Wild man’s world is crying in pain. What you gonna do when everybody’s insane? So afraid of one who’s so afraid of you, what you gonna do oh? Crazy on you, crazy on you, let me go crazy, crazy on you. These are the lyrics from the bridge of the 1976 single from the rock band Heart. Written by Ann and Nancy Wilson, it was the first single released from the band’s debut album, Dreamboat Annie.
Crazy on you is pretty much what is going on in some of these united states following the success of both deregulation and corporate tax reform at the national level. All across the country, state governments are proposing bills that do little else than interfere with the economy simply for political purposes. The center of this “movement” is of course California, but legislation is percolating across the country. Let’s look at just a few of these.
Minimum Wage Laws:
This is one area where government is most active in interfering with markets. In 2018, eighteen states increased their minimum wage above the $7.25 per hour Federal wage floor. Eleven of these states did so based on legislative action or ballot initiatives. Currently in 2018, four states (Kentucky, Massachusetts, Missouri, and New Jersey) are considering wage floor increases.
One area where President Trump has focused his deregulatory efforts is in energy development. This has led to significant reductions in the cost of drilling for (and delivering) petroleum in the United States, and according to the Energy Information Agency, the production of crude oil in the US is now at record levels. At the same time, state governments and many localities are attempting to impose their own regulations of oil and natural gas development. Localities in Colorado have been particularly active with cities like Boulder, Longmont, Thornton and Fort Collins all attempting to override state level regulations to effectively ban production in their jurisdictions.
Last year legislators in at least five states, including Massachusetts, Rhode Island, Connecticut, Vermont and Washington, introduced proposals that would place a fee or tax on carbon releases, while governors in even sold Republican states like South Carolina are coming out against plans to expand off-shore drilling. Expect to see a wide range of environmental legislation at the state level intended to curb national deregulation policies.
The recently passed tax reform legislation greatly limited the ability of higher income people to deduct state and local taxes from their Federal Income Tax. This has a large impact on taxpayers in California, Illinois, New Jersey and other high tax states, leading politicians to attempt to find loopholes and ways to work around the limit.
In New York, for example, Governor Cuomo proposed in his 2018 State of the State address, that his administration would explore the feasibility of a major shift in tax policy, and are developing a plan to restructure the current income and payroll tax system, as well as create new opportunities for charitable contributions to support public programs.
In California, Senate leader Kevin de Leon is drafting a bill to mitigate the SALT cap, by allowing citizens to make charitable contributions to the state rather than pay taxes. Since charitable contributions are fully deductible, this plan would essentially eliminate the cap.
In Illinois, legislators are looking at ways to eliminate the 4.95 percent income tax and replace it with a 5.2 percent payroll tax instead. Since employers can deduct payroll taxes this would essentially provide the same amount of after-tax income and make the payment deductible.
While most of these plans will likely fall under legal scrutiny, there will undoubtedly be significant legislative action in this area over the coming months.
Other initiatives may get legs. For example, legislators in California have introduced legislation to impose a new 10 percent surcharge on companies with net earnings over $1 million in order to capture the potential tax savings that could result from the Federal tax cuts. Similar legislation will likely be pushed in other states with fiscal problems.
Under the last Administration, the Federal Communications Commission (FCC) enacted so called “net neutrality” rules that gave the agency extensive control over internet services. The idea of net neutrality is a complex one; however, the basic principle is that the government regulate Internet service providers to ensure that they treat all data on the Internet the same, and not discriminate or charge differently by user, content, website, platform, application, type of attached equipment, or method of communication. This means that ISPs can no longer deliver content tailored to the capabilities of a specific device or user, offer free services or to intentionally block, slow down or charge money for specific websites and online content. While many content providers have lobbied for these provisions, most broadband companies have suggested that they are in effect price controls, and would lead to reduced investment in internet availability and quality.
The Trump Administration has changed path and the FCC has now repealed these regulations. In response at least six states so far (California, Massachusetts, Nebraska, New York, Rhode Island, and Washington) have proposed their own net neutrality laws. This would create a patchwork of different network regulations across the country, and would likely lead to changes in investment decisions by ISP companies. This is a complex issue which makes it more likely that legislatures will propose a wide range of bizarre rules.
These are just a few areas where states and localities are So afraid of one who’s so afraid of you, and proposing a slew of well-intended (though potentially harmful) new laws, taxes, rules and regulations. There is no question as to one thing. The next state legislative season is going to go Crazy on you.