The voices of Tax Policy Center's researchers and staff
Election Day 2018 has a bumper crop of voter initiatives on state taxes, ranging from new levies on carbon, payroll, motor fuels, marijuana, soda, and tobacco, to new restrictions various taxes. Direct votes on a state’s tax policy can have long-lasting effects on a state’s fiscal direction (hello, Prop 13!). And for readers of this blog, examining these ballot initiatives is like a kid laying out her candy haul after trick or treating. Tax nerds, dig in.
If Washington voters pass Initiative 1631 the state will levy the first carbon tax in the United States. The proposed rate is $15 per metric ton of carbon emissions beginning in 2020 with $2 annual increases until the state meets its emissions target. If this sounds familiar, it’s because Washington voters rejected a similar carbon tax two years ago. The tax proposal actually hasn’t changed, but the 2018 version would spend all the revenue on programs related to the environment while the 2016 proposal would have used the billions in new revenues to reduce the state’s sales tax by a point and make other tax cuts.
Other big tax hikes for big spending programs
Maine’s Question 1 would create the nation’s first universal home health care program (for both the elderly and disabled) and fund it with a 3.8 percent payroll tax on wage income above $128,400 (the maximum earnings level subject to the federal Social Security tax). Employers and employees would split the tax.
Colorado’s Amendment 73 would add four new individual income tax brackets to its flat 4.63 percent rate. A new 5 percent rate would kick in at taxable income of $150,000, and the top 8.25 percent rate would be imposed on taxable income above $500,000. The initiative also would increase the corporate income tax rate from 4.63 percent to 6 percent. The resulting $1 billion per year in new revenue would go to schools and be exempt from Colorado’s TABOR restrictions on how much the state can tax and spend.
Arizona and Massachusetts also had measures set for 2018 ballots that would have raised income taxes on the rich to pay (mostly) for schools, but courts in both states rejected them over wording issues.
Gas taxes and transportation
Last year, the California legislature passed a 12-cent per gallon gas tax increase, its first motor fuels tax hike in over two decades. But it might not last a year because voters in initiative-happy California can repeal it with Proposition 6, which would also require voter approval for any future fuel tax or vehicle fee increase.
Missouri voters also will weigh in on the gas tax with Proposition D. It would increase the state’s 17.3 cents per gallon rate (among the lowest in the nation) to 27.3 cents over four years. (A “yes” vote also would exempt Olympic medals from state income taxes, a policy combo that is dumb on so many levels.)
Colorado has two initiatives to fund transportation. Proposition 110 would increase the sales tax rate from 2.9 percent to 3.52 percent over 20 years; Proposition 109 would use money from the general fund. What if both pass? It’s complicated.
Voters in Michigan and North Dakota will decide whether to join the growing list of states with legal and taxable marijuana. Michigan’s Proposal 1 would set a 10 percent excise tax on purchases. Gubernatorial candidates are already discussing how they’d spend the new revenue.
Meanwhile, North Dakota’s Measure 3 would legalize the drug but not set up a tax system. The chairman of the ballot initiative's sponsoring committee says that was on purpose because he does not “believe in sin taxes and excise taxes personally.” However, it’s hard to believe North Dakota will pass up the sizeable revenue that can come with legal marijuana.
Proponents of ballot initiatives in Oregon and Washington would like me to label this section “grocery taxes” but that would be misleading. Oregon’s Measure 103 and Washington’s Initiative 1634 read like they ban taxes on groceries, and Oregon’s pro-103 group even sports a vegetable-filled grocery bag as its campaign logo.
But Washington (like most other states) already exempts groceries from its sales tax and Oregon doesn’t even have a sales tax. That’s why these votes are actually about one grocery item that’s increasingly taxed: soda. There are good arguments about whether and how to tax soda and what to do with the revenue. Claiming you’re protecting grocery shoppers isn’t one of them.
If voters approve South Dakota’s Initiated Measure 25 the state’s cigarette tax would increase from $1.53 cents to $2.53 cents per pack. Most of the revenue go toward workforce training programs and lowering tuition at technical colleges.
Next door, Montana voters will increase their state’s cigarette tax from $1.70 to $3.70 per pack if they approve I-185. The resulting revenue would support Montana’s portion of Medicaid expansion, which was approved in 2015 but expires next July.
(Idaho, Nebraska, and Utah are also voting on expanding Medicaid for the first time but without a dedicated revenue source.)
Arizona’s Proposition 126 would bar new or higher sales taxes on services. Proponents say the ban would benefit low-income families by exempting childcare, healthcare, and veterinarian services from tax. But Arizona isn’t contemplating taxing any of these services. Instead, this initiative would solidify exemptions on mostly high-end services such as gym memberships, car washes, and digital products like Netflix, that are absent from Arizona’s sales tax base but which other states have recently taxed. Missouri voters passed a similar proposition in 2016.
Florida’s Amendment 5 would require a two-thirds legislative supermajority to pass any future tax or fee increases. Proponents say such rules stop tax increases; opponents warn of fiscal disaster from political gridlock. Research says both claims are overstated.
Oregon already requires a three-fifths legislative vote for tax hikes, but the state’s Supreme Court recently excluded tax expenditures changes from the supermajority rule. Measure 104 would extend the supermajority to any changes to exemptions, credits, and deductions that raise revenue. The motivation? Oregon considered excluding second homes from the mortgage interest deduction in 2017. The real estate industry was not happy.
Nevada’s Question 2 would exempt feminine hygiene products, such as tampons, from the state’s sales tax. Nine states and the District of Columbia, have passed similar legislation. Tax policy wonks could tell you why selectively shrinking your tax base like this is bad tax policy. Tax policy wonks also don’t typically win elections.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Michael Conroy/AP Photo