JEFFERSON CITY, Mo. (AP) — States flush with cash are quickly cutting taxes.

With Wednesday’s passage of Missouri’s income tax cut, about two-thirds of US states have adopted some form of tax relief in 2022.

For taxpayers, this trend means billions of dollars back in their pockets. Some have already received rebate checks. Others, such as Missouri, will save taxes for several years.

One-time rebates — typically totaling a few hundred dollars per taxpayer — were more common in Democratic-led states, though some Republican-led states also provide reimbursements.

Many Republican-led states have instead opted for permanent, sometimes phased, income tax rate cuts. In such cases, workers may see a gradual reduction in the amount of taxes withheld from their paychecks and potentially receive a refund when they declare their annual income on their tax returns.

Look here the tendency to lower taxes across the USA

BUDGET SURPLUS

The shutdown of the economy with the onset of the coronavirus pandemic caused a sharp drop in revenues for many states in 2020. But these losses were short-lived. As the economy recovered, government tax revenues returned. At the same time, the federal government provided taxpayers with billions of dollars in pandemic relief, which helped boost consumer spending. The federal government also provided billions of dollars in aid directly to states, further strengthening their finances.

Fiscal year 2022, which ended June 30 for most states, was the second consecutive year of significant tax collection growth. Many states reported their largest surpluses, according to the National Association of State Budget Officers. It allowed states accept tax rebates and discountseven as spending on government programs and services increases.

TAX BENEFITS TRENDS

At least 33 states have approved some form of tax relief this year.

Income tax rates are reduced in 14 states. All have legislatures controlled by Republicans, except New York, where Democrats hold power the previously approved reduction in the tax rate accelerated. At least 15 states have approved one-time cuts from their surpluses, including 10 led by Democratic governors and legislatures, four by Republicans and one – Virginia – with divided party control.

In addition to general income tax cuts and benefits, some states have approved targeted tax breaks for families or retirees. Others lowered food sales taxes or suspended gas taxes to offset the effects of inflation.

Georgia Governor Brian Kemp signed the executive order on Monday extend the state’s gas tax suspension for another month, until after the elections on November 8. Kemp estimates the state has already lost about $800 million in gas taxes that benefit roads. He plans to fill it using some of the state’s $6.6 billion surplus.

MISSOURI TAX REDUCTION

While signing legislation on income tax reduction Missouri Gov. Mike Parson said Wednesday that the $760 million tax cut, if fully phased in, would be “the largest tax cut in state history.”

Under previous law, Missouri’s top individual income tax rate was set to drop from 5.3% to 5.2% in January, with the possibility of a gradual reduction to 4.8% if income growth triggers are met in subsequent years. The new law will lower the tax rate to 4.95% in January and exempt the first $1,000 of income from taxation. The tax rate could drop to 4.8% in 2024 if state tax revenues rise by at least $175 million from the high mark of the previous three years.

Missouri’s new law also allows for three additional annual tax cuts that could eventually bring the tax rate down to 4.5%. Each cut would only occur if state revenue rose by $200 million, adjusted for inflation, from the high mark of the previous three years, and also exceeds the inflation-adjusted baseline.

Parson said the cut is a 5% reduction in people’s taxes. The nonprofit Missouri Budget Project estimates that a family making $30,000 a year would save $17 next year and $29 after the law is fully implemented. For a family earning $152,000 a year, the savings in the first year will be $348, and the final savings will reach $759.

Parson also signed legislation Wednesday that authorizes $40 million in annual agricultural tax credits for, among other things, meat processors, urban farmers and biofuel retailers.

HESITATION TO REDUCE TAXES

Some states have bucked the trend of lower taxes. Politically divided government has made it difficult to reach an agreement between Republicans and Democrats in states such as Minnesota and Wisconsin. But the tax breaks have also failed in some heavily Republican states.

An attempt by Republicans to call a special session of the Montana Legislature to secure tax credits did not receive enough support in September.

Oklahoma Gov. Kevin Stitt, a Republican, called the state’s GOP-led legislature into special session in June — and again in September — to consider a cut in the grocery sales tax and a cut in the personal income tax rate. But lawmakers put it off without taking anything.

West Virginia Gov. Jim Justice, a Republican, also called lawmakers into a special session this summer to consider cutting the income tax. But the Republican-led legislature did not pass it. Senate GOP leaders have proposed lowering personal property taxes instead. In November, voters will decide on a constitutional amendment that would allow lawmakers to repeal the property tax on business equipment and inventory. Justice opposed the proposal, saying it could hurt schools and districts that rely on property taxes.

VOTING PROPOSALS

Despite recent tax breaks, voters in some states will consider raising taxes for certain purposes this November.

California provided discounts from $200 to $1,050 this year to individuals making less than $250,000 a year and households making less than $500,000. The proposal, which is being considered by voters, would impose an additional tax of 1.75% on personal income above $2 million, and the proceeds would be used to fund electric vehicle and wildfire prevention initiatives.

Tax collections are rising fast in the state of Massachusetts enacted the law of decades which will return more than $2.9 billion to taxpayers, and audits of the refunds will begin in November. That same month, voters will consider a proposed tax increase of more than $1 million to benefit education, public transportation and roads.

This year, Colorado accelerated the payment of the constitutional rebate of $750 per person and $1,500 for couples. The checks came ahead of the fall election, in which voters will weigh a pair of measures — one that cuts the income tax rate from 4.55% to 4.4%, the other that increases the tax on incomes over $300,000 to benefit school meal programs.


Follow David A. Lieb at: http://twitter.com/DavidALieb

Source link