Policies for the Jurisdiction of the Budgets and Revenue Committee
Below are the policies of the NCSL Standing Committee on Budgets and Revenue.
National Conference of State Legislators Supports Passage of the Federal Digital Goods & Services Tax Fairness Act (Resolution)
WHEREAS, digital goods and services are online purchases that are downloaded directly by, or services that are provided electronically to, consumers that regularly transcend numerous state and local boundaries across the United States; and
WHEREAS, the exponential growth of digital commerce has demonstrated the importance of digital products to the American economy; and
WHEREAS, state policymakers recognize that the continued deployment of broadband infrastructure and adoption of broadband services is vital to economic growth and participation in the global economy; and
WHEREAS, digital goods and services are a major driver of the rapidly growing 21st Century digital economy and as such, fair and rational tax policies are needed that will not impede the continued growth of this segment of the economy; and
WHEREAS, state and local governments continue to seek to modernize their tax base to include various forms of digital commerce, doing so without establishing a national framework could potentially subject consumers to multiple states claiming the right to tax the same transaction or subject such transactions to discriminatory taxation at rates higher than the rates imposed on the in-state sales of similar goods or services; and
WHEREAS, establishing a national framework would clearly identify which state and local jurisdiction can tax a digital transaction, which providers are required to collect taxes, and allow state and local governments seeking to tax such goods and services to do so in a fair, uniform and rational manner; and
WHEREAS, the U.S. Supreme Court ruled in South Dakota v. Wayfair that businesses need not be physically present in a state before their sales can be taxed, granting states the ability to collect taxes from out-of-state retailers, and providing an opportunity for state tax modernization; and
WHEREAS, establishing a national framework as set forth in the Digital Goods and Services Tax Fairness Act as introduced in the 116th Congress preserves state sovereignty as the decision to tax digital commerce or not remains solely with the states; and
WHEREAS, the Mobile Telecommunications Sourcing Act (P.L. 106-252) established uniformity in sourcing mobile telecommunications services for state and local tax purposes using similar concepts to those contained in the Digital Goods and Services Tax Fairness Act as introduced in the 116th Congress; and
WHEREAS, the National Conference of State Legislatures for nearly two decades has championed the efforts in Congress and in the states and has worked with members of the Download Fairness Coalition to develop the principles contained in the legislation and is poised to assist states as needed in complying with the federal legislation; and
NOW, THEREFORE, BE IT RESOLVED, that the National Conference of State Legislatures urges Congress to pass legislation that provides a framework for the taxation of digital goods and services consistent with NCSL principles to establish a national framework providing certainty and uniformity for state and local governments in the taxation of digital goods and services, while protecting consumers from multiple and discriminatory taxation and supporting the continued growth of the digital economy.
Expires August 2021
Maintaining the Solvency of Social Security
The National Conference of State Legislatures (NCSL) strongly believes that the federal government has an obligation to preserve the financial integrity of the Social Security system and assure the long-term solvency of the program. State legislatures believe Social Security must ensure a safety net for low-income older retirees as well as provide survivor benefits and disability insurance. It is critical that all workers paying into the system have confidence that Social Security will continue to be available to them at retirement or to provide for their survivors after their death. NCSL believes that efforts to assure solvency should strengthen the existing program upon which so many beneficiaries and their families rely. Social Security reform should continue to encourage private savings and employer-provided pension plans as important components of retirement savings.
The Administration and Congress face difficult choices in maintaining the solvency of Social Security. As Congress considers alternatives to maintain Social Security solvency, it must analyze and understand the impact of these proposals on states, taxpayers, state budgets, and state laws. Social Security reform will have major impacts on state employees, teachers, local government, private employers and taxpayers. The National Conference of State Legislatures opposes reform proposals that finance this shortfall by shifting federal costs to state budgets. If Social Security does not continue to provide a stable form of assistance to the elderly, state low-income programs and budgets would be severely impacted. A sudden loss of promised Social Security benefits would likely impose financial hardship on many dependent American seniors and families. It replaces lost income for workers and their spouses and children when a worker becomes disabled, dies or retires. NCSL strongly opposes any efforts to reform Social Security that create unfunded mandates for the states or preempt state laws and authority. NCSL also opposes the expansion of mandatory Social Security coverage to state and local public employees who are not already covered. Additionally, state legislators recommend the following for the solvency of the Social Security program:
- Congress and the Administration should continue to study various combinations of federal policy adjustments that would avoid negatively impacting any one sector of the population and keep costs to wage earners as low as possible;
- Congress and the Administration should continue to provide the expected benefits promised by Social Security and the important role of Social Security in alleviating poverty should not be lost in the efforts to restore solvency or reform the program.
