California Could Be the Last State to Offer Inflation Relief

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. California is the most affected by this, with gas prices at $6.22 on average, while $4.78 per gallon in the United States.

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Governor. Gavin Newsom reached a deal with state legislators last week that included $9.5billion in direct payments to taxpayers. This includes up to $1.050 per household. For example, a couple filing jointly earning less than $150,000 and having at least one dependent receives the highest payout. A smaller amount would be paid to those with higher incomes. There is a $250,000 limit on individuals, $500,000 for couples and $500,000 for heads and heads of households. Recipients for the Franchise Tax Board Mid-Class Tax Refund must file a 2020 tax return.

Although the payments are higher than other states, California legislators have not been the only ones to make payment to their taxpayers to address rising 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).

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His list includes New Mexico, Hawaii and Maine as states that have already taken action. The benefits range from $250 to $850, while the income limit for married couples is $150,000 to $200,000, according to him. Similar approaches can be used to temporarily increase or create a tax credit that is refundable. New York, Connecticut took this approach last year with Child Tax Credits and Earned Income Tax Credits. Oregon tried a mix approach, sending $600 to families that had received EITCs in previous years.

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.”

It all depends on which state you are in. You might not have any additional funding options. 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.

While 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.

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H.D. H.D. “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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