Cash-bursting states plan to ease inflation

Soaring inflation in the United States is accelerating calls from governors and other heads of state for immediate tax relief for cash-strapped residents who pay more for everyday items like gas, milk and electricity.

The governors of Maine and Kentucky last week joined leaders from several states – including Illinois, California, Massachusetts, Florida, Alabama, Washington and Missouri – to consider offering rapid relief and temporary inflation to taxpayers.

The Consumer Price Index – which measures what Americans pay for goods and services – hit a 40-year high last month, climbing 7.5% on consumer demand and disruptions in pandemic-related supply chain.

The bipartisan proposals from state leaders in recent weeks come as Democrats in Washington work on legislation to address rising costs ahead of the midterm elections.

State leaders brimming with cash due to higher-than-expected tax revenues, a booming stock market and millions in unspent federal pandemic aid have moved to act to return surpluses to taxpayers. .

“2022 is shaping up to be the year of bipartisan tax relief,” said Jared Walczak, vice president of state projects for the Tax Foundation. “Across the board, we see legislators trying to find ways to reduce tax burdens.”

MAKE ENDS MEET

State lawmakers’ tax relief wish lists run the gamut from shopping at grocery stores to property taxes to vehicle sales. Although the adjustments are not uniform, all the proposals point in the same direction, according to tax policy experts.

Alabama lawmakers on Thursday approved a bill that would allow families to avoid paying state income taxes on monthly child tax credit payments they receive under the President Joe Biden’s economic aid package.

A day earlier, Democratic Kentucky Gov. Andy Beshear signed an executive order halting an increase in vehicle property taxes that have risen dramatically due to soaring car values. He also approved a plan by the state legislature to temporarily reduce the state sales tax by 1% for one year starting July 1 to help families pay higher prices, which are expected to continue. to increase until 2023.

“A booming economy and the best state budget in 25 years means we can do more to help our working families and small businesses buy and sell the essential goods and services that cost more and need more money. price is just too high,” Beshear said.

Higher consumer costs have effectively wiped out pandemic-related wage increases.

In Maine on Tuesday, Democratic Gov. Janet Mills proposed returning half of the state’s $411 million surplus to residents in the form of one-time $500 checks.

His supplementary budget plan also includes two other relief measures: a $1,000 refundable tax credit to approximately 100,000 low- and middle-income homeowners and renters; and extending the state earned income tax credit to families earning less than $57,414 a year.

SALES TAX RELIEF

State tax revenues have increased 26.3% since April 2021, according to the Tax Policy Center, as personal income taxes and corporate income taxes have increased. In addition, consumers helped by federal stimulus money spent more, helping to bolster state sales tax revenue.

In New York and Connecticut, Republican lawmakers have introduced legislation to temporarily exempt or reduce their states’ sales tax rate.

Deputy Minority Leader Steve Hawley, a Republican in the New York State Assembly, has offered to relieve New Yorkers by waiving a 4% sales tax on gasoline, personal care products , housekeeping supplies and ready-to-eat foods for two years.

“The windfall of additional state sales tax revenue from inflated goods prices should not be compounded on the backs of New York consumers,” the bill’s authors wrote. “New York State has significant revenue to account for the loss of sales tax revenue due to the suspension provided in this bill.”

In Connecticut, Republican lawmakers have called for a portion of the state’s surplus to be returned to taxpayers by reducing the general sales tax from 6.35% to 5.99% and eliminating a 1% surtax. on prepared foods, including restaurant meals.

INCREASED FOOD COSTS

There are 13 states that tax groceries — and now Oklahoma, Kansas, Mississippi and Virginia are among several considering removing the levy on food purchases entirely or at least temporarily.

Earlier this month, Republican Oklahoma Gov. Kevin Stitt proposed eliminating the state’s 4.5% sales tax, which would save residents more than $250 million. dollars, according to a study commissioned last year by House Minority Leader Emily Virgin, a Democrat.

Republican Utah Gov. Spencer Cox, as part of his $25 billion state budget, wants to give residents a $160 million grocery tax credit to help cover the hike food costs. The majority of the tax refund, he said, would go to households earning less than $100,000 a year.

In the Midwest, Democratic Illinois Governor JB Pritzker, who is running for office this year, has offered inflation relief as part of his budget plan, seeking to save consumers nearly $1 billion. dollars in taxes for the coming year on groceries, gas and property.

“The higher cost of basic necessities is making it harder to make ends meet,” Pritzker said earlier this month during a speech at the state Capitol in Springfield. “The government should be doing more to ease the pain and put more money in the pockets of hard-working Illinois.”

Analysts say proposed tax relief efforts, like Pritzker’s, are only short-term.

“These proposals are too small and too localized to address the fundamental problem of inflation,” said David Merriman, a professor at the University of Illinois at Chicago.

AT THE PUMP

State relief efforts come as Washington Democrats proposed bills in the Senate (S. 3609) and House this month to temporarily suspend the $18.4 federal gasoline tax cents per gallon until next January 1st. Some Senate Republicans called it a “trick.” but the White House said it was keeping all options on the table.

The proposal has drawn swift opposition from transportation and construction groups who say it would hurt the already strained Highway Trust Fund, which is backed by the gas tax and funds federal highway and transportation programs. in common.

“These short-sighted solutions will increase debt financing by billions and bring greater uncertainty to the solvency of the surface transportation system,” said Michael Johnson, president of the National Stone, Sand & Gravel Association.

Some opponents, including the chairman of the House Transportation and Infrastructure — US Rep. Peter DeFazio, D-Ore. – also claim that energy companies will pocket the savings instead of lowering prices.

California Democratic Gov. Gavin Newsom wants to delay a state gas tax hike, calling it a “modest $523 million gas tax holiday.” It was pushed back by Democratic state lawmakers concerned about its impact on the economy.

Republican Florida Governor Ron DeSantis wants to provide $1 billion in aid to suspend the state’s gas tax for millions of Floridians for five months, which should save an average family $200. The state’s House Ways and Means Committee on Thursday proposed a tax package that would establish sales tax vacations, but does not include DeSantis’ proposal to suspend the US gas tax. State.

Rhode Island hopes to use its $600 million budget surplus to completely eliminate the state’s gasoline tax this year.

“Our state budget benefits from inflation because the gasoline tax generates unexpected new revenue, said Jessica de la Cruz, Rhode Island’s Republican Minority Whip. “Meanwhile, Rhode Islanders are struggling to balance their budgets with no relief in sight.”

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