This week, troubling revenue projections are making headlines, with many lawmakers scrambling to determine how the tax changes at the federal level, plus price hikes driven by national policy decisions, will impact their states. For instance, a decade of deep tax cuts in North Carolina that continue to phase in are being reconsidered by the governor. And following the release of an updated revenue forecast, Colorado lawmakers face a revenue shortfall that has ballooned to $1.5 billion, with the main culprit being their ties to the new federal tax law.
Meanwhile, several states that are claiming to do something about affordability by pursuing tax cuts are making the problem worse for working-class families. A recent ITEP publication highlights the context in Missouri, where an expansion to sales taxes would be used to offset the cost of income tax elimination. And as a handful of states explore gas tax holidays or freezes, a new ITEP report provides analysis of the states most impacted by recent spikes in gas prices and explains why proposals like gas tax holidays could strain state budgets.
Major State Tax Proposals and Developments
- NORTH CAROLINA Gov. Josh Stein warned that the state could face a $3.5 billion budget shortfall within two years, primarily driven by automatic income tax cuts that are set to lower the rate to 3.49 percent in 2027. Stein has called on pausing the tax cuts and warned that public education would be the most likely to take a hit from the budget shortfall. While the governor is raising the alarm, lawmakers are exploring legislation that would significantly scale back property and sales tax exemptions for hospitals, which would shift millions of dollars to state and local governments but could strain hospital services and patient care. – MILES TRINIDAD
- Lawmakers in several states are pushing for gas tax holidays as the conflict with Iran continues to increase prices. GEORGIA Gov. Brian Kemp approved a 60-day state gas tax suspension to the state’s 33-cent-per-gallon gas tax, but consumers should not expect to see that equivalent in savings. Lawmakers in SOUTH CAROLINA are also considering a similar pause to the state’s 28-cent-per-gallon gas tax. And MARYLAND Republicans called for suspending the state’s gas tax for 30 days. The proposal, estimated to cost the state $100 million in lost revenue, has been rejected by Gov. Wes Moore’s office, which said in a statement that “the best way to bring prices down is to address the source of the pain, not shift the cost of Donald Trump’s war onto Maryland families.”
State Roundup
- COLORADO received an updated revenue forecast showing that its shortfall has increased to over $1.5 billion for fiscal year 2026-2027, largely due to the effects of the new federal tax law.
- Two proposals to cap property tax increases in GEORGIA are being debated after surviving crossover day, and municipalities are raising concerns about the impact to local services as the bills move closer to the governor’s desk.
- Changes to INDIANA’s local income taxes are being pushed out a year to 2029 as lawmakers address concerns from municipalities.
- Gov. Tim Walz of MINNESOTA says he has no interest in opting into the new $1,700 tax credit for those who donate to private school voucher programs.
- A Coalition has formed in MISSOURI to defeat a proposed ballot initiative to increase the sales tax and eventually eliminate the state’s individual income tax. If the income tax were to be fully replaced by a sales tax hike, the typical Missourian would pay about $500 more in taxes while the wealthiest would benefit the most.
- A MONTANA lawmaker submitted a proposed ballot measure to create a constitutional amendment tying the hands of local officials. The measure would ban local governments from increasing the total property taxes owners pay by more than 2 percent per year, save for the value of new improvements.
- NEBRASKA lawmakers missed a March 25 deadline to send a balanced budget to Gov. Jim Pillen’s desk, unable to overcome their standoff over a private school vouchers proposal and a low-income child care subsidy extension. They will now have to suspend that rule to extend the deadline. Once the standoff is resolved, a roughly $45 million revenue shortfall remains. An excellent recent review looked back at how ill-advised regressive income tax cuts and overcommitments based on one-time federal funding helped create the structural deficit.
- NEW HAMPSHIRE Gov. Kelly Ayotte vetoed bipartisan legislation that would have established a collection and recycling program for paint cans, which would be funded through a fee assessed on paint cans. Ayotte vetoed the legislation after characterizing the legislation as a sales tax, which supporters of the bill rejected.
- NEW YORK lawmakers and Gov. Kathy Hochul continue to work out their fiscal differences mostly behind the scenes, despite a looming April 1 deadline. Meanwhile Groundwork Collaborative released a thorough report on why a millionaires’ tax is needed in New York City, with lessons that many other states and cities could draw from. And Oxfam America released a report detailing how raising taxes on New York’s ultra-rich could ease the harmful effects of the 2025 federal tax law.
- An OHIO Republican lawmaker introduced legislation that would exempt capital gains from taxable income in the state, pitting income from work against income from wealth. An analysis from the Legislative Service commission estimated this would cost the state more than $600 million in revenue in 2027. Meanwhile, lawmakers introduced a proposal to temporarily freeze utility rates and provide a $150 credit on electric bills. The proposal would be funded with a tax increase on oil and gas extraction, which is estimated to raise about $650 million based on last year’s production.
- SOUTH DAKOTA Gov. Larry Rhoden signed legislation reducing the statewide general education levy by 1.68, which would reduce property taxes by $1.68 for each $1,000 in taxable value. The legislation follows other property tax cut legislation that was signed by the governor, including allowing local governments to impose a sales tax to reduce property taxes, and using an increase in the state sales tax to further reduce property taxes across the state.
- The VERMONT House Ways and Means Committee advanced legislation to reduce property taxes by using $52 million in surplus funds to buy down increased education spending on the local level, which would bring the average property tax increase down from about 12 to 7 percent. However, Gov. Phil Scott proposed spending $100 million to reduce the increase to property taxes to about a 4 percent increase.
What We’re Reading
- Bloomberg reports on a tax shelter that appears to let wealthy investors claim hugely inflated charitable tax deductions on donations like digital coloring books for pediatric cancer patients and assistive technology for the blind. The documents reviewed by Bloomberg suggest the tax shelter will lead to revenue losses of $667 million federally and $90 million for the states in 2025.
- A New York Times piece covers Alaska’s bleak fiscal situation, noting that while oil price increases will help the state’s budget in the short-term, the state will soon need to make tough decisions on taxes, the Permanent Fund, and spending on services if they want to get out of their current financial dilemma.
- The Maine Center for Economic Policy published a blog highlighting two bills that would create higher marginal tax rates and a tax on income over $1 million.
- State rainy day funds saw their first decline during the 2025 fiscal year since the Great Recession. Pew breaks down the strength of state rainy day funds in a new piece.
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