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State of the States: Governors Push Diverse Tax Cuts, Hikes

Jan. 14, 2019, 8:19 PM

Colorado’s governor wants to cut the individual income tax rate while Washington’s governor wants to target rich residents with a capital gains tax. The governor in West Virginia, meanwhile, aims to eliminate personal property taxes on all businesses.

There is no consensus among state leaders this year—except that tax issues are key. Governors across the country are pushing out tax plans in their Inaugural and State of the State Addresses this year.

James Nash, a spokesperson for the National Governors Association, said major issues that state leaders aim to tackle include: technical fixes to the 2017 federal tax law, IRS reform, possible pre-emptive federal legislation on sports betting, the impact of the Wayfair decision on taxing e-commerce purchases, taxation of legal recreational marijuana in 10 states, and the IRS crackdown on state workarounds to the federal tax law’s cap on state and local income tax deductions.

Some of the governors’ suggestions have strong legislative backing; others may be pipe dreams. Here’s a sampling:

West Virginia

West Virginia Gov. Jim Justice has called on lawmakers to eliminate personal property taxes on businesses and social security income taxes on individuals.

Citing a record surplus and record state revenue collections, the Republican governor renewed his call for rolling back West Virginia’s tax on business equipment and inventory in his Jan. 9 State of the State Address. The governor also urged lawmakers to eliminate the state’s income tax on Social Security earnings.

Eliminating personal income taxes on Social Security earnings has earned bipartisan support. Eliminating the business property tax requires a constitutional amendment, and a similar effort failed last year.

West Virginia is among only a handful of states that levy a tax on business inventory and manufacturing equipment.

The business tax assessment brought in about $388 million in total revenue during fiscal year 2016-17, nearly all of it local government and school district funds, according to Sean O’Leary, senior policy analyst with the West Virginia Center on Budget and Policy. During 2018, the governor proposed eliminating the tax only for the coal, natural gas, and manufacturing industries, which would have amounted to about $150 million in yearly state revenue, he said.

A constitutional amendment faces an uphill battle, as it requires two-thirds of both chambers of the Legislature to pass and then approval by a majority of voters. “That hurdle, and the question of how to replace the revenue for counties and municipalities, have held it up in the past,” O’Leary said.


California’s new governor has called for aligning state tax law with some of the changes in the 2017 federal tax law to fund the expansion of a credit for low-income individuals. Gov. Gavin Newsom (D) wants to use $1 billion garnered through the changes to help small businesses and ease the administrative confusion taxpayers face when state and federal rules differ.

If he convinces hesitant lawmakers to adopt his plan, it would be the first time since 2015 that California conforms to federal tax changes.

Tax practitioners have been pushing for updates to California’s increasingly out-of-sync tax code. But Democrats who control the legislature haven’t been interested in embracing even small parts of the law enacted by President Donald Trump and congressional Republicans.

Democrats hold a two-thirds majority in both houses of the legislature, giving Newsom the threshold he would likely need to pass a conformity package. State law requires a two-thirds vote on bills that increase taxes.


Illinois Gov. J.B. Pritzker (D) offered few specifics on his promise of a “fair tax system” in his inaugural address Jan. 14, but he campaigned for a graduated tax regime that would permit Illinois to squeeze new revenue from wealthy residents and reduce obligations on low- and middle-income taxpayers. A graduated system could have important revenue implications for the state, which currently faces a $7.5 billion backlog of unpaid bills and unfunded pension liabilities of approximately $130 billion.

Illinois is one of nine states with a flat income structure. Thirty-four states have graduated income tax systems, including neighboring states such as Wisconsin and Iowa. Illinois’ flat tax, currently pegged at 4.95 percent for individuals and 7 percent for corporations, is a feature of the state constitution and could only be altered through a constitutional amendment. Pritzker has said he would put that question to voters through a referendum vote in 2020.

Pritzker also referenced his support for a state law legalizing recreational marijuana. He promised to “work with the legislature to legalize, tax and regulate the sale of recreational cannabis in Illinois.” An analysis by the Marijuana Policy Project estimated Illinois would collect between $283 million and $566 million annually under a marijuana excise tax regime, and another $66 million to $133 million through the state sales tax.

Tim Schneider, chairman of the Illinois Republican Party, trashed Pritzker’s plans, saying he was promising billions of dollars in new spending, programs, and regulations, “all of which our state cannot afford.”

Rhode Island

Rhode Island Gov. Gina Raimondo announced Jan. 14 she will push for legal recreational marijuana sales in the Ocean State by 2020. The Democratic governor plans to include the recommendation in the state’s fiscal year 2020 budget, to be released Jan. 17.

Pot sales would generate an estimated $6.5 million in tax revenue in fiscal year 2020 if launched Jan. 1, the governor’s office said. The tax rate is proposed to be 20 percent: a 7 percent sales tax, a 10 percent retail excise tax, and a weight-based tax. The industry would be regulated by a newly created Office of Cannabis Regulation.

Several Democratic leaders, though, pumped the brakes on the proposal. New Attorney General Peter F. Neronha (D) cautioned that the industry would have to be heavily regulated; House Speaker Nicholas Mattiello (D) and Senate President Dominick J. Ruggerio (D) also expressed reservations.

The Rhode Island General Assembly needs to approve the state budget, which is scheduled to take effect July 1. A special legislative commission has been studying the legalization of recreational marijuana since 2017.

Massachusetts launched legal sales in November 2018; Maine and Vermont have legalized marijuana possession but do not yet allow legal sales. Legislatures in Connecticut, New Hampshire, New Jersey, New York, and Pennsylvania each may consider pot legalization bills in 2019.


