Tax Relief

As President Joe Biden pushes for trillions of upper federal taxes, many Individuals will obtain state tax breaks

WASHINGTON, DC – APRIL 28: United States President Joe Biden speaks ahead of a joint congressional session in the … [+] House Chamber of the U.S. Capitol April 28, 2021 (Photo by Melina Mara-Pool / Getty Images)

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When the American Rescue Plan Act (ARPA) was incorporated into law by President Joe Biden in March, many worried that the law prohibiting the use of federal funds to directly or indirectly offset state tax cuts would discourage governors and lawmakers To obtain tax breaks and rate reduction reforms that were already in the works. Four months into 2021, it is clear that state officials will not allow ARPA’s ban on tax cuts, challenged by a number of attorneys-general in court, to deter them from issuing state tax breaks for their constituents who are ready later in the year be affected by significant federal tax increases.

Take Arizona – a state that has been a national leader in recent years in terms of professional license reform, criminal justice reform, and other areas of policy innovation – where Governor Doug Ducey (R) will soon see a tax reform plan on his desk that would serve as a model that reformers want to emulate in other state capitals. The tax proposal pending in Arizona legislature, endorsed by Senators JD Mesnard, Senate President Pro Tem Vince Leach, and House Majority Leader Ben Toma, would take over, reduce, and condense the state’s five income tax brackets at a maximum rate of 8% a flat 2.5%.

Proponents of a rate-lowering tax reform in Arizona lawmakers see this as the key to keeping the state regionally, nationally and globally competitive. Like many other states, Arizona is sitting on a budget surplus of billions of dollars. $ 1.2 billion of the state’s projected $ 3.9 billion surplus recurs. In particular, with Nevada without income tax bordering Arizona to the north, a 8% cut in the current state income tax rate would certainly help Arizona remain a relatively attractive destination for people and employers facing the difficult tax and regulatory climate in the near vicinity fleeing California and Oregon.

The expansion of the federal government pursued by President Biden and the Democrats in Congress has resulted in a series of federal tax increases totaling $ 2 trillion over the next decade. With the tax reform now passed to lower tax rates, Senators Mesnard and Leach, along with Representative Toma and others, are trying to provide state tax breaks that would help their voters offset the added cost of the major federal tax hikes that President Biden put into law would like to record this year.

Arizona is nowhere near the only western state where taxpayers are willing to receive state tax breaks that can help cut the added cost of higher federal taxes. On April 22nd, the Idaho House of Representatives approved a bill that will reduce the number of state income tax brackets from seven to five, lowering tax rates across the board. As with the Arizona proposal, Idaho lawmakers would use excess dollars to facilitate this tax cut.

State lawmakers in neighboring Montana, where Republicans took control of state lawmakers in 2020, sent laws to Governor Greg Gianforte (R) ‘s desk this week in the final days of the session, setting the state’s highest income tax rate of 6, 9% should be reduced to 6.9% 6.75%. The bill will also combine the six brackets below this maximum rate into one with a rate of 4.7%.

“We have one of the highest (income) tax rates in the region, and we need to lower that rate,” said Greg Hertz (R), Senator from Montana, a sponsor of the income tax legislation. “That’s what these bills are supposed to do for the next few years. So we’re lowering our rate to be more competitive and attract new businesses to the state of Montana.”

Mark Blasdel (R), President of the Montana Senate, touts the fact that he and his colleagues are simultaneously cutting taxes and keeping spending growth under control, which is below population growth and inflation.

“If we put together a sustainable budget, we expect an increase of less than two and a half percent for the next two years, which is well below inflation,” said Blasdel. “We’re offering over $ 120 million in tax cuts, from lowering the industrial equipment tax, which was abolished for over 4,000 small businesses, to lowering income and property taxes.”

Even lawmakers in states that already don’t have income tax are finding ways to give their voters more tax breaks in 2021. For example, Governor Ron DeSantis (R) and the Florida legislature recently approved a reduction in the state’s commercial rental tax, lowering the tax rate from 5.5% to 2%, among the nine states with no income tax.

Florida Governor Ron DeSantis holds a press conference in Miami

MIAMI, FLORIDA – APRIL 8: Florida Governor Ron DeSantis speaks to the media about the cruise industry … [+] during a press conference in Port Miami on April 8, 2021 in Miami, Florida. (Photo by Joe Raedle / Getty Images)

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“I am grateful to Governor DeSantis for signing this piece of legislation,” said Wilton Simpson (R), President of the Florida Senate. “In the future, by lowering the commercial rental tax, we will continue to help existing companies, encourage more entrepreneurs and have an even better recruiting portfolio for companies that we want to lure out of highly regulated high-tax countries.”

New Hampshire is another income tax-free state like Florida where lawmakers are pushing for tax breaks this year. Among other things, Governor Sununu and the Republicans of the court have called for an exit from the state tax on capital gains. Fortunately for Granite Staters, this much-needed tax break has been added to the state budget, which was recently approved by the House of Representatives and is now before the Senate. If enacted, New Hampshire would end up being a true state with no income tax, a status enjoyed by eight other states.

North Carolina is among the states where lawmakers have taken the most aggressive steps to eliminate income tax in the past decade. Since 2013, North Carolina lawmakers have cut the state income tax rate by nearly a third, lowering it from 7.75% to 5.25%. That year, the North Carolina General Assembly introduced legislation that would further lower the state income tax rate. Senate Bill 337, sponsored by Senator Paul Newton (R), would further lower North Carolina’s flat income tax rate, increasing it from 5.25% to 4.99%.

While there is a tendency for red governors and lawmakers to enact and propose tax breaks in 2021, residents of some blue states could experience state tax increases that come with higher federal taxes. For example, the Democratic-controlled Minnesota House of Representatives passed a $ 1 billion annual tax hike on April 22nd in a bill that would create a new top tax rate of 11.5%.

The Minnesota Democrats are defending the small business tax hike, thousands of which are individual income taxable and would be affected by the tax hike. At the same time, the state has a budget surplus and is flooded with federal funds.

“Some may say with a surplus that we don’t have to raise taxes,” said representative Kaohly Vang Her (D). “I wish that were the case. Much of the support is one-time funding. ”

While the Republican-led Minnesota Senate will take control of these tax hike efforts, in Connecticut it will be a Democrat, Governor Ned Lamont, who will be responsible for stopping the tax hikes pursued by members of the Connecticut-controlled legislature from Governor Lamont’s own party.

“We’re starting to get economic impetus in Connecticut, and I don’t want to do anything about it,” said Governor Lamont of his opposition to the Democratic Legislature’s proposed tax increases.

“It’s the same games that got us in trouble for the last 30 years,” added Lamont. “And in my opinion, reacting to this with more taxes is simply not the way we as a state should go.”

While the White House and Congress proposals sound terrible to those who think taxes are already too high and the federal government is already spending too much, what is happening in state capitals across the country in 2021 is cause too much Optimism and solemnity among the citizens Conservatives and classical liberals. At the same time, President Biden and the Democrat-led Congress are setting out to pass trillions of dollars in new spending and higher taxes. Governors and lawmakers in much of the country are busy moving the other way, reducing the tax burden and expanding school selection and reducing regulatory burdens. For Republicans hoping to escape their minority status on Capitol Hill by presenting voters with an attractive alternative approach to governance in 2022, the Red State governors and lawmakers offer a wealth of examples for candidates to point out.

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