Over the past two years, state spending has ballooned.Ī survey from the National Association of State Budget Officers shows state general fund spending increased 12.6% in fiscal year 2023, totaling $1.2 trillion. “But as collections decline, as the cost of the tax cuts grow, states are really going to be potentially pinched over the next five to 10 years.” State budgets are strong (for now) “The real risk for states is that they’re being a bit penny wise, pound foolish by thinking that they can afford a tax cut in the short term because of those surpluses, because of reasonably strong revenue growth of late,” he said. – Wesley Tharpe, senior adviser for state tax policy at the Center on Budget and Policy PrioritiesĪdditionally, many states continue to make regressive tax changes that benefit the wealthiest taxpayers, he said. The current trend may leave states with less money on hand for education and health care, the top drivers of state spending, Tharpe said. Tharpe said the wave resembles those that followed economic booms in the 1990s and in the years following the Great Recession of 2008, though states now are cutting deeper than ever before. “We really are in the midst of a tax-cut wave right now,” said Wesley Tharpe, senior adviser for state tax policy at the Center on Budget and Policy Priorities, a research and policy institute that advocates for left-leaning tax policies. The current state windfall means Oregon will credit taxpayers an average of $980 on their 2023 personal income tax returns when they file next year, according to the state Office of Economic Analysis. Oregon, for instance, will return a record $5.6 billion to taxpayers through the state’s “kicker,” which is triggered when state revenues exceed official projections by at least 2%. Other states have implemented more targeted measures or relied on so-called revenue triggers, which usher in tax cuts or rebates if state revenues reach certain benchmarks. Many have slashed income tax rates across the board. Since 2021, half of all states have cut personal income tax rates, according to the Tax Foundation, a conservative-leaning tax policy nonprofit. So far this year, at least 15 states have cut income taxes, according to the Institute on Taxation and Economic Policy, a liberal tax policy nonprofit. But some experts think states have cut too deep, using short-term revenue trends to justify permanent reductions in state revenue, often through cuts that benefit the wealthiest residents. And they warn that some states already are starting to bring in less money. Many lawmakers view tax cuts as a logical response to boom times: returning excess taxpayer dollars to taxpayers. Strong consumer spending, increasing property values and inflation have boosted state revenues along with an influx of billions from the federal government. “Everyone feels the pinch,” Healey said, “and our future starts to shrink.”įlush after years of thriving economies, states this year have continued a yearslong trend of tax cutting. The increasing cost of living in Massachusetts pushes young adults to leave the state, she said, and prevents renters from saving enough for a house down payment. Signing the legislation in Springfield earlier this month, Healey framed the cuts as a means of combating rising prices that have forced working parents to choose between the benefits of work and the costs of child care. Maura Healey just celebrated passage of the first tax cuts the state has seen in more than 20 years. Estimated to cost about $1 billion over the next four years, the changes will reduce estate taxes and capital gains taxes while expanding child and family tax credits and earned income tax credits. In reliably liberal Massachusetts, Democratic Gov. It’s not just red states that are slashing taxes. And Republicans, who control both chambers and the governor’s office in North Dakota, plan to continue their march toward eliminating the state income tax Headland said he plans to introduce such a bill when the legislature reconvenes in 2025. In a special session last week, the legislature is considering more tax cuts that would exempt about 50,000 North Dakotans who earn $60,000 or less from income taxes. The cuts leave North Dakota with the lowest tax rate among the states that collect income taxes. Headland was among the Republicans who negotiated terms of the legislature’s $515 million tax cut this year - 70% of which came from lowering personal income tax rates. “The surplus was strong, and we believe it’s going to be sustained into the future,” said state Rep. With a $750 million budget surplus on hand, there was little doubt whether North Dakota lawmakers would cut taxes earlier this year - the question was how much.
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