Some States, Flush With Cash, Are Sending Money to Taxpayers
Ten years after the recession, many states have revenue surpluses and plan to boost spending or cut taxes
State finances are enjoying flush times and some states are sending that bounty back to taxpayers.
Arkansas this month lowered its top personal income-tax rate by 1 percentage point to 5.9% and South Carolina has proposed an income tax rebate to all residents who file returns. In Florida, the governor has proposed lowering property and sales taxes. The givebacks come even as all three states proposed increased spending on education and other priorities.
Ten years after the recession, many states have the choice of what to spend revenues on rather than what programs to cut. The National Conference of State Legislatures found in a fall survey that 48 states expected to meet or exceed their revenue expectations.
“States have come off of a strong last fiscal year, and the economy is strong so they’re expecting it to continue,” said Kim Rueben, a senior fellow at the Tax Policy Center. “It could mean more spending or cutting taxes.”
The current stability is welcome after several years in which revenues have been uneven for some states, including those that rely heavily on natural resources. Revenues have also gotten a boost as more than half of states have increased gasoline taxes in the past five years.
At the same time, states are continuing to put away more money in their rainy-day funds which can be tapped during recessions. Between fiscal 2010 and fiscal 2018, those funds grew nearly $33 billion in total, according to the National Association of State Budget Officers.
To be sure, not all states are out of the woods. Illinois and Connecticut face big deficits and are proposing tough measures, such as raising taxes and requiring towns to pay a portion of pension costs. And New York forecasts that it will be $2.3 billion short, which some state officials blamed partly on changes from President Trump’s tax law.
Revenues may be lagging in New York and some other states this year partly because a new $10,000-a-year cap on state and local tax deductions pushed many people to pay taxes on some income last year, say tax experts.
Last week, Arkansas Gov. Asa Hutchinson signed into law a cut to the state’s top income-tax rate to 5.9% from 6.9% over two years, beginning next January. The cut follows earlier income-tax reductions in 2015 and 2017.
He called it a historic shift in Arkansas tax policy that would help make the state more attractive to businesses considering relocating there, and comes as the state has a long-term reserve fund balance of $125 million.
“As we attract more business, we will create more jobs, and higher-paying jobs,” said Gov. Hutchinson. “It sets the right pattern for the future.”
South Carolina has $1 billion in new revenue from a surplus over two years, and Gov. Henry McMaster wants to refund $200 million to the state’s taxpayers. The exact amount people receive will depend on how many file tax returns are filed. In the prior year, 2.4 million returns were filed.
Meanwhile in Florida, Gov. Ron DeSantis has called for more than $335 million in cuts to property and sales taxes. Gov. DeSantis said he also wants to spend $625 million on environmental issues, with about half going toward cleaning water in the Everglades.
All three Republican governors want to boost education spending even as they lower taxes or offer refunds.
In Wisconsin, which has a projected surplus of more than $600 million, the Republican-led legislature voted for a tax cut. Gov. Tony Evers, a Democrat, vetoed the measure, saying he didn’t believe a tax cut should be paid for with surplus funds.
But Gov. Evers has his own tax-cut proposal in his two-year budget, which is set to be released Thursday. He wants a 10% tax cut for middle-class families, to be funded by rolling back tax credits for manufacturers.
Robin Vos, the Republican speaker of the state Assembly, criticized the governor’s plan. “Only a Madison liberal would believe the only way to cut taxes is to raise taxes on others,” she said.
Write to Kris Maher at kris.maher@wsj.com
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