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State Tax Reform Legislation Likely In 15 States In 2013: Report

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Wisconsin Gov. Scott Walker (R) is considering tax reform legislation for 2013. (AP Photo/Andy Manis, File)
Wisconsin Gov. Scott Walker (R) is considering tax reform legislation for 2013. (AP Photo/Andy Manis, File)

WASHINGTON -- Fifteen states are likely to see some sort of tax reform legislation in 2013, according to a study released Wednesday by the Institute on Taxation and Economic Policy.

ITEP said that a series of tax reform packages, ranging from an extension of the sales tax in Kansas to elimination of some personal income taxes in North Carolina to a rise in taxes for the wealthy in Minnesota, are likely to be taken up in next year's state legislative sessions. With more states achieving one-party control of state government, ITEP, a Washington-based group that analyzes state taxation models and proposals, said that tax reform issues would likely dominate 2013 legislative sessions.

"This is the reason we think many state proposals that have not gotten traction in the past will be heard," ITEP executive director Matthew Gardner said on a conference call with reporters.

The group said it is likely the rise in Republican-dominated state governments would lead to a series of tax proposals favored by economist Arthur Laffer, the architect of supply side economics. Gardner and ITEP state policy director Meg Wiehe said several states are currently exploring Laffer-esque proposals, including Oklahoma, North Carolina and Indiana. These proposals would include cuts to corporate and personal income taxes, which Wiehe said would likely benefit the wealthiest state residents.

As an example, Wiehe pointed to Kansas, where the Republican-controlled state legislature and Gov. Sam Brownback (R) enacted a Laffer-backed tax plan earlier this year that cuts most personal income taxes while eliminating most corporate taxes. The plan, which opponents say will cost the state $2 billion out of a $6 billion general-fund budget within five years, was cited by ITEP as a tax system which will not be sustainable. Brownback indicated earlier this month that he is likely to seek a sales-tax hike extension, along with additional income tax cuts, when lawmakers reconvene in January.

Wiehe also pointed to proposals in North Carolina which would cut income taxes by $10 billion and corporate taxes by $1 billion, noting that the revenue would need to be found in another way to fund state government.

"It would take a major effort to make up for that loss," Wiehe said.

Other states considering tax plans include Virginia, Kentucky, Wisconsin and Iowa. In Wisconsin, Gov. Scott Walker (R) has said that he is planning to introduce proposals to cut income and property taxes.

ITEP used the call to outline a series of steps states need to take in terms of tax reform plans, which include: moving towards progressive tax structures, which place higher taxes on the wealthy, finding ways to make up for lost revenue from tax cuts and establishing long-term tax plans that are sustainable for state governments.

Among the ideas floated by ITEP on the conference call were extending sales taxes to cover such services as hair cuts and car repair and pushing for states to collect sales tax on items bought online. Congress is currently considering legislation which would allow for states to begin online sales tax collection. Consumers are currently required to report online sales taxes to their state tax collectors, but few do so.

The National Conference of State Legislatures estimates that states are losing $23 billion collectively in revenue from online sales taxes.

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