This was a year of ups and downs in world events — the Winter Olympics, the World Cup, and Ebola. The same was true for tax and fiscal policy in the states. Like 2013, there were many pro-taxpayer victories, but also losses and causes for concern these past 12 months. Without further adieu, here are the top 5 best and worst moments for taxpayers in 2014.
Top 5 Best
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Taxes and spending front and center in gubernatorial races
Any way you slice it, November’s midterm elections were rightfully dubbed a “wave election.” Yes, Republicans reclaimed the majority in the U.S. Senate (which included a big win by Thom Tillis in North Carolina, who cut his teeth in the State House pushing through major income tax cuts) and strengthened their majority in the U.S. House. Additionally, Republicans now control 68 of 98 partisan state legislative houses – an all-time high. Perhaps the most significant wins for taxpayers though, were in gubernatorial races, where candidates railed against high taxes and spending. This included newly elected Larry Hogan in Maryland, Bruce Rauner in Illinois, and Charlie Baker in Massachusetts, illustrating that taxpayers in these traditionally blue states had finally had enough.
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Nevada Margin Tax defeat
Election Day was definitely an occasion to celebrate in Nevada with the defeat of Question 3. The proposal would have created a 2 percent margin tax on businesses to fund public schools. This measure wasn’t simply defeated – it was demolished by taxpayers by nearly a 4 to 1 margin. The Question 3 scheme was worse than a corporate income tax — a margin tax means that government gets a slice of overall revenue, not profit. If the measure had passed, Nevada would have been only the second state with such a harmful tax. Texas has a similar policy in place, and conservatives have been working toward repealing for years. By defeating Question 3, Nevadans protected thousands of jobs and millions of dollars’ worth of income.
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Georgia and Tennessee pass constitutional amendments shielding taxpayers from income taxes
This past November, taxpayers in both Georgia and Tennessee approved constitutional amendments protecting themselves from excessive income taxes. In the Peach State, seventy-four percent of voters decided that the income tax shall not be raised above the current six percent rate. Volunteer State voters affirmed their state’s zero percent tax on earned wages by passing a constitutional amendment that bans the personal income tax, by a 2 to 1 margin. This is good news for taxpayers, since many experts agree that the income tax harms economic tax more than any other type of tax. Hopefully lawmakers in nearby states are taking notes!
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14 states (and DC) cut taxes
According to a new report from the American Legislative Exchange Council, 14 states cut taxes in 2014. While there wasn’t a taxpayer victory on the scale of North Carolina’s 2013 reform, some of these 14 states did make history in 2014. The Missouri legislature managed to override a veto by Governor Jay Nixon to pass a small income tax cut for the first time in nearly 100 years. Oklahoma also passed personal income tax cuts that will occur in 2016 once revenue goals are met. Would you believe that even the District of Columbia approved a tax reform package that lowers rates and simplifies the income tax system? Believe it. Even blue states Maryland, Minnesota, New York, and Rhode Island got in on the action, slashing various taxes. Which brings us to our next point…
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Estate tax relief in blue states
Taxpayers got a taste of relief in surprising places this past year, and the trend of increased estate tax exemptions is certainly worth celebrating. Maryland took steps to increase its $1 million estate tax threshold to the federal level of $5.34 million. Minnesota raised its exemption from $1 million to $2 million. Rhode Island lawmakers increased their state’s exemption from $922,000 to $1.5 million. Even New York, under Governor Andrew Cuomo, managed to pass an estate tax reform package that will bring its exemption in line with the federal level. While policymakers would be better off eliminating death and estate taxes completely, weary taxpayers in these blue states certainly aren’t complaining about these reforms.
Top 5 Worst
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America’s first local soda tax
In the 2012 and 2013 November elections, Michael Bloomberg dumped millions of dollars into local ballot measure campaigns in Colorado and California, hoping that liberal cities would give his soda taxes the green light. Those measures were defeated, but soda tax proposals returned in 2014. Voters in Berkeley, California approved the nation’s first local penny-per-ounce soda tax, which will quickly take a toll on consumers, especially hurting lower income residents. San Francisco ballots included a two-penny-per-ounce measure that required two-thirds of the vote for approval. Fortunately, that ploy failed, signaling that these types of regressive tax increases still aren’t hugely popular.
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Minnesota and Pennsylvania failed to bring their liquor policies into 21st Century
At the beginning of 2014, it seemed that the tides may have been finally turning in both Minnesota and Pennsylvania, where laws governing liquor sales remain outdated and inconvenient. Minnesotans have lived under a “Blue Law,” in place since the Prohibition era, which bans Sunday spirits sales. Bars and restaurants can serve adult beverages on the day of rest, but local liquor stores are forced to close. In Pennsylvania, lawmakers once again considered options for privatizing the state liquor sales system, which, if done the right way, could greatly improve convenience for consumers and save tax dollars by eliminating government-run liquor stores (which cost roughly $400 million per year to operate). Unfortunately, while there was more pressure than ever before to reform these frustrating strictures, both the Pennsylvania and Minnesota legislatures failed, once again, to better serve taxpayers.
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Tennessee still isn’t an income-tax-free state.
There are 7 states that don’t tax income of any kind, and after a drama-filled 2014, Tennessee still isn’t one of them (although the Volunteer State does avoid wage taxes). That’s because Tennessee still maintains its tax on investment gains, known as the Hall Tax, which imposes a 6 percent tax rate on interest and dividend income over $1250 per person. This past year, there was an impressive effort to eliminate the Hall Tax, but negotiations ultimately fell apart as state Republicans couldn’t agree on the best way to do so. So if you’re a retiree looking to move into a tax safe-haven in the South, you may be better off in Florida. But, keep an eye on Tennessee in 2015. With pressure mounting from the grassroots, the days of the Hall Tax may be numbered.
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Wireless taxes continue to burden taxpayers
The non-partisan Tax Foundation released a report detailing wireless taxation in the U.S. and while many don’t realize it, wireless customers (91 percent of Americans) are taxed excessively. On average, the combination of federal, state, and local taxes and fees in a cell phone bill amounts to a tax rate higher than 17 percent. This is nearly double the typical rates applied to other goods and services. As the report shows, high cell phone taxes aren’t limited to blue states. It seems that politicians of all stripes are fond of taxes that can be buried in a cell phone bill. One type of “fee” that was popular with state officials in 2014 relates to 911 services, and even traditionally conservative states such as Alabama, Idaho, and Indiana have fought to maintain or increase seemingly high rates. If they haven’t already, taxpayers should take a look at their latest cell phone bills. Americans might be stuck with high rates at the moment, but shouldn’t let elected officials heap this burden on Americans so easily in the future.
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Minimum wage increases popular during the election “wave”
While voters throughout the country elected a number of fiscally conservative candidates and rejected billions of dollars in direct taxes, many of the same voters OK’d statewide minimum wage increases (in Alaska, Arkansas, Illinois (non-binding), Nebraska, and South Dakota). This could spell trouble for both workers and businesses, as numerous studies have shown that higher minimum wages can reduce overall employment by making unskilled and young workers more expensive to hire.
These wins and losses were just a few of the major moments in tax and fiscal policy around the states in 2014. With the momentum gained in November’s midterm elections, 2015 is likely to be an even bigger year for tax reform in the states. Of course, groups like National Taxpayers Union and its allies in states, towns, and cities nationwide will continue the fight, until every family’s finances are safe from predatory taxes.