As some leading lawmakers in Washington, D.C., explore potential changes to the federal tax code, one idea in particular — the creation of a border adjustment tax — is likely to get more and more attention from many Midwest-based firms.
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Since its inception in the 1970s, the federal Earned Income Tax Credit (EITC) has enjoyed wide bipartisan support. Designed to encourage and reward work, a low-wage worker’s EITC grows with each additional dollar of earnings until his or her wages reach a maximum value — an incentive for people to leave welfare for work and for low-wage employees to increase their work hours.
And the EITC is refundable: If the amount of the credit exceeds what the worker owes, he or she gets a refund.
“For conservatives, the EITC is pro-work, it is pro-personal responsibility. Liberals like that too, but also it is directed toward low-income people, so you get that mix,” says Chuck Marr, director of federal tax policy for the Center on Budget and Policy Priorities. “Plus, it works. There is very rigorous research to show that it encourages more work.”
According to the IRS, the 42-year-old Earned Income Tax Credit is one of the nation’s largest anti-poverty programs. In tax year 2015, for example:
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More than 27 million filers received about $67 billion in earned income tax credits.
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Four of five people eligible for the EITC claimed it.
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The EITC and the separate Child Tax Credit lifted an estimated 9.4 million people out of poverty, including 5 million children.
In the 11-state Midwest, more than 4.6 million federal EITC claims for tax year 2015 provided almost $11.2 billion in credits. The average refund was $2,343. (The maximum federal credit in 2016 ranged from $506 for a childless individual to $6,269 for a family with three or more children.)
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The majority of Midwestern states determine farm property taxes through a system that assesses the land based on “use value” — how much income it can generate from agricultural production. One of the few exceptions is Nebraska, where a percentage of the land’s actual market value (currently set at 75 percent in statute) is used to determine what a farmer or rancher will pay in taxes.
With the value of agricultural land rising rapidly in recent years (see table), Nebraska’s agricultural producers have faced big increases in their tax bills, and over the past two years alone, the state’s legislators have intervened by putting more than $400 million into a Property Tax Credit Relief Fund, which for 2016 will provide $89.57 per $100,000 of property valuation. Beginning in tax year 2017, LB 958 provides $20 million in additional funding for property tax relief.
This legislative year, Sen. Lydia Brasch hopes she and other Nebraska legislators are able to find a more permanent solution.
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Indiana, Wisconsin, North Dakota and Iowa have made the top-10 list in a recent U.S. News & World Report study that explores how well state governments are being administered across the country. Four metrics were used to evaluate all 50 states: fiscal stability, government digitalization, budget transparency and state integrity.
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A state trial court judge in South Dakota has ruled that a South Dakota law requiring remote sellers to collect sales tax is unconstitutional. This ruling was expected for precisely the reason the judge stated—a lower court must follow Supreme Court precedent.
In Quill Corp. v. North Dakota, decided in 1992, the Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales tax. The South Dakota law directly contradicts this precedent.
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Seven years ago, Kansas lawmakers adopted new incentives for individuals to move to the state and make one of its 77 rural counties their new home. The Rural Opportunity Zones program offers a mix of income tax waivers (for up to five years) and student-loan repayments of $15,000. But as much as he supports the idea, Kansas Rep. Troy Waymaster says another part of the economic challenges for rural areas must somehow be met.
“The problem is when there is no job for them to take, [people] probably are not going to move [to the rural counties],” he notes. “This is the other half of the equation: how you get jobs to move back.”
This year, he introduced the Ad Astra Rural Jobs Act (HB 2168), which would provide tax credits to investors who help businesses expand, locate or relocate in Kansas’ rural areas, many of which are struggling due to trends in their two dominant industries: agriculture and oil. In both sectors, commodity prices are low.
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Indiana Sen. Jean Leising knows it’s going to be another tough year for beef and hog producers, and 2016’s record national yields for corn and soybeans indicate that farm profitability will decline for the third straight year. But she says a statutory revision made by the state legislature last year might at least help ease the pain for agricultural producers when it comes to paying their property taxes.
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Tax policy quickly emerged as a high-priority issue this year in many of the Midwest’s states, with a mix of proposed tax hikes and cuts making their way into governors’ State of the State addresses and proposed budgets, as well as some of the first bills introduced in legislatures.
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In 2015, lawmakers in North Dakota passed legislation (SB 2057) requiring the legislature to undertake an evaluation of 21 of the state’s tax incentive programs at least once every six years. According to Pew’s Business Incentives Initiative, North Dakota is one of 21 states (four in the Midwest; see map at right) that have passed laws since 2012 requiring regular evaluations of tax incentive programs offered by the state.
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