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State Tax Cuts, Voting Restrictions Combine to Worsen Inequities

| By y Coty Novak

Fair taxation and representative democracy form the foundation of effective state governance by ensuring that public investments are equitably financed and decisions in the public interest reflect the needs of every community. Today, however, some states are considering changes to their tax codes and election procedures that, taken together, would erode this foundation by giving disproportionate tax benefits to wealthy (predominantly white) households and profitable corporations while taking electoral power away from low-income communities and communities of color — making it harder for them to address fiscal inequities or influence future policy decisions at all.

Lawmakers in multiple states are pushing deep tax cuts as states see stronger-than-expected revenues driven largely by the federal government’s robust fiscal response to the COVID-19 recession. At the same time, some states are taking steps that would narrow influence in the political process to the same constituencies that benefit most from many of the proposed tax cuts. Rather than further consolidate power in the hands of a wealthy minority, states should broaden access to the electoral process and make investments that address racial and economic inequities, taking into account the needs of all residents.

Most state tax systems already ask more (as a percentage of income) from households at the bottom of the income ladder than from those at the top, in large part due to their heavy reliance on regressive taxes such as sales taxes and fees. In many states, the income tax part of the revenue system helps balance the tax burden somewhat by requiring those with higher incomes to pay higher rates. A graduated income tax promotes racial as well as economic equity because white families are three times likelier than Black or Latino families to be among the top 1 percent of earners.

Yet lawmakers in states including Iowa, Mississippi, South Carolina, and West Virginia are pushing for income tax cuts that would deliver outsized gains to wealthy residents and profitable corporations. Proponents’ claims that cutting taxes would spur further economic growth or help families cope with inflation don’t stand up to scrutiny. Decades of evidence shows that state tax cuts instead cause large revenue losses, which lead in turn to cuts in vital public services that everyone relies on. Tax cuts also further entrench racial gaps by shifting the cost of public investment even more to low- and moderate-income households, who are disproportionately Black and brown.

Some of these same states are also considering electoral measures — including strict voter ID laws, restrictions on absentee voting, and elimination of some polling places — that have been shown to make it harder for low-income people and people of color to vote.

For example:

  • Arizona voters approved a 2020 ballot measure to impose a 3.5 percent income tax surcharge on high earners to help fund public schools. In 2021, lawmakers effectively undid this vote by passing a $2 billion tax cut that ensured wealthy residents would face a tax rate no higher than that in place before the referendum. A measure on the ballot this November would repeal those cuts, but lawmakers are now poised to nullify that upcoming referendum by repealing the bill themselves and replacing it with a new version that would continue to shield the state’s wealthy minority from the will of the voters.
  • Iowa Governor Kim Reynolds signed a bill into law March 1 to replace the state’s graduated personal income tax with a flat 3.9 percent tax while retaining credits and deductions that would allow wealthy Iowans to pay even less. This will eliminate nearly $2 billion in annual revenue when fully phased in and worsen existing inequities by shifting even more of the state’s tax burden to residents least able to afford the cost. Lawmakers are simultaneously considering adding an administrative step to absentee voting that’s similar to a Texas law that recently resulted in the rejection of thousands of mail-in ballots.
  • Mississippi lawmakers are considering two tax-cut plans, one of which would phase out the income tax entirely, with nearly a third of the tax cut going to the state’s top 1 percent of earners and nearly half to the top 5 percent. Meanwhile, the House and Senate have each passed bills allowing state election officials to flag potential non-citizen voters and disenfranchise them if they don’t submit proof of citizenship within 30 days of a request, even though state law already forbids non-citizens from voting. Such restrictions would likely have a chilling effect on voting in communities that include immigrants by forcing citizens who are eligible but erroneously “flagged” to jump through additional hoops in order to exercise their right to vote.

These efforts are the latest in a long history of policymakers simultaneously pursuing regressive tax policies and anti-democratic measures that weaken the political power of certain communities. For example, Mississippi’s 1890 constitutional convention adopted a constitution that disqualified most Black residents from voting and authorized new tax cuts for the owners of cotton mills and other factories. The convention also made it much harder to ever raise taxes by adding a constitutional requirement that any tax increase be approved by a three-fifths legislative vote — a barrier that remains in place today. In the same era, as states across the South adopted Jim Crow voting restrictions, a number of them (including Alabama, Arkansas, Missouri, and Texas) also adopted strict limits on property taxes, which protected the wealth of former slaveholders and remain on the books.

With revenues rising and the economy recovering from the effects of the pandemic, states now have an opportunity to ensure that prosperity is broadly shared. Choosing instead to approve voter suppression measures alongside costly tax cuts aimed primarily at the wealthy would only worsen existing inequities, since the communities most harmed by the tax proposals would be further marginalized through the anti-democratic changes to the electoral process. This dual assault threatens to weaken our democracy by effectively shielding policymakers from the consequences they might face if electoral power was fairly distributed while costing billions of dollars in revenues that could be used to broaden opportunity through investments in public education, health care, infrastructure, and housing. State lawmakers should chart a more forward-looking course.

CBPP State Fiscal Policy intern Coty Novak contributed to the research and writing of this post.

Whitney Tucker
Directora de Investigación en Política Fiscal Estatal
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Coty Novak