Tax and Budget

On Dec. 19, 2014, President Obama signed into law the Stephen Beck Jr. Achieving a Better Life Experience, or ABLE, Act, that allows persons with disabilities to save for their futures through tax-advantaged savings accounts. The act gives qualified Americans with disabilities the chance to save money and meet the added expenses of living with a disability without jeopardizing their eligibility for important supports such as Supplemental Security Income, or SSI, and Medicaid.

The New York Times says that the oil industry is in its “deepest downturn since the 1990s, if not earlier”. The price of a barrel of oil has plummeted, falling more 70 percent since mid-2014, and gas prices at the pump have followed – falling from $2.21 one year ago to $1.70 today (AAA). Unfortunately, a drop in energy prices means a headache for several states that rely heavily on severance taxes for revenue.

A majority of states (35) impose at least one form of severance tax, which is a tax on natural resource extraction. While overall severance taxes don’t make up a large percentage of total state taxes collected – 2.1 percent in 2014 – they have very different impacts across the states. For example, in 2014 severance taxes collected ranged from 72 percent of total tax revenue in Alaska and 54 percent of revenue in North Dakota to less than 1 percent in 18 states. In seven states, severance taxes make up 10 percent or more of total tax collections. 

CSG Midwest
As the new year began in Illinois, there was still seemingly no resolution in sight to a months-old problem: The state had no budget. But even without one in place, many parts of Illinois government continued to operate, as the result of a mix of judicial, legislative and executive actions.
“Government ‘shutdown’ is always in quotes because no government really shuts down,” notes Chris Mooney, director of the University of Illinois Institute on Government and Public Affairs. “It’s always a matter of to what degree — how much government activity is not being done.”
Illinois has been without a budget since July 1 because of a stalemate between the Democrat-led legislature and Republican governor.
Still, according to the Illinois comptroller’s office, 90 percent of state operations are being funded. For example, state employees get paid because of a court order; services for the disabled continue as the result of a consent decree; and other obligations, such as pension payments, are covered under “continuing appropriations” language in state statute. Illinois legislators also have passed emergency spending bills to fund K-12 schools and local governments.
“All states feel disruption without a budget,” says Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers, “but the level of disruption varies from state to state.”

In 2016, state sales tax rates look a lot like they did in 2015. In 2015, 45 states plus the District of Columbia levied a sales tax – the same was true on January 1, 2016. In 2015, five states (Alaska, Delaware, Montana, New Hampshire and Oregon) did not levy a sales tax – the same five states did not levy a sales tax on January 1, 2016. Sales tax rates (or lack thereof) remained the same in 49 states and the District of Columbia on January 1, 2016 over 2015 rates. Those rates range from a low of 2.9 percent in Colorado to a high of 7.5 percent in California, with an average rate 5.65 percent.

In 2016, state sales tax rates look a lot like they did in 2015. In 2015, 45 states plus the District of Columbia levied a sales tax – the same was true on January 1, 2016. In 2015, five states (Alaska, Delaware, Montana, New Hampshire and Oregon) did not levy a sales tax – the same five states did not levy a sales tax on January 1, 2016. Sales tax rates (or lack thereof) remained the same in 49 states and the District of Columbia on January 1, 2016 over 2015 rates. Those rates range from a low of 2.9 percent in Colorado to a high of 7.5 percent in California, with an average rate 5.65 percent.

For states in the coming year, no news is good news when it comes to finances. For the last few years, states on the whole have seen a slow and steady increase in revenues. In the coming year, state leaders will have a little bit more breathing room when making fiscal decisions. States collected $912 billion in total tax revenues in fiscal year 2015—an increase of 5.6 percent over 2014 levels. Growth over this time was widespread—47 states reported growth—while three states, Alaska, Illinois and North Dakota, reported declines. For states reliant on natural resources, that cautious revenue growth could be derailed by volatility in the oil market.

CSG Director of Fiscal and Economic Development Policy Jennifer Burnett outlines the top five issues for 2016, including strategic decisions following modest revenue growth, workforce development, public pensions, federal instability, and health care costs. 

Congress finished 2015 on an unusually productive streak – at least compared to recent years – by passing a variety of legislation important to state governments, including funding the highway trust fund, reforming the Elementary and Secondary Education Act (now called the Every Student Succeeds Act), reauthorizing the highly debated Export-Import Bank, extending a variety of tax incentive provisions, and funding the federal government through September 2016.  Going into a presidential election year, many experts do not expect Congress to act on major policy initiatives before November, and are closely watching what President Obama will do in his final year in office. 

CSG Midwest
As the result of legislative action across the Midwest in 2015, individuals with developmental disabilities and their families may soon have a new tax-free savings tool. According to the National Down Syndrome Society, nine states in this region have passed laws allowing for the establishment of ABLE accounts: Illinois, Iowa, Kansas, Michigan, Minnesota, Nebraska, North Dakota, Ohio and Wisconsin. ABLE stands for Achieving a Better Life Experience. 

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