State and local government relations company MultiState Associates is predicting that lawmakers will move quickly to wrap up legislative work this session so that they can get out onto the campaign trail.
“Sessions during an election year are always a little slimmer, since fewer states are in session, some legislatures have abbreviated calendars, and politicians are wary about big policy change when they are going to face voters in the fall,” explained Ryan Maness, senior policy analyst and tax counsel at MultiState. “On this last point, our own research suggests that states enact about 40 percent fewer tax policy changes in even-numbered years.”
On top of these factors, this year’s session coincides with the mid-term of a first-term president, increasing the stakes for the November elections and further spurring everyone out of the capitol and onto the campaign trail.
The practical upshot of this is that the bulk of legislative work might conclude in the spring, rather than the early summer, and major reform ideas could move from introduction to enactment quickly.
Although these traditional mid-term political dynamics should keep many major tax reform efforts from becoming law, there are a few high profile debates to be aware of, according to Maness:
Indiana – Last summer, there were early indications that Indiana lawmakers might push for tax reform in 2022. But, in December, sources on the ground indicated those plans had changed. Despite this, in the early days of the session, lawmakers introduced two bills (SB 372 and HB 1083) that would have aggressively changed the state’s tax code. Based on the action on these bills to date, they don’t appear poised to advance.
Iowa – In her Condition of the State address, Governor Kim Reynolds called for corporate and personal income tax rate relief. While legislative leaders agree with the governor about the need for tax cuts, they have different ways of going about it. The House favors reducing only the personal income tax rates. The Senate’s newly released bill (SSB 3074) eliminates the personal income tax entirely, reduces the corporate income and franchise taxes, and applies the sales tax to new digital goods and services. This will lead to negotiations about how much taxes should go down and what mechanisms to employ to achieve those reductions.
Kentucky – There have been rumblings in Frankfort about major tax reform, and last November’s Tax Foundation report gave new credibility to this speculation. As of this writing, lawmakers haven’t released a legislative passage, but something significant is expected in the near future. Policy details are still unclear, but judging from the Tax Foundation’s report there is a strong likelihood it would include income tax relief and sales tax base expansion.
Mississippi – Governor Tate Reeves has said that eliminating the personal income tax was one of his primary goals for this legislative session, but he has not released further details. The governor has said he doesn’t want to use a tax swap to replace the lost revenues, but House leaders worked quickly at the beginning of session to pass HB 531. This bill meets the governor’s personal income tax target, but also phases out the tax on groceries, increases the sales tax rate, and increases the telecommunications tax rate. It’s unclear whether Reeves will acquiesce to this proposal or stick to his no-tax-swap position.
Nebraska – Property tax relief is a perennial goal among lawmakers in Nebraska, but Governor Pete Rickett’s pro-tax reform statements during the State of the State and last year’s report on tax reform options has increased the chances that something happens this year. It’s still unknown what proposal leadership will line up behind, but we are currently watching a pair of bills that cut personal income tax rates without a tax swap (LB 832 & LB 939) and LB 1264. This would eliminate most tax expenditures, expand the sales tax base to new services, and cut the personal income tax. However, the chances that this last bill becomes law recently took a significant hit when Ricketts stated he wouldn’t sign off on any sales tax increases this session.