- Any effort to balance the federal budget or reduce the federal debt shall not be accomplished by reductions Social Security benefits.
Public Pensions, Health Insurance, and Post Retirement Benefits
State legislatures authorize and fund public employee pension plans and determine their regulation and oversight. With these plans, state and local governments provide retirement savings vehicles and security to virtually all full-time state and local employees. Any federal regulation of state and local government pension plans should recognize the unique designs and protections inherent in these plans and should only be pursued through consultation with state and local governments. Current federal regulations that impose excessive and unnecessary administrative costs on states and localities should be simplified or eliminated.
Federal Reductions to Social Security Benefits
Under some circumstances, the Social Security Administration reduces benefits to state and local employees who earn government pensions through work not covered by Social Security. Since 1983, the Social Security Administration has reduced worker and spousal benefits through two provisions called the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP). There have been numerous proposals before Congress to repeal or to limit the application of the GPO and the WEP. The National Conference of State Legislatures supports efforts by Congress and the Administration to address the inequities and unintended consequences to state and local government retirees caused by federal reductions of Social Security benefits. NCSL urges Congress to enact legislation that will reduce or eliminate the impact of the GPO and WEP on state and local government retirees, particularly those who have earned lower uncovered government pension benefits or partial benefits.
Mandatory Medicare and Social Security Coverage
The National Conference of State Legislatures opposes expansion of mandatory Social Security and Medicare Coverage to public employees of state and local governments who are not already covered. NCSL believes that state and local governments should be allowed to affiliate their plans with Social Security and Medicare on a voluntary basis.
Taxation and Regulation
NCSL believes that the exemption of state pension and benefits plans from federal taxation is a sound component of federal tax policy that should continue.
All states and many local governments sponsor defined contribution plans that allow
s employees to defer an additional portion of their salary in anticipation of retirement needs. Federal legislation enacted in 2001 simplified participation in, and the administration of, these supplemental arrangements. NCSL supports further improvements that enhance flexibility, improve existing arrangements, avoid increased federal regulation, maintain or expand the plans’ unique features and characteristics and avoid mandates that would replace existing plans with methods designed for the private sector. NCSL opposes any federal encroachment on state authority to regulate state pensions that would supplant rather than supplement current savings, and other efforts that could result in additional cost and complexity for state and local governments and their plan participants.
NCSL strongly opposes any effort by Congress to impose annual federal reporting and funding requirements on state and local governments regarding various aspects of their public employee pension plans and penalties for non-compliance, such as loss of federal tax exempt financing benefits for bonds issued by state or local governments during any noncompliance reporting period.
NCSL believes these actions would be unnecessary, intrusive and coercive. This federal effort would impose new, unfunded costs on states by requiring additional reports and compels the presence of the federal government in issues exclusively managed and legislated by states. States report comprehensive information in proposed federal legislation in their consolidated annual financial reports as recommended by the Governmental Accounting Standards Board.
Health Care Costs
The National Conference of State Legislatures (NCSL) supports federal efforts that allow public sector retirees to deduct health care premium costs and/or additional medical expenses from their taxable income, as well as federal efforts to allow retirees to save for health care costs through tax preferred vehicles.
State and Federal Budgeting: Federal Mandate Relief
It is the policy of the National Conference of State Legislatures to advance and defend a balanced, dynamic partnership among governments at the local, state and federal level. The growth of federal mandates and other costs that the federal government imposes on states and localities is one of the most serious fiscal issues confronting state and local government officials. NCSL applauds the success of the Unfunded Mandates Reform Act of 1995 (UMRA; P.L. 104-4) in bringing attention to the fiscal effects of federal legislation on state and local governments, improving federal accountability and enhancing consultation. However, unfunded and underfunded federal mandates continue to pose an undue burden on state and local governments. NCSL calls upon the federal government to reassess the Unfunded Mandate Reform Act and to broaden its scope and increase its effectiveness.
