BEYOND THE NUMBERS
States Used 2019 Legislative Sessions to Boost Revenue for Schools, Other Services
With a new fiscal year set to begin in most states on July 1, state policymakers have raised revenue for public investments in schools and other areas that will lay a strong foundation for stronger long-term economic growth, and they’ve proposed additional revenue increases that need voter approval.
Many of the revenue increases, like New York’s millionaires’ tax extension or New Mexico’s closing of corporate tax loopholes, will also make state tax codes fairer by basing them more on taxpayers’ ability to pay — a needed change given the “upside down” tax systems of nearly all states, requiring the most from those with the least. Other revenue boosts, like the gas tax increases of three states, will disproportionately burden low-income families and communities of color, even as they raise much-needed funds for public projects.
States have made these and other revenue increases in the fiscal year that’s now ending:
- New York extended its millionaires’ tax, raising over $4 billion, and expanded an existing “mansion tax” on the most expensive homes. Proposals to expand the millionaires’ tax and create a new tax on multimillion-dollar second homes, however, failed to pass.
- Oregon adopted a new “commercial activities tax” that will raise more than $1 billion a year for new investments in early education and other school system improvements.
- Minnesota will raise more than $600 million a year for health care with its permanent extension of a tax on health care providers that was set to expire.
- New Mexico passed a tax reform package that will raise about $70 million a year by closing loopholes that enabled profitable corporations to avoid taxes, reducing a tax break for capital gains income from which the wealthiest New Mexicans benefit the most, and increasing the state’s top personal income tax rate (contingent on state revenues growing by less than 5 percent next year).
- Washington will raise over $800 million over the next two years with its new “mansion tax” (built on top of an existing flat-rate real estate transfer tax) and an increase in its tax on business gross receipts, among other changes. The new revenues will fund investments in higher education, mental health services, and K-12 schools.
- Connecticut will raise more than $50 million a year with its expansion of its mansion tax and its tax increase for pass-through businesses — such businesses as partnerships, S corporations, and sole proprietorships in which the owners report their income on their individual tax returns, and which face sharply reduced federal income taxes due to the 2017 tax law. A proposal to create a surtax on capital gains that would have raised $262 million a year failed to gain final approval.
- Hawaii will raise about $5 million a year by increasing the estate tax’s top rate, affecting people inheriting estates with more than $10 million in assets.
- Alabama, Arkansas, and Ohio increased their gas taxes, which will raise a total of more than $1.2 billion for transportation projects in those three states.
Meanwhile, Illinois lawmakers have placed a proposal to modernize the state’s income tax on the 2020 ballot for voters to decide. The “Fair Tax” proposal, which includes six income tax brackets, a higher corporate tax rate, an expanded property tax credit, and a new child tax credit, would raise about $3.4 billion a year, according to Governor J.B. Pritzker’s office. And Colorado lawmakers approved legislation that lets voters decide this fall whether to ease the state’s severe constitutional limit on revenue growth — known as the “Taxpayer Bill of Rights,” or TABOR — to better invest in priorities including education and infrastructure.
Along with these new revenues gained, states including Colorado, Kansas, Missouri, Nebraska, and West Virginia preserved revenue by rejecting major tax cut proposals. And five states (California, Maine, Minnesota, New Mexico, and Ohio) enacted improvements to their earned income tax credits (EITCs), which boost the incomes of low-wage workers, while other states (Delaware, Oregon, Michigan, and Rhode Island) are still considering EITC improvements.
Senior Vice President for State Fiscal Policy and Co-Leader of the State Fiscal Policy Division