America
As Washington Hikes Taxes, States Cut ’Em
The Obama administration may be enamored with high rates, but it’s a diff erent story at the local level.
A BY STEVEN MALANGA
lthough federal taxes are rising for three-quar- ters of Americans this year, many states have spent the
last two fi scal years cutting levies and simplifying their tax codes. Even as high-profi le battles to raise
taxes in places like California have garnered the press’ attention, from Kansas to Michigan to Oregon and New Jersey, states have actually been net tax cutters recently after trying for several years to tax their way out of budget woes. In total, state legislatures over the
last two fi scal years have cut taxes more than they increased them by a net of $4.3 billion, according to the National Conference of State Legisla- tures. Kansas Gov. Sam Brownback has led the way with a budget that reduced the state’s income tax rate to
KANSAS CUT $250 MILLION GOV. BROWNBACK
4.9 percent from 6.45 percent, a cut of some $250 million, which will grow to $850 million in fi scal 2014. The governor proposed the reduc-
tions as part of a reform package that also included capping some popular
22 NEWSMAX | MARCH 2013 GOV. SNYDER
tax expenditures, including the mort- gage interest deduction, but Republi- cans in the state’s legislature balked at eliminating those items and passed a tax cut package without them. “The governor said early on, ‘Go bold.’ And we did,” Kansas House Speaker Mike O’Neal told the press. Brownback paid for the cut in part
by keeping state spending fl at and uti- lizing increased revenues from a mod- est upturn in the state’s economy, but he’d still like to cut some tax expendi- tures to simplify the state’s tax code. Reform has been the theme of Michigan Gov. Rick Snyder’s eff orts to overhaul the state’s tax code. The former business executive
signed legislation that repeals the state’s business tax and replaces it with a less onerous fl at 6 percent tax on corporations. An estimated 90,000 small busi-
nesses in Michigan, so-called sub- chapter S corporations whose own- ers pay taxes on their fi rms’ profi ts via their personal income tax returns, will be exempt from the business tax.
MICHIGAN
Previously, many of these fi rms were double-taxed. Snyder paid for the tax changes
in part by eliminating some target- ed business tax incentives and clos- ing loopholes in the state’s personal income tax code, including one that exempted public sector retirees from having to pay taxes on their pensions. Then, Snyder turned to the income
CUT $100 MILLION
tax, this time cutting the state’s tax rate from 4.35 percent to 4.25 percent — a tax cut of about $100 million — and increasing the exemption for each household member by $250. Some tax cuts are the result of the expiration of temporary increases. In 2009, Oregon residents voted for a two- year surcharge on income tax rates for those earning more than $125,000 a year, a move designed to alleviate state budget pressures. That tax rate expired and the legislature declined to extend it.
OREGON CUT $133 MILLION REP. CAMERON The result is an estimated $133 mil-
lion tax cut. “The people have voted, and they expect [the reduction to a lower rate] to happen. That’s also the best thing to happen for the state right now,” Oregon House Republican lead- er Kevin Cameron told the press. One reason taxes are going down
in the states is because of voter back- lash after years of tax increases. States raised taxes every year from 2002 through 2010, including a whopping $28.6 billion net tax increase in 2009.
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