Specifically, we call on Congress and the President to eliminate and avoid:
- direct federal orders without sufficient funding to pay for their implementation;
- burdensome conditions on grant assistance;
- cross sanctions and redirection penalties that imperil grant funding in order to regulate and preempt the states actions in both related and unrelated programmatic areas;
- amendments to the tax code that impose direct compliance costs on states or restrict state revenues;
- overly prescriptive regulatory procedures that move beyond the scope of congressional intent;
- incomplete and vague definitions which cause ambiguity; and
- perceived or actual intrusion on state sovereignty.
Unfunded mandates result in substantial costs to state and local governments and, collectively, have eroded state legislators' control over their own states' budgets.
NCSL continues to demand sufficient federal funding for state-federal partnership programs through the mechanism of mandatory spending. If the federal government is unwilling to provide such funding as an entitlement to the states, states should be absolved of their legal responsibility to provide services to entitled individuals and fulfill other federal mandates. One approach is the “trigger” mechanism that would delay mandated activities in any year in which the federal government does not meet its state funding commitment.
Specifically, NCSL encourages the federal government to enact the following:
- Expand the definition of an unfunded mandate to include:
- all open-ended entitlements, such as Medicaid, child support and Title 4E (foster care and adoption assistance);
- proposals that would put a cap on or enforce a ceiling on the cost of federal participation in any entitlement or mandatory spending program;
- proposals that would reduce state revenues, especially when changes to the federal tax code are retroactive or otherwise provide states with little or no opportunity to prospectively address the impact of a change in federal law on state revenues;
- proposals that fail to exceed the statutory threshold only because they do not affect all states; and
- new conditions of federal funding for existing federal grants and programs, including costs not previously identified, including mandated results.
- Ensure that any proposal that places a cap or enforces a ceiling on federal funding must be accompanied by statutory offsets that reduce state spending, administrative duties or both;
- Expand legislation subject to UMRA review;
- Revise the definitions of mandates, direct costs or other provisions of the law to capture and more accurately reflect the true costs to state governments of particular federal actions;
- Require that mandate statements accompany appropriations bills;
- Require federal reimbursement for mandated costs imposed on state and local governments by any new federal mandates;
- Improve and enforce Title II, including strengthening the consultation process for state and local governments and requiring agencies to prepare and disseminate federalism assessments as to the cost of proposed regulations on state and local governments. State legislatures should be consulted throughout the regulatory process to respond to agency proposals and provide feedback on various options for implementing regulations;
- Create an office within the Office of Management and Budget that is analogous to the State and Local Government Cost Estimates Unit at the Congressional Budget Office. This should include an annual regulatory statement analyzing the direct and indirect impacts of federal rules on state and local governments to ensure more accountability and information on federal mandates;
- Enforce executive orders that call for principles of federalism and urge agencies to have an accountable process to ensure for meaningful and timely input by state and local officials in the development of regulatory policies;
- Avoid preemption of state laws; and
- Repeal or modify certain existing mandates as recommended by other NCSL resolutions.
State and Federal Budgeting: Partnering to Make Policy
It is the policy of the National Conference of State Legislatures to advance and defend a balanced, dynamic partnership among local, state and federal level governments.
Too often, the federal government has responded to budget pressures by simply shifting costs and exporting deficits to the states. The federal government should resist accomplishing national goals through unfunded mandates on state and local governments.
NCSL believes that the federal government must:
- Maintain its financial commitment to federal programs that rely on state participation for implementation and provide stable and predictable funding for state-federal partnership programs;
- Maintain its matching rate for federal programs for which it shares responsibility with state governments. Where match rate reductions are proposed for shared programs, there should be a corresponding reduction in the regulatory and administrative burdens imposed on states; and
- Avoid delaying the release of funds for state-federal programs within a fiscal year.
- Affirm the role of state legislatures in their appropriation and oversight of federal funds;
- Streamline the waiver process that states are subject to concerning education, the environment, human services, Medicaid, health and other programs; and
- Limit the federal oversight role of state grant funds to audit and evaluation.
- Avoid unfunded mandates and underfunded national expectations in state-federal partnerships;
- Avoid increasing federal domestic programs at the expense of funding for state administration or state sharing ratios; and
- Fully fund the long-term maintenance as well as the short-term startup costs of federal mandates; and
- Avoid capping federal entitlement spending while retaining the legal entitlement obligation of the states; and
- Avoid the long-term commitment of funds based on short-term revenue projections.
