State legislatures are enjoying a relatively quiet period right now, though it is merely a temporary calm before the storm of the federal tax and budget debate begins raging again. In the meantime, Michigan advocates are pursuing deeper investments and planning ahead for turbulent times by seeking a “fair share surcharge” on rich households to improve investments in schools. Minnesota lawmakers got in and out of session in a single day to solve a few issues and get back outside while the skies are clear. But New Hampshire tore down a levee that prevented private school vouchers for upper-income households from flooding the state budget.

Major State Tax Proposals and Developments

• A MICHIGAN coalition is pushing to put a proposal on the November 2026 ballot to change the state’s constitutional flat tax (currently 4.25 percent) to create a 5 percentage point surcharge on income exceeding $500,000 for single filers and $1 million for joint filers. The proposal is estimated to raise $1.7 billion annually to fund public K-12 schools. – MILES TRINIDAD
• Lawmakers in MINNESOTA passed their upcoming budget during a one-day special session as the state anticipated a deficit in coming years. The legislation makes cuts to health care programs for undocumented immigrants and raises taxes on cannabis and electric vehicles. Lawmakers also approved closing tax exemptions on electricity for data centers. – NEVA BUTKUS
• NEW HAMPSHIRE Kelly Ayotte signed legislation that allows high-income households to access the state’s school voucher program, which provides families at least $4,182 per year in state funding to use for nonpublic school expenses. The program was previously limited to those making less than 350 percent of the poverty level, or $112,525 for a family of four. – MILES TRINIDAD.

State Roundup

• DELAWARE lawmakers seem to have, for now, scrapped Matt Meyer’s proposal to create higher income tax brackets for higher-income households and are instead pursuing a $1.50 increase to the state’s cigarette tax, as well as other tobacco tax increases. A recent ITEP blog makes the case for why now is the time to prioritize progressive revenue.
• FLORIDA House and Senate leadership have entered conference committee and are working to finalize the state budget. Meanwhile, Gov. Ron DeSantis continues to push for property tax rebates.
• LOUISIANA lawmakers passed legislation to remove the state’s caps on film production costs and payroll expenses and change the credit to equal up to 40 percent of eligible expenditures. The $125 million cap on total credits per year remains in effect.
• Legislators in MISSOURI have tied a property tax cap to a stadium subsidy plan for the Kansas City Chiefs and Royals. 97 counties would be affected by the tax cap, including 22 counties where no increase in tax bills would be allowed.
• The NEW HAMPSHIRE Supreme Court upheld the Statewide Education Property Tax. The tax was challenged by taxpayers who argued it was unfair because it allows wealthier towns to collect more taxes than needed for their schools and keep the excess revenue while those with lower property values pay much higher local property tax rates.
• OREGON’s Joint Committee on Transportation Reinvestment introduced a transportation package that includes new tax increases that are expected to generate more than a billion dollars in revenue. The proposal creates a new transfer tax and calls for increases to the gas tax, payroll tax, privilege tax, vehicle use tax, and registration fees.
• A WYOMING senator put forward a proposal to amend the state constitution to do away with language relating to the property tax and to leave the responsibility of keeping or eliminating the tax up to the legislature.

What We’re Reading

• In a recent piece, ITEP Senior Fellow Nick Johnson offers a solution to the District of Columbia’s problem of having profitable businesses that contribute nothing to the city’s tax base: A business activity tax. The tax would be a low-rate tax that exempts an initial amount and targets businesses currently paying little or no tax.
• ITEP analysts Dylan Grundman O’Neill and Miles Trinidad also wrote this week about how a proposal to cut the North Carolina income tax rate even further would be badly skewed in favor of millionaires while doing little for everyday families while undermining schools and other important services.

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