inflation

Inflation Relief for Taxpayers

By FOCUS, a Leonine Business

Amidst the highest inflation rate in nearly 50 years, states are hustling to send relief to taxpayers. States throughout the country have experienced record budget surpluses for fiscal year 2022, due in large part to federal pandemic aid and better than expected tax collections. Legislators are risking future revenue shortfalls en masse to help residents combat inflation, not to mention gain favorability ahead of the November general elections.

Almost two dozen states cut personal or corporate income-tax rates in the past two years, and more than a dozen enacted temporary relief in 2022, reports Bloomberg. Democratic governors often opted for tax holidays and one-time rebates, versus the permanent tax cuts favored by Republicans. This month, tax relief special sessions dominated Republican state legislatures, and whether through tax cuts or one-time rebates, residents in most states will receive financial relief from their state governments.

The Arkansas legislature passed Republican Gov. Asa Hutchinson’s $500 tax cut package on August 11. Governor Hutchinson called for the cuts after the state’s surplus reached $1.6 billion to offer his constituents financial relief, as reported in the governor’s press release.

Indiana lawmakers also passed tax relief legislation during their special session on August 5. Republican Gov. Eric Holcomb signed the legislation, giving all taxpayers a $200 rebate from the state’s record budget surplus; currently about $6.1 billion according to the State Budget Agency.

West Virginia Republican Gov. Jim Justice called the legislature into a special session on August 8 to cut state income tax by 10 percent. According to Governor Justice’s press release, the call came in response to the $1.308 billion single-year revenue surplus. The Senate rejected the tax cut; however, lawmakers are continuing to negotiate a tax plan that incorporates some of the governor’s proposed income tax cuts as well as cuts to business inventory taxes.

 Montana legislators want to follow suit. Earlier this month ten Republican legislators signed a letter requesting the Secretary of State poll their colleagues to see if they’d support a special session on the matter, reports Independent Record.

Navigating how to best spend budget surpluses will burden state legislatures well into fiscal year 2023. ARPA pandemic funding cannot be used to tax cuts, but the excess liquidity of the past two years makes locating the source of revenue increase complicated. Time will show who strategized better, the Democrats with one-time rebates or the Republican with permanent tax cuts.