“How I wish I had millions of dollars and nothing to do…” State budgets enjoy a lift, for now. Revenue reports are strong and fiscal outlooks are brighter thanks to the national economy and the federal tax law, reports The Wall Street Journal (paywall). But states “shouldn’t count on the windfall revenues next year,” said Lucy Dadayan of the Rockefeller Institute of Government. And Standard & Poor’s notes that financial markets’ volatility and bigger federal deficits will put increased financial pressure on states beginning next year.
“But just buy pretty presents for you…” Wisconsin Governor Scott Walker is giving the state’s parents checks for $100 per child, starting May 15. Up to 671,000 families can get the bonus, available thanks to the state’s budget surplus. All they need to do is sign up online. “This is really weird. I have never heard of anything like this,” said TPC’s Richard Auxier. States typically adjust tax withholding or incorporate tax cuts when residents file returns. …not by writing checks in the months before an election. Walker, by the way, is running for reelection.
“All the beautiful things you see would soon be yours…” In Iowa, GOP lawmakers pass a six-year, $2.1 billion tax cut. The plan will collapse individual income tax brackets from nine to four and lower rates across the board, cutting the top rate from 8.53 percent to 6.5 percent. Starting in 2023, it would repeal a state law that allows taxpayers to deduct their federal income tax payments from state taxable income. It also reduces corporate taxes but imposes sales taxes on digital goods and services such as streaming. State budget experts estimate the bill will reduce revenues by about 5 percent over the next six years and the income tax cuts will cut taxes by an average of $300 a year. Low-income residents would savings about $18 while those earning more than $1 million annually would enjoy a tax cut of $25,000. Republican Governor Kim Reynolds will sign the bill.
“Wishing they were diamonds instead…” New Jersey Governor Phil Murphy signs a SALT cap work-around. New Jersey taxpayers can now contribute to funds set up by local governments and take a credit for up to 90 percent of their contribution against their property taxes. Moreover, they can deduct their donations on their federal income tax returns as charitable contributions. New York took a similar charitable giving route to circumvent the federal $10,000 cap on state and local tax deductions included in the Tax Cuts and Jobs Act. The IRS has not said whether it will recognize these state fund contributions as charitable donations. Legal experts disagree over whether the move will pass muster.
“Wish I had oil wells… to keep me supplied with money while I sit by your side.” Australia’s fiscal outlook is strong thanks to an increase in corporate and individual income tax revenues. But Treasurer Scott Morrison says of tax cuts, “they’ll be what’s affordable, they’ll be what’s real and they will be in what the budget can afford. You have to ensure that you build your budget up to surplus, which is exactly what we are doing.”
If you’d like to tell us about a new research paper or have any comments about the Daily Deduction, TPC’s summary of the day’s tax news, write Renu Zaretsky at [email protected]. You can sign up here to receive the Daily Deduction as an email newsletter every weekday morning (Mondays only when Congress is in recess) at 8:00 am.
