Senate GOP’s Budget Plan: $1 5T In Tax Cuts, $5T Debt Limit Hike What You Need To Know
Assuming states will be unable to replace cuts of that magnitude, they will face difficult choices about whether to reduce Medicaid spending by covering fewer people, eliminating optional benefits, or reducing provider payment rates. Unlike personal SALT, which is mainly an issue for residents of high-tax states, the way corporate income taxes are imposed through apportionment alters the analysis for C-SALT. Multistate corporations have their income apportioned to states through “factor apportionment,” which can involve the location of payroll, property, and sales.
In April 2024, CMS released guidance to states about this issue, noting they will work with states to identify impermissible hold-harmless arrangements but will not take enforcement action until January 2028, allowing states time to come into compliance. Over the last decade, approximately 80% of total state tax revenue was derived from levies on personal income, general sales of goods and services, and corporate income. Each of these major tax revenue sources exhibited higher volatility scores in the latest five years compared with their long-term trends. All states but Alaska finance part of the state share of Medicaid funding through at least one provider tax and 39 states have three or more provider taxes in place (Figure 1). While data are limited, the Government Accountability Office (GAO) estimated that provider taxes as a percent of the non-federal share of Medicaid spending in SFY 2018 ranged from less than 0.5% in New Mexico, South Dakota, Texas, and Virginia to more than 30% in Michigan, New Hampshire, and Ohio.
The vote sets the stage for back-to-back Senate all-nighters spilling into Friday and the weekend. More than a month after House Republicans surprised Washington by advancing their framework for Trump’s tax breaks and spending cuts package, Senate Republicans voted Thursday to start working on their version. In this analysis, The Pew Charitable Trusts calculates a short-term and long-term volatility score for overall state tax revenue and for major tax revenue streams (at least 5% of tax revenue on average over the last decade) for each state.
Recreational Marijuana Taxes by State, 2025
280 as introduced would allow for collections increases attributable to inflation and new construction, the “revenue neutral” Truth in Taxation limit differs from the one proposed under this legislation, which could create confusion among taxpayers. The amount of revenue states raise through roadway-related revenues varies significantly across the US. Only three states—Delaware, Montana, and New Jersey—raise enough revenue to fully cover their highway spending.
The plan allows for an additional $150 billion in military spending and $175 billion for immigration enforcement. Democrats strongly oppose this, calling it “magic math” because it hides the true cost, which could be in the trillions. The Senate Republicans’ budget plan also includes a $5 trillion increase in the debt limit. Republicans are using the accounting method called the “current policy baseline” to show that extending Trump’s tax cuts would cost nothing, CBS News reported. Fiscal 50 is an interactive platform that provides clear, data-driven portraits of state fiscal conditions. Users can view, sort, and analyze data on key trends that shape states’ fiscal health now and over the long term.
Senate Republicans release budget blueprint with new tax cuts and a $5 trillion debt limit hike
House Bill 2396 represents a creative and thoughtful approach to property tax reform in Kansas but has more drawbacks than the solution proposed in S.B. Enacted via the Tax Cuts and Jobs Act, or TCJA, of 2017, there’s currently a $10,000 limit on the federal deduction on state and local taxes, known as SALT. Residents who itemize tax breaks cannot deduct more than $10,000 in levies paid to state and local governments, including income and property taxes. The recently passed House budget resolution targets cuts to federal Medicaid spending of up to $880 billion or more over a decade. To put the size of the spending cuts in perspective, $880 billion represents 6% of state taxes per resident and 19% of states’ spending on education per pupil, so offsetting the loss of federal revenues would be challenging for states, particularly considering that states generally must balance their budgets.
