Hello everyone and welcome to this episode of Ignition Time.
As inflation is going through the roof,
different States are actually flushed with cash.
Yes, you heard that right.
There are cash rich States all over the country that are now creating
what they call a competitive environment and trying to put money in your pockets,
specifically in the pockets of their residents.
Welcome to this episode of Ignition Time, everyone.
My name is Dr. Nitin Chhoda with Ignition Time.
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Check out my introductory video.
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Here's a headline of an article on your screen from CNBC, Cash rich States create
competitive environment with a flurry of tax cuts.
So what's been happening is there have
been a wave of state tax cuts as a direct result of budget surpluses.
Yes, you heard that right.
Budget surpluses and more tax breaks may be on the way.
In fact, 29 States and DC,
the District of Columbia actually enacted significant reductions in 2021.
Now this could cause problems
in the future for States who are trying to earn income, but at the moment,
it's very clear that their residents are actually benefiting.
According to Katherine Loughead, who is a senior policy analyst
at the Tax Foundation, States have a lot of revenue on hand
and they are looking to return it to taxpayers.
In fact, in 2021, 29 States and DC enacted significant tax cuts,
according to this article on your screen from the Tax Policy Center.
You'll see the headline of the article,
How Post Pandemic Tax Cuts Can Affect Racial Equity.
We will provide you with a link to this article in the description section below.
Now what's happening is, these States are
providing tax cuts through reduced individual rates or expanded earned income
tax credits, which is basically a write off for low to moderate income families.
Let's take a look at this graph on your screen and you can see the States
in the darker colors that have an income tax cut.
Let's start all the way on the West Coast with the state of Washington.
Washington had an earned income tax cut.
The state of Oregon had an earned income tax cut.
Idaho had an income tax rate cut.
Montana had an income tax rate cut.
Arizona had an income tax rate cut.
Now New Mexico as well as Colorado and had an earned income tax cut.
Now moving on to the middle of the country, Oklahoma income tax rate
cut, Louisiana income tax rate cut, Missouri income tax rate cut.
Now moving north.
Iowa income tax rate cut, Wisconsin income tax rate cut,
Indiana earned income tax cut and the state of Ohio income tax rate cut.
Also North Carolina income tax rate cut.
And then many States along the East Coast,
Maryland, Delaware, all of these States, including the state of New Jersey
and Connecticut, all have earned income tax cuts.
And when we move further up North, Maine had an earned income tax cuts.
So this year, at least a dozen States have made cuts or are looking at reductions,
including both temporary and permanent measures.
Now, there have been some pushes for corporate or property tax relief.
Income taxes are basically the heart of what's going on,
according to Brian Secrets, who is a director of state fiscal studies
at the National Association of State Budget Officers.
Overall, most of the tax cut proposals
have been relatively modest and a number have been targeted.
The targeted proposals we're seeing are
directed towards helping with the impacts of the pandemic and inflation.
So what is happening is some of these tax cuts have included changes to grocery
taxes, levies on retirement benefits, earned income tax credits,
small business relief, also pausing gas taxes and much more.
So what is happening, folks,
is the Treasury Secretary Janet Yellen has said that very uncomfortably high
inflation will likely last for another year.
So what is happening, folks, is that while last year's tax cuts were
primarily done by Republican led States, rising inflation in 2022 has actually
prompted both Democrats and Republicans to try and push for relief.
For example, in New York,
the Democrat governor, Kathy Hochel, called to push forward a tax cut
for middle class residents, including a property tax rebate program,
during her January State of the State address.
And also last week, New Jersey Governor Phil Murphy,
who's also a Democrat, actually proposed a property tax relief
plan in the form of rebates for 1.8 million homeowners and residents.
So what is happening, folks, is there is a budget surplus for many
States, which is why we're even having this discussion.
So basically, what's been happening is
a lot of States have better than anticipated revenues after they had
sharply reduced their forecasts during the pandemic.
So the bottom line is a lot of States made money.
And why is that?
Well, because high income Americans kept working through most of the pandemic.
They boosted state income taxes
and the federal stimulus money bolstered spending in local economies.
And when you spend in your local economy, when you buy groceries,
when you go to a restaurant, a portion of what you spend flows back to the States.
So what is happening here, folks,
is that States actually have more money than they had originally anticipated.
And a lot of the individual relief
that the States essentially gave out, that the federal government gave out did
go through local economies and a portion of it made its way back to the state.
In fact, 32 States are projecting
that in 2022 they'll make more money than what they had anticipated.
So what a lot of States are doing right now is that they're trying to attract
residents while certain States are actually losing residence.
Yes, the high tax States are actually losing residence.
A lot of residents are leaving high tax States and are going to low tax States.
In fact, from April 2020 to July 2021.
High tax States like California, Hawaii,
Illinois, new York and DC were the top five States to actually lose residence.
During the same time period, Idaho's population grew by three 4%
and Arizona, Delaware, Florida, Montana, Nevada, North Carolina, South Carolina,
Texas and Utah all saw a growth of 1% or more in terms of their residents.
So more and more individuals are actually flocking to low tax States.
Now the big question is what are going
to be the long term consequences of States slashing taxes?
Because at the end of the day States need
revenue and they need to make sure that okay, they have a surplus this year
but are they going to have a surplus next year and the year after that?
And are they going to have balanced
budgets going forward and that requires future revenue growth.
Now, I want to be clear that this is a midterm year so it's very popular
to slash taxes in an election year but States now need to look forward
and look to the future as well and many States actually have millions of dollars
from the American rescue plan that is still unspent.
So let me know what you think about this.
A lot of States want to put money in your pocket to try and get you to move there.
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