Reduce Colorado’s individual income tax rate and close tax loopholes for special interests, Gov. Jared Polis (D) urged state lawmakers in his State of the State remarks Jan. 10.

At present, the state’s tax code “gives too much power to special interests who can afford expensive lobbyists, while forcing ordinary families to pay more.” Unlike the state budget, which the legislature votes on each year, tax exemptions and deductions “are on autopilot, some since the 1930s,” he said. “We need a tax code that reflects today’s realities rather than yesterday’s distortions,” he told the state General Assembly, which opened its 2019 regular session Jan. 4.

One specific break targeted by the newly inaugurated governor was a cap on vendors fees, the money retailers keep to offset the costs of collecting and remitting state sales taxes. Colorado doesn’t currently have a cap, meaning the vendors fee “is a giveaway to the largest and most profitable retailers in the nation,” he said. A cap would generate savings that would allow Colorado to the lower income tax rate, currently a flat 4.63 percent rate for individuals and corporations.


Wyoming Gov. Mark Gordon (R) made it clear in his first inaugural address Jan. 7 that he is going to stand by one of his campaign promises: No new taxes.

“We in Wyoming are not eager to take on new taxes and especially so if we haven’t done our best to control our expenditures first,” Gordon said. Shortly after he won election in November Gordon said he was open to taking a look at legislative ideas for reforming the state’s tax system, as long as there are no tax hikes.

Gordon’s State of the State Address Jan. 9 didn’t mention the word “taxes,” but he said he is “not interested in growing the size of government.”

New Mexico

New Mexico Gov. Michelle Lujan Grisham (D), who took office this month, released a $7.1 billion budget proposal Jan. 10 with recommendations to “level the playing field for and encourage New Mexico businesses.” That plan includes collecting taxes from online vendors and platforms as well as equalizing hospital taxation. Her budget also proposes extending the state’s tobacco tax to vaping and e-cigarettes and paying off a backlog of tax credits approved as incentives for film companies.

Lujan Grisham’s recommendations come as the state Legislature reconvenes Jan. 15 for a 60-day session. Lawmakers are expected to weigh state tax reform and the state’s film tax incentive program amid a budget surplus from the state’s oil and gas boom.


Republican Gov. Larry Hogan’s priorities, announced Jan. 8, include:

  • the Small Business Relief Tax Credit Act Of 2019, which expands eligibility for the tax credit to small businesses that provide paid parental leave and doubles the available tax credit for businesses that provide both paid sick leave and parental leave, and
  • the More Opportunities for Marylanders Act of 2019, which extends a 10-year tax credit for each new job created by business that locates or expands on a Maryland Opportunity Zone. It also exempts specified fees and property taxes for these businesses.

South Carolina

In his Jan. 9 inaugural address, South Carolina Gov. Henry McMaster (R) said overhauling the state’s tax code was one of his top priorities.

“Continued economic prosperity requires reforming our state’s tax code,” he said in his address. “It requires reforming our state’s marginal income and corporate tax rates to keep South Carolina competitive for jobs, investment and talent.”


Washington Gov. Jay Inslee (D) has proposed enacting a capital gains tax that would hit only the state’s wealthiest residents.

It would be imposed at a rate of 9 percent on individual gains over $25,000 on the sale of stocks, bonds, and other assets. The sale of homes would be excluded. It is projected to raise $1 billion in FY 2021 and $1.1 billion by FY 2023.

Inslee told Bloomberg Tax Jan. 10 that in addition to raising needed revenue, a capital gains tax would be a step toward fixing the state’s tax structure that he called “the most unfair system in the United States.”

“Why it isn’t preferable to ask people at the very high income levels to chip in a little bit,” he said. “So this is a proposal to ask about 1.5 percent of the people in Washington to chip in a bit more.”

Inslee also wants to increase the business and occupation tax rate to 2.5 percent from 1.5 percent on services, including those provided by accountants, architects, consultants, and real estate agents. The tax is projected to generate $1.2 billion in FY 2020 and $1.6 billion in FY 2023.

Both proposals face Republican opposition, but Democrats control both chambers by numbers that were enhanced in the November election.

New York

New York Gov. Andrew M. Cuomo (D) won’t formally submit his budget proposal before his Jan. 15 State of the State address, but he’s already let out plenty of details in advance.

He’s proposing an agenda to “ensure a progressive tax system” by maintaining the state’s current structure for personal income tax, extending a millionaire’s tax set to expire at the end of 2019, and making permanent a 2 percent statewide cap on local property taxes.

Extending the millionaire’s tax would provide an estimated $4.5 billion in annual revenue. Taxpayers in the top bracket make up only 0.6 percent of all New York filers but account for about 40 percent of personal income tax receipts, or $20 million, according to state figures for 2017.

Cuomo also proposed to maintain tax cuts extended in 2017 for taxpayers with incomes between $40,000 and $300,000. As the governor of the second-largest blue state, he pitched his tax plans as an alternative to Trump administration policies.

The state budget is due April 1. Cuomo’s proposals provide the basis for negotiations with the newly elected state legislature, where the Democratic Party will control both houses for the first time since 2010.

—With assistance from Andrew M. Ballard in Raleigh, N.C.; Tripp Baltz in Denver; Michael J. Bologna in Chicago; Brenna Goth in Phoenix; John Herzfeld in New York; Laura Mahoney in Sacramento, Calif.; Aaron Nicodemus in Boston; Leslie A. Pappas in Philadelphia; and Ryan Prete in Washington

To contact the editors responsible for this story: Jeff Harrington at; Megan Pannone at