Some U.S. governors are pressuring state legislatures to pass new tax hikes to address budget shortfalls from the pandemic, according to a Wall Street Journal report.
Numerous states have garnered proposals to raise billions by raising taxes on income and capital gains of high-earning individuals and families.
State revenues are expected to decline as much as 5% going into the 2021 fiscal year. State legislators will either be forced to cut $56 billion or raise funds to balance their budgets through the fiscal year ending June 2022, according to Moody Analytics.
Fortunately, state and local revenues have overall fared better than expected during the pandemic.
In New Jersey, Governor Phil Murphy has proposed a budget that avoids tax hikes and makes a full pension payment for the first time since 1996. California has witnessed a 1.2% growth in revenue collections boosted by consistent earnings among high-income households and a strong stock market.
Meanwhile, high-income taxpayers in various states can expect higher tax bills in the coming year.
New York governor Andrew Cuomo has proposed a tax hike for New Yorkers reporting more than $5 million in income to cover budget deficits. As of now, the state’s top income tax rate is 8.82%. Cuomo’s proposal adds various charges for three years to five new tax brackets for high-income taxpayers. New York City residents have an additional top tax rate of 3.88%.
Furthermore, under Cuomo’s plan, taxes are raised on a sliding scale of roughly 9% to roughly 11% for taxpayers earning between $5 million and $50 million per year. Empire State Democrats are seeking to impose an additional tax on billionaires’ assets even if they don’t sell.
Minnesota governor Tim Walz has also proposed a new top income tax rate of 10.85% on couples earning $1 million or more and single filers earning more than $500,000. As of now, the state’s highest income tax rate is 9.85%. His proposal also includes levying a 1.5% tax on long-term capital gains and qualified dividends between $500,000 and $1 million, along with a 4% tax on income more than $1 million.
Washington governor Jay Inslee has proposed a 9% tax on long-term capital gains yielding more than $25,000 for individuals and $50,000 for married couples. As of now, the state does not have an income tax.
New York and Minnesota tax hikes would go into effect during the 2021 tax year, whereas Washington’s wouldn’t take place until 2022, reports the Wall Street Journal.
Pennsylvania Governor Tom Wolf has requested legislators lift the state’s flat income tax rate from 3.07% to 4.43% while also further expanding a tax forgiveness credit. Under the proposed budget, many taxpayers outside of the top-earning spectrum would see increases.
Under Wolf’s plan, the hikes would go into effect on July 1, and his forgiveness plan would apply to the entirety of 2021.
Much of the onus to institute tax hikes falls on state legislators, which have had mixed reactions. In New York, state legislators are eager to lift tax rates as some, including Cuomo, expressed concern that higher taxes make it less likely that wealthy New Yorkers who fled the state would return.
Those possibly affected by tax hikes, especially investors, are encouraged to follow the legislative process and to realize capital gains before a tax increase hits the books.
“I would seriously consider selling some of my stocks right now, enjoying my gains,” said Hodgson Ross law firm chairman Mark Klein. “I know the market is high, and I know the taxes aren’t going down either at the federal level or the state level.”