Instead, Senate Republicans are considering offsets mostly for any new Trump tax breaks. Raising alarms from the most conservative budget hawks, the senators have set a floor of about $4 billion in budget reductions to health and other programs — a fraction of the package’s expected $4 trillion-plus price tag for tax breaks. For example, the four states with the highest overall scores—energy-rich Alaska, New Mexico, North Dakota, and Wyoming—collected the largest or second-largest shares of their tax dollars over the last 10 years from highly volatile severance taxes. Yet Texas, the largest oil producer in the nation, ranked in the middle of states for overall revenue volatility, even though its severance tax revenue was the third most volatile. The crucial difference is that severance tax accounted for 8.6% of Texas’ total tax collections over the last decade, compared with 53.4% of tax revenue in Alaska, 48.8% in North Dakota, 21.9% in New Mexico, and 31% in Wyoming. Raising alarms from the most conservative budget hawks, the senators have set a floor of about $4 billion in budget reductions to health and other programs — a fraction of the package’s expected $4 trillion-plus price tag for tax breaks.
Trump’s Reciprocal Tariff Calculations Are Nonsense, Will Punish Mutually Beneficial Trade
U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders., which undermines the connection between taxpayer location decisions and state tax liability. Beyond institutional providers, 20 states have provider taxes on managed care organizations (MCOs), 17 on ambulance providers, and 11 on “other” provider types such as ambulatory care facilities and home care providers (Appendix Table 1). The Deficit Reduction Act of 2005 required states that tax Medicaid MCOs to tax all MCOs uniformly, thus limiting the ability of states to only tax Medicaid MCOs. For example, in California the tax is set at a much higher rate for Medicaid enrollees relative to privately-insured enrollees, which means that 99% of the tax burden falls on Medicaid member months. As a result, there may be issues with the hold harmless requirements because the MCOs paying for nearly all the tax payments also receive premium payments from the state to provide Medicaid coverage, and those premium payments reflect the tax expense. In its approval letter of California’s recent provider tax waiver in January 2025, CMS included a companion letter informing the state that CMS was contemplating proposed regulatory changes that could affect the legality of California’s MCO tax in future years.
- It plays an important role in defining a business’ tax base and can impact investment decisions.
- Like individuals, corporations pay several types of state and local taxes, including corporate income, property, sales, excise, and severance taxes.
- The Medicaid and CHIP Payment and Access Commission has submitted recommendations to Congress that states start reporting new data on Medicaid taxes and that those data be publicly available for analysis.
- 2396, including the repeal of Truth in Taxation’s direct notice to taxpayers, as well as the fact that a public hearing would be required only after such an increase is adopted.
- Very few people, understandably, have any interest in taxing the receipt of these government services, but it’s true that they are untaxed despite being income in some meaningful sense.
- Enacted via the Tax Cuts and Jobs Act, or TCJA, of 2017, there’s currently a $10,000 limit on the federal deduction on state and local taxes, known as SALT.
2396, the burden would rest with taxpayers to try to secure enough signatures to stop a tax increase after it has already been adopted. 2396 would increase state payments to cities and counties by an aggregate of $60 million in the first year and increase that funding by 2 percent per year in perpetuity. After declining by 4.3% in fiscal 2020, revenue surged by 23.2% the following year and again by 15.4% in fiscal 2022. Underlying economic conditions during the pandemic era—in particular, historically high inflation rates, low unemployment, a spike in wage growth, robust consumer spending, rising corporate profits, and strong stock market returns in 2021—also helped to drive up individual tax streams. State tax revenue volatility has increased in recent years, with significant fluctuations not only in total collections but also across major tax streams. From fiscal year 2019 to fiscal 2023, annual tax revenue growth varied more dramatically than the long-term average, driven by a mix of COVID-19 pandemic-related disruptions, federal tax policy changes, and shifting economic conditions.
This necessitates transfers from general funds or other revenue sources that are unrelated to road use to pay for road construction and maintenance. Opponents of such restrictions note that provider taxes are permissible under current law and help fund Medicaid; and restricting provider taxes will create financing gaps for states that could result in higher state taxes, reductions in Medicaid eligibility, lower provider payment rates, and fewer covered benefits. Both proponents and opponents of new restrictions agree that the limited data about provider taxes makes it difficult to assess states reliance on them as a funding source and to understand how they affect net payments to providers. The Medicaid and CHIP Payment and Access Commission has submitted recommendations state tax and expenditure limits to Congress that states start reporting new data on Medicaid taxes and that those data be publicly available for analysis. While capping C-SALT has superficial appeal in perceived parity with personal limits, it rests on flawed assumptions about the nature of individual and corporate income taxes.
