Last week, budget negotiators announced that they had come to agreement on a revenue plan that would raise $990 million. Most of the revenue would come from a 1% increase in the state sales tax with lesser amounts coming from increases in taxes on purchases of cigarettes and alcohol and a 2% income tax surcharge on income taxes owed by all households.
The plan fell apart largely due to the Governor’s objection to the income tax surcharge being imposed on working families. As Elaine Mejia wrote earlier in the week, the proposed 1% sales tax increase would have been far worse on low- and moderate-income households than the income tax surcharge.
Now, it appears that House and Senate leaders have agreed to new tax package. It contains all of the same changes to the sales tax (a 1% hike) and excise taxes, but took into consideration a key BTC recommendation to make the package slightly more equitable. Rather than applying the income tax surcharge to all households, the new plan would apply a 2% surcharge to married households with taxable income between $100,000 and $250,000 a year and a 3% surcharge if taxable income is above $250,000.
While this change does not lessen the impact of the sales tax increase on low-and moderate-income households, it at least ensures that higher income households are being asked to contribute a little more than before. However, as BTC and ITEP’s analysis of the new plan shows (btc-july-22nd-plan-compared-to-july-30th-plan), the complete package asks more from the bottom 80% (as a percentage of their total income) than the top 20%.
Two silver linings in the compromise tax package:
1) The House and Senate plan to raise $990 million in new revenue will allow the state to continue making important investments in education, public safety and healthcare. The new revenue will help to prevent the most devastating of cuts, however, for every $1 raised in new revenues, there is at least $2.50 in cuts.
2) There is momentum for comprehensive tax reform. It appears likely that a group of lawmakers from the House and Senate will work together this fall to put together a plan to improve the fairness, stability and long-term adequacy of the state’s revenue system.