NTUF @ NCSL
Keep an eye out for NTU and NTUF staff at the summer gatherings of policymakers around the country. We are in the room to be a voice for taxpayers, for the long-term as opposed to the short-term, and for the general interest as opposed to special interests. At the recent legislative summit for the National Conference of State Legislatures (NCSL), we were on hand for the State & Local Tax Task Force, the Budgets and Revenue Committee, the Technology and Communications Committee, and the NCSL business meeting. Key highlights from NCSL:
- Extensive discussion by state revenue chairs about the mechanics and wisdom of applying the sales tax to services. We made sure Utah’s recent experience was brought up. The discussion will feed into a larger action conversation at the next meeting in November.
- Professor Welsch of the University of Chicago shared his review of all existing literature on tax effects on state-to-state migration. He finds an effect but a small one, although larger on business owners, age 65+, and on income wholly within the state. One study he highlighted estimated that New York reducing its income tax by 0.75 points would induce 30 more scientists to move into the state over 10 years. A Hawaii study theorized that effects are muted in part because people are unaware of tax changes generally, good or bad.
- The Technology & Communications Committee, and then NCSL as a whole, adopted a directive asking the federal government to expand the Universal Service Fund (USF) charge on phone bills to be imposed on more services and to support broadband deployment. NCSL also adopted positions for state taxation of fantasy sports and prediction markets and against limits on state taxation of interstate digital activity. A proposed ban on the pesticide paraquat fell one state short of endorsement.
- The talk of the conference was a keynote by Professor Geoffrey Hinton, the “godfather of AI” whose research on artificial neural networks enabled machine learning and co-earned him the 2024 Nobel Prize in Physics. Professor Hinton predicted AI will enable better medical treatment, tutoring, and predictions from data, but warned that policymakers should act now to prevent mass unemployment, disinformation, and cyberattacks. Inspired by Hinton’s talk, several legislators attempted to amend NCSL policies to urge stronger federal regulation of AI. This provoked a discussion of whether NCSL should be encouraging federal regulation instead of state regulation, and only parts of the amendments were adopted.
About That Missouri Income Tax Ballot Measure . . .
Last week’s email highlighted a ballot measure to use sales tax base expansion to reduce or eliminate Missouri’s state income tax. The votes are in . . . and it wasn’t even close. By a roughly 83-17 margin, Missourians voted against Amendment 5.
It may be tempting to try and glean some sort of broad policy mandate from Amendment 5’s rejection. But it stretches credulity to imagine that 83% of Missourians just love paying income taxes so darn much that they couldn’t bring themselves to eliminate the tax.
Rather, the vote reflects the fact that Missourians were concerned about the prospect of voting for a plan that remained nebulous. What Amendment 5 even did was never clearly communicated—from the campaign ads, a voter could be forgiven for thinking Amendment 5 was about massively increasing the sales tax rate, data centers, property taxes, corporate income taxes, or even, for some reason, mules.
All Amendment 5 actually did was allow the legislature the authority to expand the sales tax base to certain services so long as the increased revenue was used to reduce the income tax.
No services were explicitly named as being included in this expanded sales tax base, which allowed opponents to claim that everything could be.
Most importantly, neither the benefits of income tax reduction nor elimination were well communicated. Opponents vividly communicated the potential downsides of sales tax expansion, but proponents weren’t even clear on the details of what they wanted to do, let alone how it would work.
And so the lesson should not be that income taxes enjoy overwhelming support in Missouri. It should be that the next time Missouri legislators want to put income tax cuts on the ballot before voters, they need to trust those voters with the details rather than just asking for permission to commence the sausage-making process.