State Rundown 1/22: Tax Policy, Affordability, and Where It Misses the Mark
January 22, 2025
.ITEP Staff
January 22, 2025
As state legislative sessions ramp up many lawmakers discuss their prioritization of affordability of necessities like food and housing as they craft their legislative agendas. Arkansas, Mississippi and Utah are looking to reduce or fully exempt groceries from their state sales taxes. Meanwhile, multiple proposals to reduce property taxes are making their way around state capitals in Montana and Kansas.
However, while cost-of-living is undoubtedly a concern, many proposed tax cuts would provide windfalls for states’ wealthiest residents, while doing little-to-nothing for struggling workers and families. Or worse yet, asking low- and middle-income families to pay more at the expense of cuts for the richest in their state. The Mississippi House passed a bill to eliminate the personal income tax over 10 years while raising fuel taxes and general sales taxes. And Georgia is hoping to again accelerate its income tax cuts.
Major State Tax Proposals and Developments
- The MISSISSIPPI House passed a tax package that would phase out the state’s personal income tax over 10 years for everyone except professions classified as “sex work”. The bill would also claw back state sales tax revenue that currently goes to municipalities and would, rather, allow municipalities to increase their local sales tax rates. Additionally, the state grocery tax would be lowered from 7 to 2.5 percent. The bill would ultimately cut $1.1 billion from state revenues – over 15 percent of the state general fund. – NEVA BUTKUS
- RHODE ISLAND Gov. Dan McKee unveiled a budget that would create a 10 percent tax on digital advertising that would be paid by large tech companies. The proposal follows a similar law passed by Maryland in 2022. Gov. McKee’s budget would also increase taxes on cigarettes and electric vehicles and would levy a 5 percent hotel tax on Airbnb rentals. – MILES TRINIDAD
- Amidst a forecasted deficit, MINNESOTA Gov. Tim Walz proposed sales tax changes. He would reduce the state sales tax rate from 6.875 to 6.8 percent (a $95 million revenue loss) and couple that with an expansion to the sales tax base on previously exempt services like tax preparation (raising $203 million annually). The tax change would likely make the state’s tax system more progressive while increasing revenue by $108 million. Gov. Walz has also proposed increasing a surcharge on health maintenance organizations (HMOs) which would raise an additional $90 million. – NEVA BUTKUS
State of the State Addresses
- Gov. Brian Kemp of GEORGIA called to accelerate the state’s personal income tax cut by reducing the state’s 2025 flat rate from 5.29 to 5.19 percent. Gov. Kemp also wants to issue another round of tax rebates to filers to the tune of $1 billion.
- HAWAII Gov. Josh Green highlighted the state’s high cost of living as one of his top issues and touted recent income tax cuts that are estimated to cost the state $5.6 billion over seven years. Green also expressed interest in increasing affordable housing, addressing homelessness, and continuing wildfire recovery efforts in Maui.
- In his 2025 State of the State address, NEW JERSEY Gov. Phil Murphy announced that he will work with two lawmakers on a proposal to eliminate a “flaw” in the tax code that allows wealthy residents to benefit from the farmland assessment tax system and “avoid paying their fair share.”
- Gov. Laura Kelly of KANSAS softened her messaging on property tax cut proposals during her State of the State address but signaled that any property tax cuts must be paid for as to not jeopardize the state budget.
State Roundup
- Gov. Sarah Huckabee Sanders of ARKANSAS has yet to provide details on her plan to exempt groceries from the state’s sales tax base. Arkansas currently taxes groceries at .0125 percent.
- ARIZONA Gov. Katie Hobbs called for $10 million per year for six years to expand the State Low Income Housing Tax Credit in her executive budget proposal for fiscal year 2026.
- KANSAS Gov. Laura Kelly called a plan proposed by some Republican lawmakers to eliminate corporate income taxes a “non-starter.”
- With property taxes a key issue in tax policy the state this year, the MONTANA Free Press began providing a roundup of the proposals up for debate, including proposals from the governor and both Republicans and Democrats.
- The MISSOURI legislature is considering exempting capital gains from the state’s income tax at a cost of about $300 million annually. The measure would benefit those who own a business or stock but not those whose income comes from their own labor.
- NEW MEXICO lawmakers are once again pursuing an increase to the state alcohol tax. The proposed legislation would raise wholesale taxes per drink and include a new tax on retailers.
- UTAH lawmakers have their eye on eliminating the state’s portion of the food tax. Unlike last year, the bill is not conditional on anything else being approved.
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