As state legislators embark on the 2024 legislative season, they face a pivotal decision in tax policy. The choice is stark: ensure that wealthy households and corporations contribute their fair share, or persist with regressive tax cuts that compromise public services and future investments. This decision comes at a time when state revenues are declining and various risks loom.
This article is a summary. Please read the original article by Wesley Tharpe, on the Center on Budget and Policy Priorities think tank website, here.
In recent years, many states have opted for detrimental tax cuts, capitalizing on temporary budget surpluses from federal COVID-19 relief and economic recovery. However, with federal aid ending and most fiscal aid spent, these cuts have led to a significant revenue shortfall. A recent report highlights that 26 states have reduced personal and corporate tax rates over the past three years, potentially losing an estimated $111 billion over five years, reaching nearly $30 billion annually by 2028.
These tax cuts threaten state budgets, especially with decreasing federal funds and a cooling economy. Reduced revenues jeopardize essential public services like education, health services, and income support programs, and restrict states’ capacity for future investments.
Illustrative cases include:
- Arkansas, where recent tax cuts of over $4 billion over five years could have funded programs like paid parental leave.
- Kentucky, where sweeping income tax cuts surpass annual spending on higher education, with a plan to potentially eliminate personal income tax.
- West Virginia, where extensive tax cuts strain college funding and could have addressed child poverty.
In contrast, some states like Massachusetts, Minnesota, and Washington State have adopted progressive policies, raising revenues to improve public services and make new investments. These states demonstrate the feasibility and benefits of progressive taxation, funding initiatives like improved public transport, free school meals, and expanded child care.
Other states, including Colorado, Maine, New Jersey, New York, Vermont, and Washington D.C., have also raised revenues for public welfare initiatives.
The path ahead for states in 2024 and beyond should focus on enhancing long-term prosperity by boosting tax revenue in a targeted manner and reinvesting in communities. Progressive tax systems and robust support for public services are crucial for reducing poverty, expanding economic opportunities, advancing racial justice, and maintaining a healthy democratic process.
State policymakers have various policy options to adopt a more equitable, responsible, and forward-looking approach. The challenge lies in rejecting short-term tax-cut temptations and embracing strategies that promise broader, long-term benefits for all