Today on the House floor, legislators debated and passed HB 82 which will conform or decouple the state tax code from changes that have been made in the past year to the federal tax code. A bill like this is passed every year because various aspects of the state tax code are linked to the federal one.
This year policymakers have made choices in this bill that will negatively impact low-income working families while the state’s wealthiest taxpayers receive a tax cut. That’s right, working families will be hit again. Policymakers are reducing the Earned Income Tax Credit but choosing to conform with changes to the limits on the value of itemized deductions. Nineteen percent of the state’s taxpayers earning less than $41,000 will see their taxes increase while the top three percent of taxpayers, those earning more than $235,000, will see a tax cut.
Itemized deductions are primarily claimed by well-off taxpayers because they provide a greater value than the standard deduction and that value increases the higher their income. Under the fiscal cliff deal, the threshold at which crucial limits to itemized deductions was raised to $300,000. The result of the state conforming with this change is both a loss in state revenue and a shift in the tax load. HB 82 reduces the state Earned Income Tax Credit to 4.5%, paying for the loss from conformity with the itemized deduction change.
For more on the bill, check out our Legislative Bulletin here.