Taxes

Taxpayer rebates back on agenda in states awash in cash

They are on the table in at least eight states as leaders debate the best way to spend down surpluses.
Mississippi Gov. Tate Reeves has proposed ending the state’s income tax. (AP Photo/Rogelio V. Solis)

Governors and lawmakers in at least eight states have proposed spending surplus tax dollars on taxpayer rebates this year, as leaders hash out how best to use the extra cash.

That includes Georgia, Hawaii and New Mexico, where taxpayers could get rebates for the second or third time in two years.

Supporters say one-off rebates are a prudent way to spend extra dollars, especially with a recession on the horizon, that the payments will help people cope with rising prices, and that returning money to taxpayers is the right thing to do. But some policymakers say that with so much money pouring into state coffers it is time for bigger investments.

The debates are happening between the parties — and within them. In Mississippi, Lt Gov. Delbert Hosemann (R) backs rebates, while Gov. Tate Reeves (R) wants to eliminate the state income tax instead.

“Mississippi is in the best fiscal and financial shape in its history, and the state has an almost $4 billion surplus,” Reeves said in an emailed statement to Pluribus News.

Employment is growing and so is corporate investment, he said. “Bottom line, Mississippi is in a position where we can eliminate the income tax without having to cut core government services.”

State revenue has ballooned in recent years thanks to a resilient economy, inflation and immense federal Covid-19 aid spending. Lawmakers in most states had massive surpluses to spend last year and some, such as Texas, have even larger surpluses to spend this year.

Most state leaders and budget forecasters don’t expect double-digit revenue growth to last forever. Rebates have caught on among policymakers who want to spend down surpluses without making long-term commitments, said Richard Auxier, a senior policy associate in the Urban-Brookings Tax Policy Center, a joint venture between two Washington, D.C., think tanks.

Eighteen states sent residents one-time rebate checks last year, Auxier said. Three states issued rebates in 2021. “This surge in revenue that happened in a lot of states — I think a lot of people correctly noticed that it might be a one-off deal,” he said.

Now governors and lawmakers are again debating whether their fiscal good fortune will last and whether rebates are a good way to spend down surpluses.

Alabama lawmakers are considering three options for spending down the state’s $2.7 billion surplus: cutting taxes permanently, issuing one-time rebates, or setting money aside in a new state trust fund, Alabama Senate Majority Leader Clay Scofield (R) told Pluribus News.

Scofield said he would prefer the trust fund option, citing his experience as a lawmaker in the lean years after the Great Recession. “I think it is much more fiscally conservative, to prepare for the worst,” he said.

New Mexico Gov. Michelle Lujan Grisham (D) wants to spend $1 billion on rebates this year, consisting of $750 payments to single filers and $1,500 to joint filers. The state spent about $1 billion last year on rebates and economic relief payments.

Rep. Derrick Lente (D), chair of the House Taxation and Revenue Committee, said New Mexico lawmakers have not discussed the rebate proposal yet but may consider alternatives.

“These really targeted one-time investments, into whatever it might be — whether it’s infrastructure, whether it’s broadband, whether it’s putting money into our citizens’ pockets — I think we have to look at all these options,” he said.

Hosemann told Mississippi Today in December he wants to spend $270 million on taxpayer rebates, with checks capped at $500. He was less confident than Reeves that Mississippi can afford to eliminate its income tax. The tax in fiscal 2022 raised a third of Mississippi’s general fund revenue.

Hosemann has said the state surplus is inflated by one-off federal spending and that eliminating income taxes doesn’t make sense when the economic outlook is so uncertain, Mississippi Today reported. Hosemann’s office did not respond to a request for comment.

One state that will not be providing rebates this year is California, so far the only state anticipating a budget gap for the coming fiscal year. Tax revenues have fallen in California along with the stock market and the slowdown in the tech sector.

California Gov. Gavin Newsom (D) said while presenting his budget plan earlier this month that the budget gap would be worse if California had used last year’s surplus to commit to long-term investments. Instead, it spent almost all of it on one-time expenses.

“When all the dust settled on the January and May budget … about 93% of all that surplus went for one-time spending,” he said. That included a $9 billion taxpayer refund program.

“I can’t say that enough: we’re in the position we are today because we were not profligate as it relates to ongoing spending,” Newsom said.

Stephanie Akin contributed to this report