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Tax Law

State Net Capitol Journal – February 4, 2012

Budget & Taxes

TAX TALK ABOUNDS IN STATES: Last month, Louisiana Gov. Bobby Jindal (R) proposed doing something no state has done for over three decades: eliminating income taxes. (The last to do so was Alaska, which abolished its personal income tax in 1980.) Several other Republican governors, including Susana Martinez of New Mexico, Mary Fallin of Oklahoma, Nikki Haley of South Carolina and Scott Walker of Wisconsin, have also pitched major tax cuts or overhauls of their tax codes.

The flurry of tax proposals was undoubtedly spurred at least in part by the recent national discussion about the "fiscal cliff" and its associated tax cuts. The governors are also looking to get a leg up on other states in the ongoing competition to attract business.

"There is great competition for growth," U.S. Chamber of Commerce President Tom Donohue told reporters last month. "States are trying to get business from other states [and] trying to get companies from other states."

The Republican governors' recent tax talk may also have something to do with aspirations of a more personal nature.

"Across the county there are people who are trying to make a name for themselves," said anti-tax crusader Grover Norquist. "It's the right thing for the state, but it has the added advantage of being a political advertisement for somebody who may be a potential presidential candidate at the national level."

Democratic governors with an eye toward the presidency in 2016 and beyond certainly have to be thinking about framing themselves through state tax policy too, especially after seeing President Obama re-elected on a promise of making the wealthy pay their "fair share." One for whom that appears to be the case is Maryland Gov. Martin O'Malley. Last year, he increased taxes on single filers earning over $100,000 a year, and now he's considering raising the gas or sales tax to fund transportation. Minnesota Gov. Mark Dayton, likewise, proposed a budget last month that would require high-wage earners to pay $1 billion more in income taxes and broaden the state sales tax to include more goods and services.

Those tax initiatives, as well as the ones from the other side of the political aisle, may, in turn, put pressure on another potential 2016 Democratic presidential candidate, New York Gov. Andrew Cuomo. Cuomo has positioned himself as a moderate on a host of issues, including taxes. Although he signed a higher tax bracket for millionaires into law in 2011, he promised no new taxes and touted his efforts to curb property tax growth in his State of the State address last month.

Larry Sabato, director of the University of Virginia Center for Politics, said if Cuomo is serious about becoming president, he'll have to make a fiscal shift soon.

"There's no choice; he will have to go after millionaires," Sabato said. "He's going to have to match O'Malley and others tax increase for tax increase." (POLITICO, ASSOCIATED PRESS, ADVOCATE [BATON ROUGE] STATELINE.ORG, MINNEAPOLIS STAR-TRIBUNE, STATE NET)

SEQUESTRATION CUTS INEVITABLE? A month after averting the "fiscal cliff," the nation appears destined for another financial crisis, with congressional lawmakers predicting last week that the deep, across-the-board spending cuts known as the sequester would kick in on March 1.

The $1.2 trillion in cuts, a product of the national debt-ceiling deal reached by Congress in 2011, were actually supposed to have automatically taken effect on Jan. 2, unless Congress came up with a plan to replace them. But another deal delayed the sequester's effective date two months.

Congress hasn't moved any closer to compromise since then. Democrats are insisting that any debt-reduction measure be a balance of spending cuts and new revenue, while Republicans are refusing to allow any more than the $600 billion in new taxes on wealthy Americans they agreed to in the fiscal cliff deal. And although sequestration was intended to be so unpalatable to both parties - with equally deep cuts to the military and domestic programs like Head Start, for instance - that any negotiated option would be preferable.

But the sense in Washington seems to be that sequestration wouldn't be so bad - at least compared to the fiscal cliff. Wall Street evidently isn't pressing for action to avoid it either. And for some congressional Republicans, sequestration would actually constitute progress. As U.S. Sen. John Cornyn of Texas, the No. 2 Republican in the Senate, put it, the sequester "is the only cuts we've got right now." (WASHINGTON POST

RENEWABLE ENERGY BECOMING BATTLEGROUND ISSUE: Last month's "fiscal cliff" deal temporarily extended several federal renewable energy incentives, such as the tax credit for producers of wind energy. But with investor confidence in renewable energy still somewhat shaky in comparison to more established energy sources like natural gas and coal, at least a couple of states are trying to give the economic sector an added boost.

With Democrats having reclaimed Minnesota's House and Senate in November, environmentalists are optimistic the state will enact major renewable energy incentives, including legislation requiring utilities to derive 10 percent of their power from solar sources.

"I will be very shocked if we don't pass significant solar legislation this year," said Ken Bradley, chair of the Solar Works for Minnesota coalition.

New York Gov. Andrew Cuomo (D) is also expected to push several renewable energy initiatives in the state's Democrat-led Legislature, with the state pursuing a goal of generating 30 percent of its energy from renewable sources by 2015.

In North Carolina, however, where Republicans control both chambers of the Legislature and the governor's office for the first time since Reconstruction, support for renewable energy appears to be going in the opposite direction. State Rep. Mike Hager (R), chairman of the House Public Utilities Committee, said he plans to introduce legislation to amend a 2007 law requiring the state to increase its reliance on renewable energy to 12.5 percent by 2021, changing that mandate to 3 percent indefinitely.

I think I've got the support for this effort," he said.

Lawmakers in Hawaii, meanwhile, may consider scaling back the state's wildly popular solar energy tax credit, which has made it one of the top 10 solar producers in the nation, but also depleted state revenues, an estimated $172 million last year alone. (STATELINE.ORG, MIDWEST ENERGY NEWS

BUDGETS IN BRIEF: President Obama signed the $50.5 billion Hurricane Sandy relief bill passed by Congress last week, despite opposition from some Republicans, who objected to its size. The bill, HR 152, comes on top of the $9.7 billion in funding to aid victims of the storm approved weeks earlier (STATELINE.ORG, STATE NET. • ARIZONA Gov. Jan Brewer, a conservative Republican who has bucked the federal government on everything from health reform to immigration, surprised just about everyone last month when she announced not only that she wants to expand the state's Medicaid program to about 300,000 low-income residents under the Affordable Care Act but that she intends to pay for that expansion by imposing a so-called provider tax on hospitals (ASSOCIATED PRESS, ARIZONA CAPITOL TIMES). • In his State of the State address last month, TEXAS Gov. Rick Perry (R) urged lawmakers to provide at least $1.8 billion in tax relief and use $3.7 billion in rainy day funds for a "one-time investment" in water and transportation infrastructure (HOUSTON CHRONICLE). • NEW YORK Gov. Andrew Cuomo (D) proposed a $142.6 billion state budget last month that is balanced through a combination of spending cuts, new and extended taxes and fees, gambling revenues and federal Hurricane Sandy relief (NEW YORK TIMES).

- Compiled by KOREY CLARK

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