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46 Tax Foundation's Tax Review 1 (1985)

handle is hein.tera/tafoutaxt0049 and id is 1 raw text is: Tax Foundation's Tax Review State Tax Prospects, 1985 A Tax Foundation Staff Report State legislatures may lower taxes for the first time since the late 1970s, according to a mid-Feb- ruary survey of possible 1985 state tax action by economists at the Tax Foundation. At least 20 states are weighing tax cuts totaling about $3 billion, according to Foundation research- ers, while more than a dozen others are weighing increases in the $2 billion range. Legislative pros- pects for approval of these hikes appear slim in several cases, the survey reveals. Better-than-anticipated revenue gains, coupled with spending restraints, have put most states in their best financial circumstances since the begin- ning of the 1980s. Tax increases already on the books and economic expansion pushed fiscal 1984 state tax yields nationwide up 15% from the pre- vious year. Twenty-nine states saw revenues rise by 14% or more, and ten of them experienced growth of 20% or more. Most of the proposed reductions in 1985 are tar- geted at personal income taxes. At least ten states are considering fairly substantial cuts in such levies. Permanent income tax reductions are being eyed in Delaware, Indiana, Minnesota, New York, Ohio, Rhode Island, Wisconsin, ard Pennsylvania; one- time only cuts are proposed in Arizona and Mas- sachusetts, in view of the short-term surpluses foreseen. While personal income taxes are likely to be re- duced by lawmakers in 1985, general sales taxes may go up, say Tax Foundation economists. Ore- gon-one of the five states without a sales tax- appears strongly inclined to approve one this year, as part of a plan to be submitted to voters that would also reduce income and property taxes. Ex- isting sales tax rates may be hiked in Kansas and Texas, and Oklahoma and Tennessee want to hold on to temporary hikes approved last year that are scheduled to expire. Nebraska may boost its sales tax revenues by extending the levy to dozens of items not now taxed. On the other hand, Con- necticut-with the highest state sales tax in the nation-may cut its rate from 7.5% to 7.0%. Possible changes in business taxation focus mainly on modification of the unitary method of assessing income taxes of multinational firms. Five of the nine states now using the worldwide combined report- ing system will consider withdrawing from this ap- proach-California, Colorado, Indiana, Montana, and Utah. Arizona, which does not use the world- wide unitary approach, may debate whether to do SO. In the area of excise taxes, at least 14 states have made moves to pick up the additional 8-cent Fed- eral cigarette tax that will expire on September 30, 1985, unless Congress decides to keep it in place. These states are: Colorado, Florida, Idaho, Iowa, Kansas (approved in 1984), Maine, Minnesota, Montana, Nebraska, New Hampshire, New Mex- ico, Oregon, Utah, and Vermont. Local property taxation, particularly as it relates to school finance, is also a matter of concern in many states. Actions to devote more state resources to local property tax reduction will be weighed in Arizona, Illinois, Nebraska, New Jersey, North Carolina, Ohio, Oregon, and Rhode Island. Kansas and Wyoming will consider instituting a classified property tax system, and Minnesota may simplify its system to consolidating its numerous property classes into nine. This Issue in Brief Action by state legislatures may result in lower taxes for the first time since the late 1970s. A mid-February survey by Tax Foundation econ- omists shows at least 20 states contemplating about $3 billion in tax cuts. At the same time, more than 12 states are weighing some $2 bil- lion in tax increases. Chances for passage of most tax hikes are rated as slim, according to the survey. Copyiright 1985 bi Tax Foundation, licorporated, One Thomas Circle, N.W., Washington, D.C. 20005 (202) 822-9050 * ISSN 0040-0114 1

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