It plays an important role in defining a business’ tax base and can impact investment decisions. When businesses cannot fully deduct capital expenditures, they spend less on capital, which reduces worker’s productivity and wages. For investment, corporations with significant investment in property may see a net tax hike from disallowing property tax deductions. Understanding state-specific revenue volatility is a first step for policymakers to implement evidence-based savings strategies. These strategies leverage revenue growth during prosperous years to cushion against lean periods. Examples include directing one-time or above-average revenue into a rainy day fund and earmarking these funds for narrowly defined purposes.
- WASHINGTON (AP) — After a long wait, the Senate is launching action on President Donald Trump’s “big, beautiful bill” of tax breaks and spending cuts at a risky moment for the U.S. and global economy.
- Another argument motivating limits on corporate SALT deductions regards the treatment of pass-through businesses.
- When businesses cannot fully deduct capital expenditures, they spend less on capital, which reduces worker’s productivity and wages.
- Before TCJA, the SALT deduction was unlimited, but the so-called alternative minimum tax reduced the benefit for some higher earners.
Road Taxes and Funding by State, 2021
Some of congressional Republicans’ interest in C-SALT deduction is likely spurred by analogy to the personal SALT deduction, which provides the largest tax benefit for high earners in high-tax jurisdictions. The apparent analogy lends itself to the belief that capping corporate SALT will, like the personal SALT cap, reduce distortive tax benefits and enhance state competition. Growth factors determine the degree to which taxes and spending can increase from year to year. Population and inflation tend to grow more slowly than personal income, thus increasing a TEL’s restrictiveness.
Road Taxes and Funding by State, 2017
“…We are going to cut Spending, and right-size the Budget back to where it should be. The Senate Plan has my Complete and Total Support. Likewise, the House is working along the same lines. Every Republican, House and Senate, must UNIFY. We need to pass it IMMEDIATELY!” Trump added. Trump endorsed the Senate’s plan and pushed the GOP lawmakers in attendance to pass the bill. At the White House on Wednesday, Trump endorsed the Senate’s plan and pushed the GOP lawmakers in attendance to pass the bill. The text was released after a group of GOP senators met with Trump, said Sen. Lindsey Graham, R-S.C., the chair of the Budget Committee. Graham and other Senate Republicans have moved much closer to the House’s approach, though some differences will need to be sorted out in the final bill.
Staley examined the relationship between revenue volatility and TELs by measuring changes in each state’s total annual revenue over four-, eight-, and 12-year periods after grouping the states based on the degree to which their TELs constrain budget growth (i.e., low-, medium-, and high-stringency TELs). Senate Budget Committee Chairman Lindsey Graham is making the case that since the existing Trump tax breaks are the current policy, they are not considered new, and do not need to be offset with reductions in spending — an approach Democrats compare to “going nuclear” with the normal rules. Democrats are vowing to put the strategy to the test before the Senate parliamentarian.
For the five years ending in fiscal 2023, the volatility score increased to 10.3—nearly 40% higher than the long-term trend. The other factors Staley found that correlate with revenue volatility include authorization for voter initiatives or referenda, the capacity of legislatures to keep revenue flows stable, high unemployment, and the extent to which a state depends on property taxes. Fundamental to the Senate package is making sure Trump’s first-term tax cuts, which are set to expire at the end of the year, are continued and made a permanent fixture of the tax code.
Because states tax different types of economic transactions, tax revenue goes up and down with the economic cycle. Tax limits restrict a state’s ability to even out those fluctuations by adjusting tax rates or bases. Consequently, TELs could make states more vulnerable to economic cycles and, as Staley suggested, trigger a chain reaction that increases revenue volatility.