Just days after calling for unity and “shared sacrifice” in their inaugural speeches, conservative governors, joined by legislators across the county, have proposed new tax cuts for business and top-earners alongside cuts to critical expenditures for low-income working families and tax increases on the working poor. As the Institute on Taxation and Economic Policy writes, in the face of massive budget shortfalls and declining revenue, many states “are poised to enact harmful cuts in existing state taxes that could weaken states’ ability to provide core public services for years to come.” “The threats to state tax fairness and adequacy are mounting by the day,” ITEP noted.
Budget proposals in the following states are particularly alarming:
Michigan: The state’s Earned Income Tax Credit, overwhelmingly passed in 2006, is being threatened by legislators eager to fill budget shortfalls at the expense of low-income working families. EITC has been recognized at the federal and state level as extremely effective in reducing poverty and rewarding work. But Michigan’s legislative leaders are considering cutting EITC while supporting Gov. Rick Snyder’s (R) proposal to implement a new series of expensive business taxes that could cost the cash-strapped state $3.3 billion.
New Jersey: Gov. Chris Christie (R) set the precedent for Michigan lawmakers last year when he reduced funding for the state’s EITC program to close a budget shortfall, even while implementing a series of lucrative tax cuts for large corporations. Now, Christie is considering cutting the state’s Medicaid program and is calling to abolish a cap on college tuition increases at the state’s public universities — a cap Christie’s own administration implemented last year.
Florida: Gov. Rick Scott (R), despite facing a $2.5 billion budget shortfall, has proposed eliminating his state’s corporate income tax and reducing property taxes, making Florida’s regressive tax system even more unfair for its low-income residents. Tax cuts for corporations will be offset by deep cuts to Florida’s already “lean” budget, including a proposed $1.8 billion cut to the state’s Medicaid program.
Georgia: Friday, a bi-partisan Georgia panel proposed balancing the state’s budget through deeply regressive tax increases on groceries, water and phone service, while cutting the state’s personal and corporate income taxes. Higher sales taxes, especially on essentials, will dramatically shift the state’s tax burden away from large corporations and towards the poor, working families, and seniors. The panel has an ally in Gov. Nathan Deal (R), who campaigned on lowering corporate rates, and Republicans in the legislature have been long-time supporters of a more consumption-based approach to taxation.
As the Center for Budget and Policy Priorities has noted, deep spending cuts coupled with generous corporate tax credits not only punish low-income families, they stall economic recovery and are largely ineffective in promoting growth and job creation. Instead, states need to pursue smarter, more equitable cuts, fair revenue increases, and, as stimulus funds begin to run out, the federal government may need to provide additional relief for state budgets. But in the 112th Congress, this type of support seems unlikely: the recently passed tax cut deal, along with House Republicans’ pledge to cut discretionary spending, will increase the tax burden on low-income families and widen statehouses budget shortfalls.