BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

States Move On Tax Reform While Gridlock Halts Action In Washington For Next Two Years

Following
This article is more than 5 years old.

ASSOCIATED PRESS

COLUMBIA, S.C. — Arkansas Governor Asa Hutchinson received high praise from the Wall Street Journal editorial board last weekend for his new proposal to provide another round of state income tax relief. This is very much needed in Arkansas, which has the second highest top personal income tax rate in the South and one of the nation’s least competitive business tax climates. 

It’s not just Arkansas taxpayers who are expected to receive state tax relief this year. Other proposals to cut state income taxes are moving or under consideration right now in other state legislatures around the country, most of which are in session right now.

Just yesterday the Republican-controlled Wisconsin legislature sent their first bill of the year to newly-elected Governor Tony Evers’(D) desk, and it’s a sizable middle class tax cut. This tax relief package approved by Wisconsin lawmakers, which was passed by the state Assembly on Tuesday and approved by the Senate on Wednesday, increases the state’s sliding scale standard deduction, returning $340 million annually to Badger State taxpayers. 

"We've got to continue to nip away at Wisconsin's high taxes," Senate Majority Leader Scott Fitzgerald (R-Juneau) told Wisconsin Public Radio. 

Governor Evers called for middle class tax relief on the campaign trail last year, but the Governor is demanding that it be coupled with offsetting tax increases, including the repeal of a tax credit used by manufacturing industry employers. Legislative Republicans have expressed no interest in pairing the tax relief they just approved with tax hikes on employers in their districts. 

We are not going to raise taxes — period,” said Assembly Speaker Robin Vos (R-Rochester). “We are not going to raise taxes, especially on our job creators, when we have a huge budget surplus."

Meanwhile down in South Carolina, where the procession of 2020 presidential candidates through the Palmetto State is already underway, Governor Henry McMaster (R) and state legislators in Columbia face a challenge similar to the one faced by Governor Hutchinson and Arkansas lawmakers: an antiquated, uncompetitive tax code with rates that are too high. 

We have the highest marginal income tax rate in the southeast - the 12th highest in the nation.” Governor McMaster said during last month’s State of the State address. “Seven states have no income tax at all. Taxes of all kinds at all levels add up - little by little - to smother growth.”

While South Carolina has much going for it from an economic standpoint, which helps explains the influx of people and business into the state in recent years, the state tax code has become a competitive disadvantage. In fact, South Carolina’s top marginal rate of 7%, as Governor McMaster correctly pointed out in his State of the State address, is the highest in the South, with Arkansas’s 6.9% top rate being the region’s second highest income tax rate. 

South Carolina lawmakers, who convened a new two-year legislative session last month, are already working on plans to overhaul the state tax code in a manner that will reduce rates, complexity, and the overall burden for individuals, families, and employers. 

The current state tax code is like Swiss cheese, full of holes in the form of credits and deductions for favored interests,” says Representative Josiah Magnuson (R-Spartanburg). “Our goal is to make the tax code more fair and more flat, with lower rates on everyone.” 

South Carolina Senator Sean Bennett (R-Summerville), who is leading up tax reform efforts in his chamber, says that there is widespread consensus at the state capitol that the tax code is a problem that needs to be addressed. 

Senator Bennett and his colleagues have held three hearings in recent months, during which policy experts proposed a number of reforms to consider. In December the Tax Foundation and the South Carolina Chamber of Commerce released a report outlining a number of options for overhauling the South Carolina tax code, all of which involve rate reduction coupled with base broadening. 

If we don’t change,” Senator Bennett said in reference to the need for tax reform in South Carolina, “it’s not good for the people and it’s not good for business.” 

While the effort to reform South Carolina’s tax code is shaping up to be a multi-year effort, Wisconsin taxpayers are poised to receive income tax relief in the very near future, but that all depends on what their new governor does with the bill now on his desk. 

“I don’t think he would want his first act as governor to be vetoing a tax cut that is 100 percent for the middle class,” Wisconsin Senator Dale Kooyenga (R-Brookfield) told MacIver News Service recently when speculating on how Governor Evers might respond to this tax cut hitting his desk. 

We’ll soon find out if Senator Kooyenga is right. If he is, it will mean more income tax relief for Wisconsin taxpayers, adding to the $8 billion in tax relief enacted under Governor Scott Walker (R). 

Follow me on Twitter