As many state legislative sessions near or cross the halfway point, lawmakers are facing tough choices. Some are leaning into budget cuts, like in Idaho where the Senate passed a 4 percent budget cut and teed up the possibility of another 5 percent reduction next year. In Nebraska, a refusal to decouple from 2025’s federal tax changes or pause scheduled income tax cuts means the legislature must find an additional $330 million to close the shortfall.
Other lawmakers are rejecting expensive tax cuts that were previously on the table or are considering proposals to raise revenue. The Georgia House did not pass its property tax elimination bill, and the Florida Senate appears unlikely to pass the House’s property tax elimination bill. Meanwhile, lawmakers in New York are pushing for higher income taxes on the state’s wealthiest, and Maine lawmakers are working to tax nonresident homes to help lower property taxes for residents.
Major State Tax Proposals and Developments
- After years of income tax cuts, conforming to much of the 2025 federal tax law, and creating a tax credit for private school tuition, the IDAHO Senate voted 18-17 to pass a 4 percent budget cut that will impact most state agencies and departments. The co-chair of the Joint Finance-Appropriations Committee said these cuts are only the beginning of the budget process and another 5 percent cut could be coming next fiscal year. The bill now moves to the House. – MARCO GUZMAN
- The MISSOURI House Commerce Committee advanced a measure to create a ballot initiative authorizing increases in the sales tax to offset income tax cuts. The shift, if fully realized, would provide a significant tax cut for the wealthiest Missourians while raising taxes on low- and middle-income families. – ELI BYERLY-DUKE
- NEW YORK tax and budget deliberations are kicking into high gear. Democrats in both houses will include income tax increases on high-income households in their budget proposals to be unveiled next week, aligning them with New York City Mayor Zohran Mamdani, statewide public opinion, and thousands of residents who marched in support of the concept in Albany last week. Gov. Kathy Hochul has so far rejected the idea. – DYLAN GRUNDMAN O’NEILL
State Roundup
- Legislation has been introduced in ALABAMA to exempt up to $1,000 in overtime pay from state income tax. Alabama lawmakers let their previous, broader overtime exemption expire after it blew through initial fiscal estimates and ended up costing the state around $350 million.
- A bill to effectively eliminate capital gains tax on home sales has passed out of the ARIZONA Senate and now heads to the House.
- CONNECTICUT House Republicans are aiming to eliminate tax on tips and overtime to mirror the changes that occurred at the federal level. The proposed changes would cost the state $200 million a year, according to state estimates, while only benefitting an arbitrary, select group of workers.
- DISTRICT OF COLUMBIA Mayor Muriel Bowser ordered the chief financial officer to clarify how Congress’ decision to block the city’s ability to decouple from tax provisions in the federal law will affect revenues, after the CFO’s latest revenue estimate shows a $180 million shortfall due to “uncertainty” caused by the situation.
- The FLORIDA Senate is still not committing to the House’s bill to phase out homestead property taxes and is instead planning on releasing a separate proposal. Meanwhile, a new poll from the University of North Florida found that a ballot measure to eliminate property taxes would likely fail.
- The GEORGIA House failed to pass a property tax bill that would have phased out taxes on homesteaded properties. Critics rightfully pointed out that the proposal would do nothing for renters and likely increase sales tax rates. The House plans to reconsider the vote.
- The IOWA Senate advanced a measure to reform the state’s property tax cap system by limiting it to 2 percent plus inflation and increasing property taxes paid on rental properties. It would also eliminate property taxes for seniors who own a home without a mortgage.
- MAINE gubernatorial candidate Shenna Bellows released her “New Deal for Maine” plan, which includes in it a plan to lower property taxes on primary residences by raising taxes on homes owned by out-of-state residents and enacting a tax on millionaires.
- Tax credits in MINNESOTA will undergo review as part of an obligation by the Tax Expenditure Review Commission this year.
- A third attempt to legalizing sports betting is underway by a lawmaker in A bill has been introduced that would legalize mobile sports betting and reduce taxes on brick-and-mortar casinos. Also, MISSISSIPPI’s House passed a bill that would exempt NIL (Name, Image, Likeness) income for college athletes from state income tax.
- NEBRASKA’s revenue shortfall, which lawmakers had previously brought down from $471 million to $155 million by cutting services and other funds, has increased by $175 million in an updated revenue forecast. Most lawmakers continue to insist that further funding cuts are their only solution, despite clear options to raise revenue by decoupling from recent federal tax cuts or pause or reverse income tax cuts that are still phasing in.
- A bill in NEBRASKA would require the state and Gov. Jim Pillen to negotiate with Nebraska tribal governments in good faith when discussing matters such as tax compacts. The bill was spurred by recent attempts to strong-arm tribes on unrelated policy issues by refusing to negotiate on tobacco tax compacts. Such compacts are key to respecting tribal sovereignty and improving lives on and off of reservations.
- NEW YORK lawmakers held hearings on bills to decouple from aspects of the 2025 federal tax law that would cut taxes on rich New Yorkers, couple to provisions that could increase revenue and progressivity, and also consider corporate tax increases.
- A federal judge in NEW YORK decided congestion pricing can continue, and that the Trump administration overstepped its authority trying to stop the tolls in New York City. The U.S. Department of Transportation threatened to cut off federal funds to the city’s transit agency unless they cancelled the tolls. While the Trump administration has threatened to appeal this ruling, last year lawyers for the administration mistakenly filed a document outlining the flaws in the legal argument put forth by the federal government.
- SOUTH CAROLINA lawmakers are debating whether to couple to components of the 2025 federal tax law, including tipped and overtime deductions, the vehicle loan interest deduction, the senior deduction, and increase to the standard deduction. The state is particularly exposed to the impacts of federal tax changes given their starting point for state income tax calculations which use federal taxable income as opposed to federal adjusted gross income.
- Facing a March 12 session deadline, WASHINGTON Gov. Bob Ferguson warned that if lawmakers could not find a solution on how to use revenue from the tax on millionaires, the legislation may have to wait until next year to be approved. Bill sponsors, however, remained confident that they have a strong path forward.
- After clearing the Senate, WASHINGTON lawmakers in the House will consider a bill that would increase the taxes on cigarettes and vaping products by nearly $2 per pack.
- WEST VIRGINIA Gov. Patrick Morrisey signed into law two bills that mostly conform the state’s tax code to the recent federal cuts to both the personal and corporate income tax.
What We’re Reading
- The Center on Budget and Policy Priorities released a new report calling for states to preserve and raise revenue in the face of new costs and fiscal uncertainty from federal tax changes and spending cuts to SNAP, Medicaid, and other vital programs.
- In a new report, the Economic Policy Institute discusses why employer assessment fees – essentially taxing employers whose employees receive SNAP or Medicaid – are not a good policy if the goal is to increase wages.
- The New York Times writes about the rapid rise in billionaire influence in Jackson, Wyoming, in part tying the rapid rise in the number of billionaires to the 2017 Trump tax law.
- Economists Matthew Freedman, Noah Arman Kouchekinia, and David Neumark published a new working paper assessing the impact of Opportunity Zones. In line with the extensive existing literature, they found that OZs can increase job creation within zones, but that benefit is largely offset by job declines in nearby neighborhoods, overall providing little to no benefit to existing residents.
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