Tax Relief

2021 was a stellar 12 months for state earnings tax relief, why 2022 can high it

Denver, Colorado and the Rocky Mountains at dawn


The new budget, recently approved by the Republican-led North Carolina General Assembly and Governor Roy Cooper (D), makes it 13 states to see income taxes cut in 2021. This number could be increased by the end of the year thanks to a. rise to 14th special session of the Arkansas Legislature due in December to pass income tax breaks.

But as active as 2021 was on federal income tax cuts, 2022 is already becoming an equally eventful and possibly even busier year. Residents of three states are expected to receive income tax breaks as early as 2022, thanks to state laws that trigger them automatically.

Two of these three states, Oregon and Colorado, are controlled by Democrats. The other, Indiana, is ruled by Republicans. These three states have achieved such large budget surpluses and reserves that automatic tax breaks will be triggered in 2022 under current state law without the legislature taking any action.

The Oregon Constitution includes protection for taxpayers called a “kicker.” According to the kicker, the Oregon state government must reimburse taxpayers if tax revenue exceeds 2% of forecast revenue. Thanks to the kicker, Oregonians are expected to receive $ 1.9 billion in refunds in the coming year, a new record. Economists predict another kicker in 2024, one for $ 558 million.

Colorado, like Oregon, is another Democrat-controlled state where taxpayers are slated to receive a temporary income tax cut in 2022, automatically triggered by a tax and spending cap in the state’s constitution. Colorado’s Taxpayers Bill of Rights (TABOR), a 1992 constitutional amendment, introduced what remains the only state spending limit in the country tied to combined population growth plus inflation. Income that exceeds this spending limit must be returned to taxpayers.

TABOR allowed sales growth of up to 3.1% in FY 2020-21. However, during that period, Colorado tax collectors saw an 8% annual increase in revenue that is subject to the TABOR. As a result, Colorado residents will soon receive an average sales tax refund of $ 69 for individual applicants and $ 166 for joint applicants. This sales tax break comes months after Colorado voters approve a permanent decrease in the state income tax rate.

Proposition 116 was passed in November 2020 with a margin of 56–43% and permanently lowered the state’s flat income tax from 4.63% to 4.55%. TABOR has triggered another temporary reduction in the interest rate to 4.50% for 2022.

More permanent income tax revenues could be on the way. In the meantime, after the success of Prop. 116 in 2020, enough valid signatures were submitted to appear on the 2022 ballot for another vote to reduce income tax. If voters approve this new measure, Colorado’s income tax rate would be permanently reduced from 4.55% to 4.40%.

The third state to have auto-triggered refunds for taxpayers in 2022, Indiana, saw revenue grow 14% last year. Indiana law requires taxpayers to be refunded if state reserves exceed 12.5% ​​of the general fund. These reserves exceeded 23% of the general fund that year.

As a result, the state of Indiana will refund $ 545 million to taxpayers, which will be broken down into estimated payments of $ 170 per taxpayer. That refund, due to be issued in 2022, is 62% higher than the last automatic refund in 2012. Even after the refund, Indiana will still have a surplus of 3.4 billion in fortunes. “Indiana lawmakers are already considering lowering the VAT of 7.0% in 2022.

Between the three states, in which automatically triggered tax cuts are to come into effect in 2022, and the other state capitals, in which the legislature is preparing for the submission of laws to gradually abolish our significantly lower income tax rates, is already developing in 2022 as active as 2021 when it comes to reducing or abolishing state income taxes.

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