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Tax cuts, and a few hikes, dominate the start
of 2001 state legislative sessions
By Kay Bell • Bankrate.com
State legislatures are gearing up across much
of the United States for their 2001 sessions. That means taxes --
both cuts and increases -- will be a major focus.
Encouraged by budget surpluses, lawmakers returning
to work in Oregon, Utah, New Mexico, Wyoming and Idaho already have
a collection of tax cuts to consider. But a North Carolina legislative
panel says vehicle and highway taxes must be raised there to keep
up with that state's growing population demands.
Oregon capital gains
Oregon lawmakers returned to their Portland offices Jan. 8 and were
immediately greeted by a bill that would cut state capital-gains
tax rates.
Currently, capital-gains income is taxed at
the same rate as ordinary income -- 9 percent for most individual
taxpayers and 6.6 percent for corporate taxpayers. S.B. 67 would
reduce that to 4 percent for both personal and corporate filers.
Although state studies show that capital gains
account for only about 1 percent of corporate taxable income, the
bill has the strong support of the state's largest business lobbying
group and is likely to pass the Republican-controlled legislature.
However, Oregon's Democratic governor is not as thrilled with the
measure. Gov. John Kitzhaber says it would cost the state too much
money. A similar bill in the last session carried an estimated annual
cost to the state treasury of $226 million.
Multiple Utah tax changes
expected
Utah lawmakers convened on Jan. 15 and the House Speaker is hopeful
that surplus state budget money will allow for several tax breaks,
including:
- Creation of a state Earned Income Tax Credit
to help out lower-income workers. An early proposal would target
families earning less than $30,000 a year.
- Indexing of individual income tax brackets
for inflation or deflation. Advocates of this move note that Utah's
income tax brackets were created in 1973 and have not been changed
since, pushing 60 percent of the state's filers into the top income
tax bracket.
- Overall tax simplification, which supporters
say would end use-tax confusion and take many low-income taxpayers
off the state tax rolls.
Utah Gov. Mike Leavitt reportedly has indicated
he supports the tax measures. However, he wants to see a portion
of the state's surplus also go to higher education programs.
New Mexico income tax
rate cuts
The Land of Enchantment would be the land of lower income taxes
if Gov. Gary Johnson gets his way.
Johnson proposes phasing in over three years
a $75 million, across-the-board personal income tax cut for New
Mexico residents. The state's top tax rate would go from 8.2 percent
to 7.7 percent for joint-filing couples with incomes of more than
$100,000. The lowest tax rate would drop from 3.2 percent to 2 percent.
The governor also wants to establish a "zero bracket," which would
drop about 65,000 taxpayers from the tax rolls.
The New Mexico legislature got the governor's
plan, similar to one he offered in 2000, when it convened Jan. 16
for a 60-day session. The earlier proposal failed, but tax cut supporters
say the 2001 measure is complemented by an estimated $400 million
budget surplus, making prospects for a personal income tax cut appear
more promising.
Wyoming sales tax could
be cut
With a treasury full of mineral revenue, Gov. Jim Geringer told
Wyoming residents that he would cut the state's sales-and-use tax
one-half percent if state lawmakers leave $35 million in the state's
general fund.
Wyoming's states sales-and-use tax rate is 3
percent. Local governments are allowed to add an extra penny to
the rate. State law allows the governor to order a half-percent
reduction in sales-and-use taxes if general fund balances meet certain
criteria.
In his State of the State address on Jan. 10,
Geringer told the legislature the state could afford to set aside
$35 million since the latest budget surplus forecast hits almost
$695 million. That unexpectedly large amount is due almost entirely
to Wyoming's dependence on the minerals industry for money and the
recent "extraordinary demand" for natural gas, according to state
officials.
The new figure is "nothing short of phenomenal,"
Geringer said. "It's like having a year's income in advance."
Any reduction in the sales-and-use tax would
be for only one year. Geringer said the cut would save Wyoming consumers
$80 million a year.
Idaho governor proposes
tax rate cuts
Idaho Gov. Dirk Kempthorne told the state legislature on Jan. 10
that a full state treasury supports his proposed $140 million tax
relief package.
Kempthorne wants to spend $40 million for permanent
tax breaks and use the rest as one-time benefits. The major individual
tax reform components are:
- A permanent one-tenth-of-1-percent reduction
in the personalincome tax rate. Such a cut -- from 8.2 percent
to 8.1 percent -- was approved by the Idaho legislature last year,
but the cut is only through 2001 unless state lawmakers take further
action.
- A one-time 10 percent personal income tax
rebate on taxes paid in 2000, capped at $2,500.
- A change in the current state child care
income tax deduction to make it a direct tax credit equal to one-half
the federal tax credit.
- A permanent hike from $100 to $500 in the
elderly and disabled tax credit.
- A permanent doubling of the current $30 senior
citizen grocery tax credit.
Kempthorne's office expects the tax proposals
to be formally drafted as bills to go to the state legislature shortly.
The annual Idaho legislative session usually adjourns by late March
or early April.
North Carolina taking
the other, higher tax route
Meanwhile, a North Carolina legislative committee is looking at
raising taxes and fees.
On Jan. 2 the state's Transportation Finance
Committee issued a report calling for $550 million more in motor
vehicle taxes and fees to help pay for road construction and maintenance,
as well as public transportation projects.
The committee of state lawmakers and private
sector experts was formed to make recommendations on state transportation
financing issues. It found that tax and fee increases are necessary
to meet growing transportation infrastructure needs, especially
since North Carolina's population has increased by 21 percent over
the past 10 years
Specifically, the panel urges increasing the
state's highway-use tax from 3 percent to 4 percent. The highway-use
tax is imposed on the retail price of all motor vehicles sold and
registered in the state. According to the report, North Carolina's
highway-use tax is "near the low end" for southern state rates,
which range from 2 percent in Alabama to 6.25 percent in Texas.
Additional money would come from raising the
state fuel tax by 2 cents a gallon, the committee said. The motor
fuel tax currently is 23.1 cents a gallon and is regularly adjusted
based on wholesale prices. The recommended 2-cent increase would
be to the baseline and would not be adjusted. Finally, the committee
wants to double vehicle registration fees from $20 to $40 for passenger
vehicles and automatically adjust them in the future for inflation.
The recommendations require approval by a legislative
oversight committee before being sent to the General Assembly. The
oversight committee OK is expected, but the tax hike proposals are
likely to face stiffer opposition when the General Assembly reconvenes
Jan. 24.
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