As a sprawling, regressive tax bill continues to take shape at the federal level, many states are moving forward with major tax cut proposals of their own. In Oklahoma, a plan to cut and eventually eliminate the state’s individual income tax is gaining traction. And Louisiana lawmakers are advancing bills that would cut both its sales tax and personal income tax, following deep, regressive tax cuts late last year.

Other major proposals this week include a North Carolina House plan that would potentially slow income tax cuts, increase the standard deduction, and allow a new deduction for tipped income. Meanwhile, Washington Gov. Bob Ferguson signed legislation to help close the state’s budget shortfall with an increase to the state’s Capital Gains Excise Tax along with a range of other tax changes.

Major State Tax Proposals and Developments

• Despite fiscal uncertainty and forecasted deficits, LOUISIANA lawmakers are moving forward with multiple tax cut bills that are estimated to lead to a $590 million deficit by 2027. The bills would reduce the state’s general sales tax rate from 5 to 4.75 percent and reduce the state’s flat personal income tax rate from 3 to 2.75 percent, as well as double the standard deduction for seniors. Another bill would eliminate the state’s Revenue Stabilization Fund, a very risky decision amidst looming federal cuts and a potential recession. – NEVA BUTKUS
• MONTANA Gov. Greg Gianforte signed into law two property tax bills that will lower the rates on primary residences, long-term rentals, and small commercial properties, but raise them on second homes and those worth more than four times the statewide median value. – MARCO GUZMAN
• The NORTH CAROLINA House released a budget proposal that would increase the standard deduction by $500 for single filers and $1,000 for joint filers, allow a deduction of $5,000 for tipped income, and revive a back-to-school sales tax holiday during the first weekend of August. The bill could also delay future automatic cuts to the personal income tax by increasing the revenue targets needed to trigger the cuts in tax years 2027-2034. The plan follows the Senate-passed budget proposal that would reduce the state’s personal income tax rate to 1.99 percent over time. – MILES TRINIDAD
• OKLAHOMA Gov. Kevin Stitt and officers in both houses have agreed on an income tax cut with a path to full elimination. If enacted, the bill will reduce the number of income tax brackets from six to three and cut the top rate from 4.75 to 4.5 percent in the first year and then ratchet the tax down to zero, over time, using revenue triggers. These cuts would cost billions in funding for shared priorities while skewing in favor of the state’s richest residents. Over one-third of the cut would go to the richest 5 percent, and vital support for middle- and low-income families delivered through refundable credits could be at great risk as well. – ELI BYERLY-DUKE
• WASHINGTON Gov. Bob Ferguson has signed the legislature’s budget and tax package with only peripheral vetoes. The package fills the state’s $16 billion biennial budget shortfall with about $4 billion of new revenue and $12 billion of funding cuts and transfers. The revenue measures include $321 million from an increase to the state’s progressive Capital Gains Excise Tax and estate tax changes, but most of the revenue comes from regressive consumption taxes that will fall disproportionately on low- and middle-income families. The lack of vetoes makes it less likely that lawmakers return for a special session this summer, but it remains possible due to federal uncertainty and Gov. Ferguson’s expressed interest in further scrutinizing the tax changes after intense lobbying pressure. Gov. Ferguson also signed a gas tax increase to continue funding infrastructure needs. – DYLAN GRUNDMAN O’NEILL

State Roundup

• COLORADO Gov. Jared Polis signed into law a bill that gradually phases out a provision that allows sportsbooks to deduct the full value of free bets.
• INDIANA lawmakers are considering implementing tolls to make up for lagging gas tax revenue and needed funding for infrastructure. Overall revenues are also down as the state is projecting a $2 billion shortfall for the next state budget.
• IOWA lawmakers did not ultimately pass any comprehensive property tax reform packages this legislative session but say it will be a priority in 2026.
• Gov. Mike Kehoe of MISSOURI plans to bring lawmakers back for a special session in June to divert state tax dollars towards stadium bond payments to pay for stadium upgrades for the Kansas City Chiefs and Royals. Some lawmakers have expressed concern over unfunded capital improvement projects for hospitals, mental health centers, and more.
• MAINE Senate President Mattie Daughtry unveiled a package of eight tax bills that include progressive measures like doubling the state Child Tax Credit, lowering the cost of certain groceries, and raising taxes on high-cost luxury items like private jet charters and yacht rentals.
• NEBRASKA lawmakers rejected a proposal to expand or increase assorted consumption and “sin” taxes to fund property tax cuts, likely putting a rest to tax debates for this year’s session.
• The PENNSYLVANIA House passed a bill that would create a tax-deductible savings account with the express purpose of saving for a first-time home purchase.
• Republicans in WISCONSIN are pushing for a film tax credit that would include a 30 percent credit for salaries paid to residents of Wisconsin, 30 percent credit for the cost of acquiring or improving property, and 30 percent credit for production costs, with no applicant being able to claim more than $1 million in a fiscal year.

What We’re Reading

• For all of you keeping tabs on federal tax action, and how those decisions may impact state policy, keep an eye on our website for updates. We currently have the following resources available: ITEP modeling of the tax provisions at the national-level, a summary with key takeaways of the House tax plan, state-by-state estimates of the impact of the federal voucher proposal, an explainer on changes to the SALT deduction cap with recommendations on state action, and more!

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