Wealthy Reap the Most as Revenue Rush Triggers U.S. State Rebatesby
Tax repayments arrive as economies recover from recession
Critics say laws offer help to those who need it least
In another sign that U.S. states are recovering from the Great Recession, a handful are triggering mechanisms that repay taxpayers when coffers overflow, and the wealthiest are receiving the most.
At least seven states have such laws. Oregon this year paid back $402 million to taxpayers. Colorado and North Carolina set off similar triggers. The product of taxpayer revolts aimed at checking government’s growth, the laws typically call for a rebate or reduction in income-tax rates when revenue exceeds benchmarks.
Opponents say returning money to taxpayers leaves governments unprotected in the event of another recession, deprives states of cash for schools and roads, and prevents them from socking away money in rainy-day funds. Supporters say the policies keep states from overspending.
“The wrong people are getting the bulk of the money,” said Chuck Sheketoff, executive director of the Oregon Center for Public Policy, a research group that supports a progressive tax system and policies that help the poor. “If you want to boost the economy, you give money to low- and middle-income people, not people who earn more than they spend already.”
The repayments show that states are committed to business, said Jonathan Williams, vice president of tax and fiscal policy at the American Legislative Exchange Council, which supports free markets and limited government.
“You’ve seen a trend with states moving toward the direction of wanting to have more competitive business climates,” he said. “Tax-cutting triggers allow them to show that they’re serious about becoming more competitive as a state economy.”
A surge in revenue has created the controversy. States’ tax take grew 24 percent between 2010 and 2015, according to estimates by the Washington-based National Association of State Budget Officers.
“While we have seen revenue growth, it has been slow growth compared to prior recovery periods and revenue has become increasingly volatile,” said Brian Sigritz, the group’s fiscal studies director. “Much of the personal income tax increases we have seen have been due to high-income earners and capital gains,” an unstable source of revenue.
Tax-trigger policies can leave states with a shortfall or keep them from maintaining services whose costs grow each year, said Erica Williams, assistant director of state fiscal research at the Washington-based Center on Budget and Policy Priorities, which analyzes budgets with a focus on low-income families.
“You’re setting in motion a series of tax cuts or rebates that keep future lawmakers from having a full range of choices on what they can spend money on,” she said.
Efforts to stop or modify the tax cuts have had little success. In Oklahoma, lawmakers defeated a measure to suspend that state’s 2014 law that set off an income-tax reduction this year even though revenue has since fallen sharply because of a decline in oil prices.
“The economy is struggling, we have a huge budget shortfall, we have teacher vacancies, everything is in disarray and yet they managed to write a bill that tied a tax cut to revenue growth, and it’s still going to take effect,” said David Blatt, executive director of the Oklahoma Policy Institute, a Tulsa group that supports public-services funding.