- Minimize the imposition of state maintenance of effort requirements in existing and future federal fiscal assistance-related legislation;
NCSL believes the federal government should maintain its guaranteed financial commitment to federal-state programs. Any devolution of federal responsibilities to the states should constitute a serious attempt at restoring balance to the state-federal partnership and not result in any reduction of the federal financial commitment to affected programs either in the short or long run. To that end, NCSL has developed a set of principles for any new block grant the federal government considers. Because state legislatures are the bodies that are most involved in the decision-making process with regard to program delivery in the states, we urge Congress and the administration to adhere to the following principles when constructing any new block grant plan or revising any existing block grant program:
- Funding levels for block grants must be adequate to finance mandated programs long-term and to respond to economic changes through countercyclical assistance.
- In the event that Congress imposes "maintenance of current level of services" mandates on funds appropriated for any federal grant program, Congress should provide the funds necessary to maintain and support the current levels of services existing at the time of such mandates. State "maintenance of effort" (MOE) clauses are inappropriate for program consolidations. Requiring states to spend a fixed amount while implementing decreases in federal funding for block grants is equivalent to an unfunded mandate.
- The consolidation of categorical programs into a single funding stream should not be accompanied by a limitation in the types of services provided or constitute new mandatory categories of services.
- Language should be included in any block grant legislation that allows federal block grant funds to be distributed or expended "according to state law." Federal law must allow each state to choose the manner of appropriation of federal block grants. States should be authorized to determine the agency within state government that is responsible for carrying out public participation requirements.
- Maximum flexibility in terms of program implementation and administration should be maintained.
- Technical assistance to states by federal agencies during transition to any block grant should be provided.
- State reporting requirements should not be burdensome or require the use of funds that would otherwise be spent on program delivery.
- The federal government should not create new entities to oversee the implementation of any block grants to the states.
- Federal agencies and their administrators should rely on the single audits prepared by the states. The federal government should pay the full costs for performing these audits.
Given the interdependency of federal government activities with state and local economies, and recognizing that a federal government shutdown has serious implications for state and local governments, NCSL believes that in the event of a federal government shutdown, the federal government must:
- Establish a National Incident Management System (NIMS) structure, including an Incident Command System (ICS), to integrate and manage the shutdown and to involve all levels of government in the coordination of the incident;
- Provide flexible, temporary authority to states that have a federally-approved contingency plan to assume basic-level operations of selected national parks and laboratories; and
- Reimburse state funding with interest that was spent providing services that otherwise would have been paid for with federal funds.
State and Federal Budgeting: Principles For Fundamental Tax Reform
It is the policy of the National Conference of State Legislatures to advance and defend a balanced, dynamic partnership among local, state and federal governments.
Tax reform efforts and tax actions at the federal level affect states because:
- Federal and state tax systems are inextricably linked;
- Federal programs rely on state participation for implementation; and
- Any federal reform will likely have serious fiscal and administrative ramifications on the states.
Therefore, NCSL urges that all federal tax reform and other actions be guided by the following principles:
- Preserve the fiscal viability and sovereignty of state governments.
- Encourage work, savings, equity and simplicity.
- Promote efficiency and predictability.
- Avoid intrusion upon the state excise tax base.
- Preserve states’ ability and discretion to tax certain revenue sources.
- Preserve the ability of state and local governments to adopt fair and effective tax systems. This includes authorizing states with sales and use taxes to require interstate sellers to collect and remit those taxes and restoring the full state and local income tax, sales tax and property tax deductions for federal income tax purposes.
- Continue tax policies that reward work, specifically the Earned Income Tax Credit (EITC) and Individual Development Accounts (IDAs).
- Provide states with adequate transition time to implement and respond to new tax systems, preferably up to three or more years.
- Avoid the negative state impact of retroactive application of tax changes.
- Provide technical expertise to states to ease any transition of administrative responsibilities to the states resulting from federal tax reform.
- Provide adequate federal administrative funds for any federal tax reform that involves modified or increased collection responsibilities for the states.
- Ensure that federal tax changes are made in a manner that preserves federal data collection used by the states.
Do No Harm
- Provide flexibility and strengthen states’ ability to finance and administer programs for which they are traditionally responsible or have gained through devolution.
- Recognize that federal tax reductions should not compromise funding for existing and future commitments to mandated state-federal partnership programs.
