In Washington, Gov. Bob Ferguson and lawmakers decided to stop fooling around with one of the nation’s most upside-down tax codes and finally brought to life a new millionaires’ tax, the first new income tax created in a state since 1991. Maine lawmakers have now proposed a similar policy. Lawmakers note the popularity of taxing millionaires, and the obvious case for doing so, considering inequality has been skyrocketing, and recent federal tax changes provided these very households an unneeded windfall.
South Carolina lawmakers and Gov. Henry McMaster, on the other hand, are playing what we wish were just a cruel prank on their successors and constituents by enacting a law that will cut and then completely eliminate the state’s individual income tax over time, gutting the major progressive tax that provides nearly half of general fund revenues. ITEP’s analyses of the changes are available here. Meanwhile in Maryland and Nebraska, lawmakers finalized their budgets, both relying largely on budgetary high jinks to temporarily close their shortfalls.
Major State Tax Proposals and Developments
- WASHINGTON Gov. Bob Ferguson signed into law a millionaires’ tax, which creates an income tax of 9.9 percent on income over $1 million. During the signing, the governor made reference to ITEP’s Who Pays? report and noted that the tax will make the state’s upside-down tax code fairer. The bill also makes several other changes. That includes using revenue from the tax to expand the Working Families Tax Credit to reach an additional 460,000 households, investments in education and child care, and reducing or eliminating Business and Occupations (B&O) tax for roughly 138,000 small business. – MARCO GUZMAN
- MARYLAND lawmakers passed the state budget that closes a $1.4 billion deficit without raising taxes or fees. Lawmakers closed the deficit through a combination of cuts and one-time resource shifting maneuvers. However, the budget does not address long-term structural deficits in the state as it faces a $2.3 billion deficit starting in July 2027 that would grow to nearly $4 billion by July 2030 if left unaddressed. The budget heads to Gov. Wes Moore for his signature. – MILES TRINIDAD
- MAINE lawmakers on the budget committee included a millionaires’ tax in an updated version of the state’s two-year spending plan. The tax would assess a 2 percent tax on income over $1 million and would raise roughly $150 million over two years. – MARCO GUZMAN
- NEBRASKA lawmakers passed their latest budget ever, on day 54 of their 60-day session, after amending the rules to do so and briefly voting against it as an April Fools’ Day prank on the Speaker. Private school vouchers were removed to gain support for the budget, as were low-income child care subsidies. Proponents of each will continue working on those issues, possibly even this session for the child care subsidies. An assortment of revenue bills is expected to bring in the last $38 million needed to finish closing what was at one point a $646 million shortfall; those bills institute some new and increased fees and end some sales tax exemptions, among other small changes. – DYLAN GRUNDMAN O’NEILL
- SOUTH CAROLINA Gov. Henry McMaster signed H. 4216 into law which will immediately reduce the state’s individual income taxes by $309 million and enact triggers to phase out the individual income tax entirely. The state’s individual income tax currently raises $6.6 billion annually — nearly 45 percent of the total state general fund. Upon elimination, the state’s wealthiest 1 percent of households would receive an annual tax cut of $51,063, while the bottom 20 percent of households would receive no cut. – NEVA BUTKUS
State Roundup
- House lawmakers in ALABAMA passed a $1,000 deduction on overtime income. An amendment on the floor added a two-month sales tax holiday on groceries. In total, the bill is expected to cost $83.4 million.
- ARIZONA Gov. Katie Hobbs expressed interest in pausing the state’s gas tax in response to increasing prices. Despite evidence to the contrary, she noted that it’s something for lawmakers to consider when budget negotiations begin.
- At-large candidates for the DISTRICT OF COLUMBIA‘s open council seat recently spoke on the Business Activity Tax (BAT) at a public forum. While one candidate raised concerns, most of the other candidates expressed support for the tax that aims to reach businesses that do work in the city but are domiciled outside city limits.
- GEORGIA Senators passed House legislation that caps property tax increases to the rate of inflation or 3 percent. The legislation also allows local government to raise sales taxes to make up lost revenue.
- An IDAHO bill has been introduced that would permanently restore the state’s $205 per-child, non-refundable Child Tax Credit. The credit expired after hitting its sunset date at the end of 2025.
- Legislation to cut or eliminate LOUISIANA’s personal income tax was voluntarily deferred in the House Ways and Means committee, as House and Senate leadership rejected the ideas for this session.
- SOUTH CAROLINA Senators rejected legislation that would temporarily couple to certain provisions in OBBBA such as the tipped and overtime income deductions and senior deductions for the 2025 tax year. Senators did pass an increased homestead exemption for seniors.
- UTAH Gov. Spencer Cox signed into law several tax bills, including an income tax cut from 4.5 percent to 4.45 percent, an expansion to the state’s Child Tax Credit’s income eligibility thresholds, a digital ads tax, a cigarette tax increase, and a temporary gas tax cut from 38 cents per gallon to 32 cents.
- VIRGINIA Republicans proposed a three-month suspension of the state gas tax as prices rise due to the war in Iran. The proposal is estimated to cost the state $375 million.
- WISCONSIN Gov. Tony Evers vetoed a bill, pointing to ITEP analysis, that would have opted the state into the new federal tax credit for donations to private schools. The policy — intended to benefit private and religious schools — could cost over $50 billion nationwide without benefiting the majority of students who attend public schools.
- WYOMING Gov. Mark Gordon signed into law a bill that would lower the registration fee for all-electric vehicles from $200 to $100 and lower the fee for plug-in hybrid vehicles to $50. The bill also exempts alternative fuels — like electricity — from the sales tax.
What We’re Reading
- In a recent report, ITEP’s Rita Jefferson surveys the landscape of local tourism taxes and some of the options available to localities to bring in revenue from tourists without overly relying on consumption taxes that fall hardest on low-income families.
- And ITEP’s Cassidy Sheppard weighs in with a new piece on California, Texas, and Florida, shedding light on for whom those states are “low tax.”
- The Nation writes about St. Louis’s battle for autonomy with the Missouri statehouse across issues including the city’s earnings tax, mayoral authority over the city’s police department, and ongoing recovery from last year’s tornadoes.
- Meanwhile, Missouri AARP breaks down the impact of proposed sales tax hikes on the states’ seniors. Because much of their income is already tax exempt, the proposed shift from income to sales taxes will be especially harmful.
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