State Rundown 4/3: Amidst Tariff Uncertainty, State Lawmakers Talk Taxes

While all eyes are on the Trump administration’s tariffs on foreign imports, state lawmakers are moving forward with a mix of deep, regressive tax cuts and progressive revenue raisers. For instance, Mississippi Gov. Tate Reeves has signed a top-heavy tax cut that will ultimately eliminate the state’s individual income tax. Georgia lawmakers have passed legislation that would accelerate cuts to the state’s individual income tax. And Missouri lawmakers advanced a proposal to elevate wealth over work by fully exempting capital gains income from the state’s individual income tax, and eventually from the corporate income tax as well. 

On the other hand, Delaware Gov. Matt Meyer has proposed, and Maryland lawmakers are moving toward, adding additional top brackets with higher rates for high earners, among other changes.  

Major State Tax Proposals and Developments

• GEORGIA legislators passed legislation to fast track the state’s phased-in personal income tax rate reductions. The bill, which is now on Gov. Brian Kemp’s desk, would lower the state’s flat tax from 5.39 to 5.19 percent starting July 1 – costing the state $869 million a year. Additionally, Senators passed legislation that would provide a rebate of $250 to individuals and $500 to married couples for Georgians filing income taxes. – NEVA BUTKUS 

• DELAWARE Gov. Matt Meyer proposed a budget that includes new tax brackets. The three new brackets would ask more of the state’s wealthiest taxpayers, creating brackets at $125,000, $250,000, and $500,000 and a new top rate of 6.95 percent. This policy is estimated to raise $35.2 million in 2027. The budget also includes fees on state parks and roads and increases to taxes on cigarettes and other tobacco products. – MILES TRINIDAD 

• The MARYLAND Senate passed a budget measure that Gov. Wes Moore and the House approved last month. The tax components, which would partially address the state’s $3 billion deficit, include two higher tax brackets for those earning over $500,000 and $1 million, a 2 percent tax on capital gains for those earning over $350,000, a phaseout of the itemized deduction for those earning over $200,000, and tax increases on cannabis, sports wagering, and digital services. – MILES TRINIDAD 

• The MISSOURI Senate has amended and advanced a proposal to fully exempt capital gains from the state’s income tax. The measure will mostly benefit a small number of very high earning Missourians, prioritizing wealth over work, as we speak to in a recent ITEP brief. The measure also includes an increase in the state’s property tax circuit breaker for seniors, and exemptions for diapers and period products from state sales tax. – ELI BYERLY-DUKE 

• Gov. Tate Reeves of MISSISSIPPI has signed into law a tax cut bill which will, over time, fully eliminate the state’s individual income tax. The bill reduces the state’s income tax to 3 percent and then triggers further reductions that can reduce the rate to zero. The bill also increases the state’s gas tax by 9 cents while reducing sales taxes on groceries from 7 to 5 percent. An ITEP analysis of the fully implemented legislation shows an annual revenue loss of nearly $2.7 billion (if in effect today), with the top 1 percent of Mississippians receiving an average tax cut of $41,420. – NEVA BUTKUS 

State Roundup

• A bill advancing through the ARIZONA legislature would send a measure before voters in 2026 to limit local grocery taxes to 2 percent. 

• Some COLORADO legislative leaders are aggressively pursuing solutions to the “TABOR” policy that has stifled the state’s ability to fund shared priorities or improve tax fairness for over 30 years. Their strategy involves exempting some infrastructure funding from the spending cap, moving to a graduated income tax structure, and challenging TABOR itself in court. 

• IDAHO budget deliberations continue past the official deadline. The latest development is the rejection of the Idaho Tax Commission budget in an odd twist: lawmakers previously approved a $50 million giveaway to private schools but struck down the agency’s budget because it would cost $675,000 to implement it. 

