It’s really not all that complicated. State leaders are cutting taxes because their treasuries are full and taxpayers expect some relief as a result. Here’s how Governing magazine staff writer Sophie Quinton explains it,
Both Republicans and Democrats are calling for state tax cuts this year, spurred by huge budget surpluses.
State leaders have so much money to spend this year—and are so eager to put dollars into people’s pockets as inflation rises—that even governors who’ve previously backed some tax increases, such as Illinois Democratic Gov. J.B. Pritzker, are now calling for tax breaks.
Her report looks at a number of state tax relief efforts. The partisan divide appears in how to cut taxes, not whether to cut them.
But the size and scope of this year’s tax changes will depend on the party in power in each state. Republicans tend to favor bigger, broader cuts, which they claim will turbocharge the economy. Democrats tend to favor more targeted tax cuts and credits aimed at middle-class or low-income people.
There are predictable disagreements about the sustainability of tax relief, however, applied. But the popularity and viability of some measure of tax reduction is clear.
Thanks to unexpected economic growth and federal COVID-19 aid, states have since the beginning of the pandemic collected billions more taxpayer dollars than budget writers anticipated. Those surpluses have persuaded many state leaders to propose tax cuts.
“Last year was a huge year for tax reform and tax relief, and if anything, 2022 is shaping up to be even bigger,” said Jared Walczak, vice president of state projects with the Center for State Tax Policy at the Tax Foundation, a conservative-leaning think tank based in Washington, D.C.
Sixteen states cut income taxes last year, Walczak said. This year, there are so many tax proposals it’s hard to keep track of them.
A recent analysis finds that a sustainable Washington state budget could include tax reductions. Yet there’s been little action on that front so far this session, despite some ideas being proposed on a bipartisan basis.
There’s still time.