State Net Capitol Journal--November 14, 2011

State Net Capitol Journal--November 14, 2011

SUPPORT GROWS FOR ABOLISHING INCOME TAXES: On September 24th, 1980 then-Alaska Gov. Jay Hammond (R) signed a bill into law abolishing the state's personal income tax. In the 31 years since, not a single governor has duplicated that action. But that trend could soon be coming to an end. 
 
Last month, backers of a constitutional amendment to eliminate Missouri's personal income tax began collecting signatures to place an initiative on next year's ballot. In Oklahoma, a legislative task force studying taxes is expected to announce its recommendations by January, but its co-chairs have already said they'd like to eliminate the state's income tax. And Kansas Gov. Sam Brownback (R) is expected to propose cutting income taxes - perhaps with the intent of eventually getting rid of them altogether - within weeks. 
 
Forty-one states currently impose broad taxes on personal income. (The nine states that don't are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.) With those taxes accounting for about 40 percent of states' general fund revenue, lawmakers have rarely given serious thought to getting rid of them. Alaska abolished its income tax only after the Trans-Alaska Pipeline began pumping billions of dollars of new revenue into state coffers. 
 
With conservative majorities having taken over many state legislatures in recent years, however, the idea has gained in popularity. Missouri's House voted to eliminate both personal and corporate income taxes in 2009. And this year Kansas' House voted to gradually phase out its personal income tax (SB 1). 
 
The argument in these states has been that if other states can get by without an income tax, why can't they? 
 
"If you look over the last 50 years there have been 10 states that implemented income taxes and it's been just destructive to their economic growth," said Missouri state Rep. Andrew Koenig (R). "The no income tax states are winning." 
 
The thing that has derailed the income tax elimination efforts, however, is the need to address the resulting loss of revenue by drastically cutting state services or increasing other levies such as sales or corporate taxes, either of which tend to draw powerful opposition. 
 
The constitutional amendment being circulated in Missouri relies on the latter approach, proposing to phase out the personal income tax by 2016 and increase sales taxes. One of its main opponents is the Missouri Association of Realtors, whose members' transactions are currently exempt from taxation. 
 
"When the legislature is confronted with what we believe would be a $2.5 billion revenue shortfall in this economy," said Scott Charton, a spokesman for Missourians for Fair Taxation, another opponent of the initiative, "nobody's exemption is safe." 
 
Oklahoma lawmakers have raised concerns in that state's business community by suggesting they might try to balance an income tax cut by eliminating favorable treatment of businesses in the tax code. 
 
"You can't keep giving away the store and stay open," said Oklahoma Rep. David Dank (R), co-chair of the state's tax reform task force. 
 
Others are worried about the effect eliminating the income tax would have on the poor. Like most state's income tax, Oklahoma's is progressive, while sales taxes are regressive, hitting the poor hardest. 
 
Kansas' Gov. Brownback seems to be seeking an alternate path that avoids those pitfalls. He is reportedly finalizing a plan that relies on revenue growth to slowly reduce income tax rates over time. 
 
"I know he's a smart man and I know he realizes it's not going to be an easy quick fix," said Sen. Les Donovan (R), who has consulted with the governor on his proposal. "It's going to be a long, slow slog in that direction." 
 
Donovan isn't alone in recognizing the challenge facing tax reform supporters. 
 
"What we have to do is approach this taxation discussion responsibly and analytically and not ideologically," said Oklahoma State Treasurer Ken Miller. "We've been talking about this for years. Now we can actually accomplish it. It's that, 'Be careful what you wish for, you might get it.'" (STATELINE.ORG) 
 
AL COUNTY FILES $4B BANKRUPTCY: Last week Jefferson County, Alabama claimed the dubious distinction of being the locus of the largest municipal bankruptcy in U.S. history. The county's $4 billion filing was more than double that of previous record holder Orange County, California's $1.7 billion filing in 1994. 
 
Jefferson County's crushing debt stemmed from ill-conceived efforts to finance a court-ordered overhaul of its sewer system that relied on complicated debt instruments and derivatives, which failed in 2008. The County Commission's president, David Carrington, said bankruptcy was the county's only option. 
 
"The county has negotiated extensively and in good faith with its creditors," he said. "Those negotiations have not produced a deal that fairly treats the county and its citizens, and there is no reason to believe that further out-of-court negotiations will lead to a fair, acceptable result." (NEW YORK TIMES) 
 
BUDGETS IN BRIEF: Another stand-alone piece of President Obama's $447 billion jobs bill fell by the wayside this month, when the U.S. Senate failed to advance a proposal (SB 1436) to spend $50 billion on transit improvements and $10 billion on an infrastructure bank to spur private construction investment. The vote was actually 51 to 49 in favor of the measure, but that was short of the 60 votes needed to move the proposal on to a full debate in the chamber (WASHINGTON POST). • IOWA Gov. Terry Branstad (R) said last week he is dropping plans to seek a gas tax increase in the 2012 legislative session. He said he will instead ask Iowa Department of Transportation Director Paul Trombino to look for nearly $50 million in cost-savings over the next year (DES MOINES REGISTER). • More than half of the states have cut their mental health budgets since the start of the recession while the economic slump has only increased demand for such services, according to a report by the National Alliance on Mental Illness. Four states - ALABAMA, ALASKA, ILLINOIS and SOUTH CAROLINA - have cut their mental health budgets by over 30 percent (KAISER HEALTH NEWS). - Compiled by KOREY CLARK

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