Back to the Tax Shift

According to documents made available to the media, we have details of one of what could be multiple tax proposals that the Governor’s office is putting into the mix as the House and Senate leadership negotiate a final tax plan.   

While the Governor has clearly continued to prioritize revenue neutrality – an important pursuit in these times – and gets much closer than any of the other plans, his proposal “Alternative 3A” still falls short. Overall, the governor’s tax plan would reduce annual revenue available for public investments by around $215 million upon full implementation, which is less than annual revenue lost from the House ($500 million annually) and Senate ($1.3 billion annual) plans.

There still remains the challenge of how to make the math add up and protect low- and middle-income taxpayers from a tax shift. That’s because the governor’s proposal pursues significant cuts to personal and corporate income tax rates. These cuts are paid for by expanding the sales tax base to include more services. And this means low- and middle-income taxpayers, who spend more of their income, will see their taxes go up on average relative to higher-income taxpayers.

Using an economic incidence model, we are able to look at the population-level impact of tax changes and provide an estimate of how taxpayers will fare on average by income group. Our preliminary analysis of the proposal “Alternative 3A” finds that, on average, the bottom 95 percent of taxpayers would see their taxes increase while the wealthiest 1 percent of taxpayers, on average, would get a tax cut of over $8,000.

As negotiations continue, seeking a revenue-neutral plan is important, but not by shifting taxes further to low- and middle-income taxpayers. This is possible but it takes time and attention to the ways in which tax changes affect taxpayers across the income spectrum.