US states seek to ease the burden of inflation with direct payments

PORTLAND, Maine (AP) — With inflation soaring and state coffers overflowing with cash, governors and lawmakers across the United States are considering a relatively simple solution to help ease the pain felt by people at gas stations and grocery stores: send money.

At least a dozen states have proposed giving multi-hundred-dollar refund checks directly to taxpayers, including California, Kansas and Minnesota. Critics, including many Republican lawmakers, say those checks won’t be enough given the pace of inflation and are instead pushing for permanent tax cuts.

A proposal by Maine Governor Janet Mills is among the most generous in a state where the cost of food and fuel has skyrocketed in recent months. The Democratic governor wants to send $850 to most residents as part of the state budget bill.

The rebate “will help the people of Maine deal with these high costs by putting money right back into their pockets,” Mills said.

But Wendell Cressey, a clamdigger in Harpswell, said the rising cost of fuel for people in his business means the check will provide only temporary relief.

“It could help a little, but it would have to be much more because we are paying for gasoline. Most of us have V-8 trucks,” Cressey said. “I just don’t think it’s going to help as much as they think it will.”

In addition to direct rebates, lawmakers and governors across the country are considering sales tax cuts.property tax relief and reduction or suspension of state gasoline taxes.

The proposals come at a time when many states actually have too much money on their hands due to billions of dollars in federal pandemic aid and rising tax revenues. It is also happening as the war in Ukraine has exacerbated high prices for fuel and other essentials.

It’s also not a coincidence that the relief comes during an election year, said Mark Brewer, a professor of political science at the University of Maine. Maine’s gubernatorial race is one of many closely watched contests at the state level this year.

“There is a real political reason to do this,” Brewer said. “But at the same time, it’s also clear that this is an election year, and in an election year there are few things as popular as giving voters what voters see as free money from the state.”

States are moving toward sending money to people as consumer inflation rose nearly 8% over the past year. That was the sharpest peak since 1982..

Inflation boosted the typical family’s food expenses by nearly $590 last year, according to the Penn Wharton Budget Model, a project of the University of Pennsylvania’s Wharton School of Business. In general, the average family had to spend $3,500 more last year to buy the same amount of goods and services that they bought in previous years.

In New Mexico, some have questioned whether Democratic Gov. Michelle Lujan Grisham’s plan for a $250 refund it goes far enough considering how much consumer prices have risen.

Wayne Holly and his wife, Penny, were among small business owners in the state forced to close their doors early in the COVID-19 pandemic due to the governor’s public health orders.

His T-shirt and screen-printing business narrowly weathered that storm, but now he’s feeling the pinch again as the cost of materials skyrockets and customers seek to avoid draining their own bank accounts.

“Do we have customers who are angry and furious that things have changed? Yeah, I sure do,” Wayne Holly said. “Do we have clients who say ‘I never paid that before?’ I’m like, ‘Yeah, I’ve never paid $4.50 for a gallon of gas.’”

The repayment plan in New Mexico, and concerns about how much it will help, reflects a growing trend among states trying to find some relief for their residents amid criticism that they could do more.

Many states are flush with record amounts of cash, due in part to federal COVID-19 relief funds. Measures enacted by Presidents Donald Trump in 2020 and Joe Biden last year allocated a combined total of more than $500 billion to state and local governments. Some of that is still in the state coffers waiting to be spent.

Those federal pandemic relief laws also provided stimulus checks to American taxpayers, helping to boost consumer spending on goods subject to state and local sales taxes. From April 2021 to January 2022, total state tax revenue, adjusted for inflation, increased more than 19% compared to the same period a year earlier, according to a recent Urban Institute report.

“Overall, the fiscal condition of states is strong and much better than we thought states would be at the start of the pandemic,” said Erica MacKellar, a fiscal policy analyst at the National Conference of State Legislatures.

That has given state officials greater confidence in considering tax refunds or direct payments to residents. But some financial experts urge caution, pointing out that inflation could also increase state spending and wages.

“State legislatures should not rush into enacting permanent tax cuts based on what may very well be temporary growth in real incomes,” wrote Lucy Dadayan, senior research associate at the Urban Institute, in a recent analysis.

Assistance plans vary by state. Minnesota Governor Tim Walz, a Democrat, unveiled a plan to spend the state’s budget surplus that included a proposal for $1,000 income tax refund checks per couple. In California, Democratic lawmakers have released separate proposals to send refunds of $200 to $400 to each taxpayer, while Gov. Gavin Newsom said he wants to distribute up to $800 fuel debit cards. to help ease the burden on residents who pay the highest gas prices in the nation.

Democratic governors in other states have proposed other approaches. Pennsylvania Governor Tom Wolf is seeking a one-time property tax subsidy for low-income homeowners and renters. In Illinois, Gov. JB Pritzker has proposed halting a 2.2-cent increase in the motor fuel tax, suspending a 1% grocery sales tax for one year, and providing a property tax rebate for up to $300.

New Jersey left early. Gov. Phil Murphy and the Democratic-led Legislature included cash checks of up to $500 for about 1 million families as part of a budget deal last year, as the governor and lawmakers were ready for elections.

The state’s rosy financial picture, buoyed by healthy tax revenues and federal funding, as well as higher taxes for people earning $1 million, has continued this year. But Murphy’s fiscal year 2023 budget calls for no additional cash refunds.

Relief proposals have not fared as well in other states. Vermont Governor Phil Scott, a Republican, has proposed returning half of a $90 million surplus in the state Education Fund to state taxpayers with a check of between $250 and $275, but the Democrat-controlled Legislature has shown little interest.

“Normally when you overpay for something, they give you some of that money back,” Scott said when he made the proposal earlier this month.

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Associated Press reporters Susan Montoya Bryan in Albuquerque, New Mexico; Mike Catalini in Trenton, New Jersey; David A. Lieb in Jefferson City, Missouri; Wilson Ring in Montpelier, Vermont; and business writer Christopher Rugaber in Washington contributed to this report.

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