For voters in several states, Election Day will mean more than choosing a president, member of the House and possibly a U.S. Senator or opting to legalize recreational marijuana sales. It will involve voting on binding initiatives to increase or restructure state or local taxes.
Income tax increases are on the ballot in three states — Colorado, California and Maine — corporate tax changes on the ballot in two — Oregon and Louisiana — and soda taxes are considered in four municipalities, three in California. Here’s what you need to know about these referenda.
Colorado’s Amendment 69 would impose a 10% payroll tax on top of the existing 4.63% individual income tax to fund a public option healthcare system called Colorado Care, which would be the first state tax-funded universal health care plan. (Vermont’s plan previously was ultimately pulled by the governor because of cost estimates.) The public plan would replace most private insurance and consumers would have co-payments but no premiums to pay.
The Tax Foundation reports that if voters approve the amendment, Colorado will have the highest marginal income tax rate in the country, of 14.63%, but only one-third of that tax would be paid by employees — two-thirds would be paid by employers — so even the top-earning employees will be paying just under 10% unless they were self-employed and therefore subject to paying the whole tax.
California, which does have the highest marginal income tax rate in the country — 13.3% — would retain that distinction under Proposition 55, which extends a temporary income tax increase on high earners, passed in 2012 for another 12 years.
The tax applies to single taxpayers earning more than $250,000 and couples earning more than $500,000, starting at 1% and rising to as high as 3% for incomes over roughly $500,000 for singles and over $1 million for couples. Most of the revenue raised would be allocated to fund public schools and community colleges but some would be used to fund health care programs in certain years. A no vote on Proposition 55 would end the temporary income tax surcharge in 2019.
Maine’s Question 2 would increase the state’s top individual income tax rate to 10.15% from 7.15% for households earning over $200,000. The additional revenues would be used to fund kindergarten to grade 12, increasing the state’s portion to 55% of total costs – a mandate that voters previously approved in a 2004 referendum but has often not been met. The state currently pays about 47% of school costs.
Initiative 1 asks voters in this state capital to approve a 1.5% local income tax to fund a college grant program that, according to proponents, would provide every high school graduate in town funding for at least one year od public community, technical or 4-year college in the state. The Tax Foundation says the ballot initiative is also designed as a legal challenge to the state’s prohibition against any state or local income tax. If the referendum passes it’s expected to be challenged in the courts. The 1.5% tax would be levied on household income above $200,000.
Corporate Tax Initiatives: Oregon and Louisiana
This year’s ballot initiatives also include changes to corporate tax structures in two states: Oregon and Louisiana.
Oregon’s Measure 97 would impose a 2.5% tax on gross receipts for corporations with revenues over $25 million that are earned in Oregon. Only C-corps are affected. S-corps and “benefit companies,” defined under Oregon law as companies established to create public benefits in addition to profits for owners, would be exempt from the new tax.
The revenues collected would be used to fund education, health care and senior services.
Proponents say the initiative is aimed at collecting taxes from large out-of-state corporations who pay little or no tax to the state, leaving it short of funds for essential services.
According to OurOregon.org, a coalition of organizations and individuals, which supports the initiative, the state needs the cash because it has the third largest school class size in the nation, about 280,000 residents without health insurance and more than 47,000 seniors living in poverty.
The coalition says less than 1% of Oregon businesses will pay higher taxes under Measure 97.
Louisiana’s Amendment 3 would restructure the state’s corporate tax regime, eliminating the corporate tax deduction for federal taxes paid, which is unusual, and, lower the corporate tax rate from 8% to 6.5%. The state legislature has already passed a bill that lowers the state corporate tax if the referendum passes, according to Joe Henchman, vice president, state projects at the Tax Foundation.
The foundation notes that the current system allowing corporations to deduct federal tax liability against state taxes ties state revenues too closely to federal tax policies. If, for example, the federal government lowers corporate taxes, that would drive up drive up Louisiana corporate tax collections without any legislation being passed by state policymakers. At 6.5%, Louisiana’s corporate tax rate would equal that of neighboring Arkansas, making the state more competitive.
Other tax initiatives are ballots this election day include soda taxes in Boulder, Colorado; Oakland; San Francisco; and Albany, California. The tax is two cents per ounce in Boulder, 1.5 cents per ounce in San Francisco and one cent per ounce in Oakland and Albany.
Supporters say the tax can help fight childhood obesity and diabetes and offset the costs of those diseases. Opponents, funded largely by the beverage industry, argue that the tax is regressive and hurts poor people.
In Missouri, the state’s Association of Realtors is promoting Amendment 4, which would prohibit extending a sales or use tax to any service or transaction that was not already subject to state or local taxes as of January 1, 2015. Under current law, cities, counties and certain special districts are permitted to enact a local sales tax in addition to the state sales tax, which is 4.225%.
The Tax Foundation says this prohibition against broadening the state’s sales tax base “could stifle the state’s ability to properly reform its tax code.”
Potential Muni Impact
When asked if any of the proposed tax changes could impact municipal bond ratings of these issuers, Henchman of the Tax Foundation said, “While it’s certainly too early to say for sure, proposals to tax soda and high income earners are targeting a narrow tax base and could be potentially volatile revenue sources. Similarly, Missouri’s proposal to prohibit applying the sales tax to services could see that tax’s base narrow further as the economy continues to shift more toward services than tangible goods. If a state or locality relies too heavily on a tax with a narrow base, it could have an impact on their bond rating down the road.”
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