Whether it’s at the gas pump or in the checkout line at the grocery store, the one constant these days is higher prices for American consumers. This can be felt most acutely in California, where gas prices, for example, are averaging $6.22 while the U.S. average is $4.78.
To help ease some of that pain for the Golden State, Gov. Gavin Newsom and state lawmakers reached a budget deal last week, which includes $9.5 billion in direct payments to taxpayers of up to $1,050 per household (a household filing jointly making under $150,000 with at least one dependent would receive the maximum payout, for example). Higher earners would receive a smaller payout and there is an income cap of $250,000 for individuals and $500,000 for joint filers or heads of households. Recipients of the Franchise Tax Board Middle Class Tax Refund must have filed a tax return for 2020.
While the payouts are larger than others around the country, California lawmakers are not the first to offer payments to its taxpayers in response to higher prices. California is actually “following some best practices that have also been reflected in several other states this year,” says Dylan Grundman O’Neill, senior state policy analyst with the Institute on Taxation and Economic Policy (ITEP).
He cites Hawaii, Maine, and New Mexico as having already acted, with benefits in those states ranging from $250 to $850 and income limits of $150,000 to $200,000 for married couples. Another similar approach is to temporarily create or enhance a refundable state tax credit; Connecticut and New York both took that approach with Earned Income Tax Credits (EITCs) and Child Tax Credits (CTCs) this year. Oregon used a hybrid approach of sending $600 payments to families who received an EITC in the previous year.
But for those states yet to act, new payments are unlikely, says Grundman O’Neill. “State legislative calendars vary, but most states finish their sessions sometime in the spring, so most of these decisions have been made for the current year,” he says.
Indiana legislators are going into special session later this month but appear to be locked in on a rebate proposal that lacks some of the strengths of the rebates in California and some other states, says Grundman O’Neill. “Namely the Indiana proposal is not targeted to middle- and low-income families at all. Even the richest Indiana residents will receive it.”
Depending on the state in which you live, you may be out of luck for any extra funds. In Minnesota, Gov. Tim Walz has been pushing for payments, but the regular session ended on May 23 and there is no sign of willingness on legislators’ part to return for a special session.
Although Gov. Newsom’s $17 billion relief package is designed to help taxpayers combat rising prices, some economists have said the $9.5 billion worth of tax refunds will only worsen inflation.
Ben Gitis, associate director of the Bipartisan Policy Center’s Economic Policy Project, says the payouts are “certainly well-intentioned efforts to support families and offset rising costs for families,” but he is concerned that they could contribute to inflation. “A direct payment is essentially there to help support household spending, and that’s really all it does. Households can save it, but in large part, it’s meant to help offset the cost of higher prices and increase spending,” says Gitis. “That will naturally increase inflation, particularly while we continue to have constrained supply.” He would rather see legislators focus on addressing the tight labor supply and working on easing the myriad supply chain problems.
H.D. Palmer, deputy director for external affairs at the California Department of Finance, says he has heard these arguments but disagrees. “It’s our view that this package will have a minimal effect on inflation—as it’s one-time and not ongoing relief—and by comparison is dwarfed by the size of the federal assistance provided during the pandemic,” he says.
“Limiting the payments to middle- and low-income families ensures it’s a relatively efficient use of state funds, while also maximizing the amounts the state can afford to send to those families,” says Grundman O’Neill. “And making them temporary ensures the state isn’t undermining its fiscal situation in the longer term.”
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