• Local school district leaders in INDIANA are asking the legislature to reverse course on Senate Bill 1 which would cap property tax levies, regardless of property tax valuation growth. Leaders, particularly in wealthier suburbs of Indianapolis that have experienced high growth in recent years, are deeply concerned over lost revenue and their ability to fully fund their schools if the bill passes in its current state. 

• KANSAS lawmakers finalized a spending bill that, when accounting for the $2 billion in impending tax cuts over the next five years and potential tax cut legislation being considered in this session, would result in a $460 million budget shortfall in three years.  

• Senate lawmakers in KANSAS failed to pass a constitutional amendment that would limit property valuation increases to 4 percent annually.  

• Lawmakers in MAINE have advanced a proposal to increase the state’s Homestead Property Tax Exemption by $5,000 annually until it reaches the value of $50,000, at a cost to the state of about $14 million. 

• The MONTANA Senate advanced a proposal to increase the state’s bottom income tax bracket from $20,500 to $100,000 for those filing as individuals. The shift would reduce state revenues by over $200 million a year. Additional proposals that would lower the top income tax rate and increase the state’s EITC continued to be discussed.  

• Jackson County, MISSOURI lost its court battle with the State Tax Commission over 2023 assessments. The Commission argued the county neglected to send out timely notices to property owners whose valuations rose more than 15 percent in a single year, and the county will likely be forced to rollback valuations.  

• Citing current budget troubles (created by misguided income tax cuts in recent years), NEBRASKA lawmakers are shelving a bill designed to restore the “missing year” of property tax reductions created last summer when they revamped those policies and accidentally raised property taxes on most Nebraskans for one year. 

• NEVADA leaders are attempting to reform the state’s unique property tax system, which will require a constitutional amendment to be approved by two successive legislatures and then voters. Nevada currently applies a depreciation formula that reduces the taxable value of real estate over time and allows such reductions to carry on even if the property is sold to a new owner. The proposed amendment would keep the depreciation formula but reset the value at market rate when sold. 

• Gov. Spencer Cox of UTAH vetoed legislation to phase out the state’s property tax circuit breaker for seniors, instead allowing these households to defer their property taxes until they sell their homes.  

• VIRGINIA lawmakers are reconvening to consider Gov. Glenn Youngkin’s recent vetoes and amendments, including 205 proposed amendments to the state budget. The Assembly rejected Youngkin’s original proposal to eliminate taxes on tips and personal vehicle property taxes for lower- and middle-income households and instead passed a budget that gives each taxpayer a $200, nonrefundable tax rebate. The Assembly is expected to reject Youngkin’s amendments, which would result in further negotiations before the state’s July 1 deadline to enact a new budget. 

• WASHINGTON lawmakers continue to work toward an agreement to balance their budget and hopefully also improve tax fairness. The Senate’s bill included about $6.2 billion of the $17 billion of tax changes laid out in Senate Democrats’ original proposal, including a payroll tax on people with incomes over the $176,100 Social Security cap and a tax on financial assets exceeding $50 million. The House’s bill relies on a similar financial assets tax and an increase to the state’s regressive gross receipts tax (Business and Occupations Tax). Gov. Ferguson has promised to veto any budget including the financial assets tax but has acknowledged the need for new revenues to be part of the package. 

What We’re Reading

• Thomas Legg, a retired University of Minnesota management professor, argues in the Minnesota Reformer that despite Minnesota’s higher-than-average taxes, the state produces higher incomes, lower poverty rates, lower crime, higher educational attainment, and higher percentages of insured residents than neighboring states. And while there are rural and urban areas of Minnesota where people are struggling, the state’s tax system overall seems to be a net benefit to the overall wellbeing of your average Minnesotan. 

• ITEP celebrates 50 years of the federal Earned Income Tax Credit. Starting as a $400 credit phasing out after $4,000 of income the federal program was so successful that 31 states, Puerto Rico, and the District of Columbia all now have their own EITCs. The credits lift up workers, reduce poverty, and have a critical role making state and local tax codes less regressive. 

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