- To the extent that a national sales, consumption, or value-added tax is considered as part of ongoing deficit reduction efforts, the historic role of such taxes as a major revenue source for state and local governments must be protected and all deliberations concerning such taxes must include representatives of the federal government’s partners in the nation’s cities and states.
- Preserve tax-exempt financing for infrastructure and capital projects, including the use of public-private partnerships.
- Maintain the tax-exempt status of state and local government bonds and lift existing restrictions on state and local government use of tax-exempt bonds.
- Avoid provisions that weaken the fiscal integrity of state and local governments. This includes: the arbitrage rebate provisions, which essentially are a one-hundred percent tax on the interest income of state and local governments; the alternative minimum tax, which now taxes interest from otherwise tax-exempt bonds; volume caps, which have unduly restricted the use of bonds for projects that have increasingly become governmental responsibilities; and restrictions on advance refunding which increases the cost of government.
- Support the Mortgage Revenue Bond (MRB) program and the low-income housing tax credit.
- Increase enforcement efforts of the federal income tax laws so individual and business taxpayers are not bearing the burden of those who fail to pay owed taxes.
- Continue to take into account states’ reliance on federal tax rates and federal collection efforts.
Payment in Lieu of Taxes
The National Conference of State Legislatures supports federal efforts to:
- Continue, but reform the Payment in Lieu of Tax Program (PILT) program; to create a more predictable, fair and flexible system that accurately reflects the fiscal effects of federal lands on state and local governments.
- Provide full funding for the PILT program, provided that this goal is accomplished in a manner consistent with long-term federal debt management and deficit reduction; and
- Provide a more flexible payment system through authorization for the transfer of land of equivalent value from the federal government to states or counties in lieu of monetary payment, consistent with state statutes, and practice
State Legislators’ Tax Issues
The National Conference of State Legislatures supports the standard deduction allowed state legislators under section 162 (h) of the Internal Revenue Code. Regulation, interpretation, or other statutes should not undermine the section. Regulations implementing this code section should reflect the intent of Congress and should include the following recommendations:
- A "session day" should mean a day in session as defined by the laws or rules of the state of residence of the legislator.
- A "committee" of the legislature should mean 1) a committee of one or more legislators conducting the business of [or reporting to] the legislature, or 2) a committee created by state or federal statute, resolution, order or rule on which the legislator serves in his or her capacity as a legislator. This definition of "committee" should include caucuses that conduct the business of the legislature.
- "State legislator" should include newly-elected legislators who attend official organizational meetings prior to administration of their oath of office.
- Prohibit further preemption of state courts by refusing to give federal courts jurisdiction to establish the valuation of property for state and local tax purposes or by refusing to give selected classes of state and local taxpayers procedural and substantive privileges unavailable to most taxpayers.
- NCSL also encourages Congress and the administration to review the Railroad Revitalization and Regulatory Reform Act (4-R Act) to determine if the courts have expanded the 4-R Act beyond the original intent of Congress and reject federal legislation that would extend to other industries 4-R type benefits.
- NCSL requests the federal government to respect the sovereignty of states to allow or prohibit games of chance or skill. Any effort by Congress or the administration to reform this regulation preempts states and diminishes the flexibility of state legislatures to use this mechanism as a revenue-related tool to meet the unique needs of residents of each state.
Support for the Investing in Our Communities Act (Resolution)
WHEREAS, advance refunding of tax-exempt municipal bonds can be a financial tool that saves state and local governments billions of dollars by allowing them to provide more comprehensive savings at lower costs to taxpayers; and
WHEREAS, the refunding of tax-exempt municipal bonds is a mechanism by which states and localities finance infrastructure projects, utilities, education, and other general purpose bonds; and
WHEREAS, a refunding occurs when the proceeds from one bond are used to pay off another bond, typically at a lower interest rate; and
WHEREAS, the Investing in our Communities Act as introduced in the 116th Congress restores the ability for states to advance refund their tax-exempt municipal bonds, which was eliminated by the Tax Cuts and Job Act of 2017; and
NOW, THEREFORE, BE IT RESOLVED that the National Conference of State Legislatures urges Congress to pass legislation that restores the ability of states to finance public infrastructure that is cost-effective and consistent with NCSL principles of preserving fiscal viability and tax reform.
Expires August 2021