As first reported by the Daily Tax Report’s Chris Marr, Alabama’s Republican Governor, Robert Bentley, recently made headlines when he proposed $541 million in tax increases, including combined corporate reporting, to help fund a budget shortfall and infrastructure programs in the fiscally conservative state. He was met with immediate pushback from his own party and is seem unlikely that the Alabama legislature will pass his budget as it is.
Across the nation, many states are seeing lower than projected revenue for the coming fiscal years resulting in bigger budget deficits. After several years of aggressive cuts in corporate tax bases and rates in many of these states, it might be expected that attempts would be made to claw back some of those cuts as a mechanism to reduce the fiscal gap. That has been the criticism leveled at Governors Brownback and Jindal, of Kansas and Louisiana respectively, for their substantial corporate tax cuts during the Great Recession. You can find more on the revenue woes and political fallout facing these governors in Mark Niquette’s Feb. 23rd story in the Weekly State Tax Report.
However, as indicated by recent budget proposals, corporate income tax appears to be off the table as a source of increased revenue for state leaders.
With Alaska facing a $3.5 billion budget gap for 2015 due to falling oil prices, Governor Bill Walker’s (I) 2016 budget contained no proposals for revenue increases. Instead, the Governor’s budget focused on reductions in state spending and using the Constitutional Budget Reserve Fund (CBRF) as a bridge over the next few fiscal years. However, the proposal makes clear that without significant spending cuts and revenue increases from more oil production, the CBRF will be shortly depleted should the price of oil remain in the vicinity of $50 a barrel.
On January 9th, Maine Governor Paul LePage (R) proposed reducing Maine’s corporate income tax maximum rate to 6.75 percent from 8.93 percent as part of a $6.3 billion budget bill. This rate reduction was in conjunction with a corresponding rate reduction for Maine’s personal income tax. The income tax cuts will be partially offset by a one percent increase in the rate and a broadened base in the state’s sales tax but, overall, represent a $300 million tax cut for the state.
Wisconsin is another state facing a significant budget shortfall. But, with Gov. Scott Walker’s (R) presidential aspirations in play, his $68 billion two-year budget proposed massive spending cuts to education and social services. The net effect is a projected $2 billion shortfall whose only revenue adjusting component is a minor decrease in property tax rates.
These proposals are consistent with proposals in many other states including Connecticut, Montana and Pennsylvania who are facing larger than expected shortfalls for 2015 and forward. The Texas legislature is considering several budget bills that would all but do away with the Margins Tax, despite a very uncertain economic climate for the state. See more on the developments in Texas in Paul Stinson’s Feb. 25th article in the Weekly State Tax Report.
Fiscally conservative governors clearly do not consider corporate taxes a viable revenue mechanism, or at least one they can sell to their political base, and reform in healthcare and entitlement spending are their prime targets. If corporate income taxes only go down and never go up in many states, their relative importance for historic corporate taxpayers may be significantly mitigated. It may be that this represents a sustained trend of pushing the cost of state government out to as broad a base of taxpayers as possible.
by Christopher Bailey
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