1,050 for individuals with an income of less than $250,000 per year and families with an income of less than $500,000.
All four Republican-controlled states that offer deductions — Georgia, Indiana, Idaho and South Carolina — have also made permanent reductions in their income tax rate.
Although tax cuts are often common, said Hernan Moscoso Boedo, an economist at the University of Cincinnati, they do little to fight inflation and “may actually be counterproductive” by enabling additional consumer spending on scarce supply. Thus contributing to higher prices.
However, large surpluses combined with inflation make discounts an attractive option for politicians, especially during an election year.
Georgia Governor Brian Kemp, a Republican facing re-election challenge from Democrat Stacey Abrams, was among the most aggressive tax reducers. Sign legislation that will gradually reduce the income tax rate from 5.75% to 4.99%. He also signed a measure providing for a $1.1 billion tax credit, with up to $250 for singles and $500 for married couples. He proposed an additional $2 billion in income and property tax rebates. After the state’s gas tax temporary suspension law expired in May, Kemp extended the gas tax exemption until mid-September.
“We are trying to help the Georgians fight through this difficult time,” Kemp said.
In Colorado, legislative staff estimates that it would cost $2.7 million to implement legislation to speed up income tax refunds of $750 for individuals and $1,500 for spouses. The constitutionally mandated revenue surplus recovery was originally scheduled to be paid next year but is now being distributed - along with a letter from Democratic Governor Jared Polis describing it as inflation relief.
Polis, who is running for re-election in November, has been a former critic of the automatic redemption clause. His Republican rival, Heidi Janal, accuses him of “hypocrisy”.
Idaho Governor Brad Little, Republican, has called the legislature to a special session starting Thursday To consider more tax breaks.
He’s proposing to use part of the state’s projected $2 billion budget surplus for a $500 million income tax deduction this year. He also wants to cut more than $150 million annually by creating a flat income tax rate of 5.8% starting next year. This comes after the state lowered its highest tax rate in each of the past two years.
“People, this is a conservative judgment in action,” Little said, while asserting that the tax cuts would free enough money to boost education funding by hundreds of millions of dollars.
Montana lawmakers are considering whether to hold a special session later in September to offer tax breaks from the budget surplus. The proposal calls for a $1,000 deduction to be given to homeowners who have paid property taxes within the past two years. It will also provide income tax rebates of $1,250 for individuals and $2,500 for married couples.
Majority leaders in the Republican House of Representatives and the Montana Senate said in a joint statement that the rebates will provide assistance “as soon as possible on expenses such as gas, groceries, school supplies, and more.” But some lawmakers, including limited-term Republican Representative Frank Garner, have expressed reluctance.
“My first concern is whether this proposal is motivated by an impending emergency or those who want to write checks to voters because the emergency is just an impending election,” Garner wrote in an opinion column.
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the Associated Press book Jeff Amy in Atlanta; Jim Anderson and Jesse Biden of Denver; Andrew DeMello in Little Rock, Ark. Amy Beth Hanson in Helena, Mont. Keith Riddler of Boise, Idaho, contributed to this report.