New tax cuts mostly favor the rich across states this year

By Kevin Hardy Stateline org Missouri Republicans may take their tax-cutting efforts to new heights this year as lawmakers consider exempting profits from the sale of stocks bonds and real estate from state income taxes Part of a broader push to eliminate the state income tax altogether rule making its way through the Capitol would provide an unprecedented benefit to the wealthy by excluding capital gains the long-term earnings from the sale of assets If approved tax experts say the law would mark the first time a state with an income tax has eliminated capital gains tax The Republican sponsors say the move would make the state more attractive for businesses and families This bill is intended to energize Missouri s market Republican Speaker Pro Tem Chad Perkins noted upon introducing the measure Related Articles Trump Department of Justice sues Colorado Denver agents over immigration laws Judge blocks Trump executive order targeting elite law firm a blow to his retribution campaign Trump administration asks Supreme Court to let DOGE access Social Assurance systems Email mistake reveals secret plans to end research on Head Start and other child safety net programs PBS chief slams Trump s executive order aiming to cut federal funding for PBS and NPR as unlawful But state Democrats and even particular of their GOP colleagues have criticized the measure as being overly favorable to the wealthy The greater part states tax systems already put a higher tax burden on lower-income households That trend only accelerated in this year s legislative sessions worrying advocates who want to see the rich pay a larger share It is so egregious in just how grossly concentrated the benefits of the Missouri proposal would go to the richest people in the state and shift the state s tax system to really privilege the owners of wealth over people who are earning a regular paycheck declared David Cooper an analyst at the left-leaning think tank Economic Procedures Institute The institute advocates for progressive state taxes those that put the proportionately largest tax burdens on the highest earners While Cooper advises against eliminating state income taxes he stated the Missouri move would be more harmful than eliminating the income tax outright If you re wiping away the income tax altogether there s at least certain tax benefit going to lower-earning folks who are still paying income taxes he noted If you re just eliminating capital gains income taxes you are just giving away money to the wealthiest people in the state period Particular Democratic-led states including Maryland and Washington have moved to increase taxes on the wealthy this year But several states including Kansas Kentucky and Mississippi have made more regressive tax changes Jared Walczak vice president of state projects at the conservative-leaning Tax Foundation noted that states still prioritize progressive spending through social utility programs aiding the majority of vulnerable residents He reported states compete against each other for business and residents in much more immediate avenues than the federal executive competes against other nations So states are very focused on the competitive advantages associated with a pro-growth tax regime he noted and that has led to less of an emphasis in multiple states on achieving progressivity through the tax code Generational change to taxes While several states have enacted high-profile tax cuts this year the momentum is indeed slowing Walczak stated With booming economies and an influx of federal cash in latest years conservative and liberal states alike passed key tax cuts Of the states that have various sort of income tax have made rate reductions since Walczak stated In a large number of states lawmakers merely accomplished much of what they had set out to do he declared Economic uncertainty and the prospect of reduced federal aid also have made a great number of lawmakers more cautious this legislative season he mentioned But lawmakers in several states including Oklahoma South Carolina and West Virginia have continued their march to eliminate state income taxes Taxing people s wages is bad because it undermines liberty Oklahoma state Sen Dusty Deevers a Republican explained this month in encouragement of a proposed income tax cut the Oklahoma Voice published It undermines people s freedoms If administration controls income then it controls your life This session Kentucky Democratic Gov Andy Beshear signed a bill cutting the state income tax rate from to Republican lawmakers have been slashing rates for years with the ultimate aim of eliminating the income tax altogether despite concerns that more reliance on sales tax would disproportionately burden the poor To partially offset the income tax reduction the legislature expanded sales taxes to more services in And Republican lawmakers in Kansas overrode a veto from Democratic Gov Laura Kelly to move away from the state s graduated income tax toward a flat tax of that will mostly benefit the highest earners Last month Mississippi Republican Gov Tate Reeves signed law granting another cut in the state income tax Representatives there aim to phase out the income tax altogether over the coming years with gradual rate reductions which Reeves characterized as a generational change for the state The Mississippi law also reduces the sales tax on groceries and increases the gas tax Though the governor is already celebrating the end of state income tax the law provides for incremental reductions in the coming years only if the state hits certain revenue targets Republican state Rep Trey Lamar a legislative sponsor commented income taxes disincentivize work a particular difficulty for the state with the nation s lowest workforce participation rate A tax on work is a tax on productivity he mentioned The left-leaning Institute on Taxation and Economic Approach says the law will make the state s tax system more inequitable Its analysis unveiled that when fully implemented the top of households who have average annual incomes of million will receive an average cut of or roughly of their annual income But the bottom of earners who have average annual incomes of would realize a tax cut of just per year Lamar noted the act did not increase sales taxes across the board With average sales tax burdens already lower than neighboring states like Alabama he declared the income tax elimination will only help Mississippi workers We need more people working he noted So if helping the working man is somehow seen as regressive then I d have to say I don t fully understand that Walczak of the Tax Foundation revealed the state can afford the initial rate reduction But it s unclear whether state revenues will hit the targets needed and whether lawmakers will reassess the aim of eliminating income taxes As one of the nation s poorest states Mississippi is heavily reliant on federal funding and would be particularly vulnerable to an economic downturn There s not a guarantee that the state could afford that in the future and Mississippi does not have a large budget to begin with so that would be harder than in bulk other states if the economic system slid he announced It does require a willingness on lawmakers parts to be honest with themselves if the market system changes and decide whether a pause might be necessary An uneven tax burden Economic uncertainty and slowing revenues have put several states into budget holes this year forcing lawmakers to consider spending cuts or tax increases To close budget gaps various conservative and liberal states have considered new or higher taxes on marijuana tobacco and soda But selected liberal-led states are looking to taxes more focused on the wealthy In Rhode Island Democratic Gov Daniel McKee has proposed a tax on digital advertising revenue In Washington state lawmakers approved raising capital gains taxes and business taxes to close a looming deficit though it s unclear whether Democratic Gov Bob Ferguson who has voiced skepticism will sign off on those measures Maryland lawmakers facing a billion deficit of late approved billion in new taxes and fees That includes two new high-income tax brackets and a new sales tax on information tool and information services Moves like those that ask more of the wealthy could make selected state tax systems more progressive announced Aidan Davis the state agenda director at the Institute on Taxation and Economic Guidelines But greater part state tax proposals approved this year have primarily benefited the highest earners That s particularly concerning because preponderance state systems already favor the wealthy In states the top of earners pay a lower effective tax rate than any other group according to an institute assessment In Missouri the fate of the first-of-its-kind capital gains tax elimination remains up in the air Though versions of the proposal have passed both chambers there are differences between the Senate and House ordinance That means the bill could go back to conference committee for further negotiation or go on to Republican Gov Mike Kehoe who has identified capital gains among his tax cut priorities this year Missouri s Department of Revenue estimated the exemption could cost million per year But an Institute on Taxation and Economic Agenda analysis of IRS details projects the change could cost million or more If approved the top of Missouri households those making more than per year will receive more than of the benefit from capital gains exemption Davis explained Doing so would let wealthy people collect tax-free passive income while you re continuing to tax middle class workers and people with savings Davis stated It s just a really extreme proposal Stateline reporter Kevin Hardy can be reached at khardy stateline org States Newsroom Visit at stateline org Distributed by Tribune Content Agency LLC