State Rundown 12/19: Anti-Tax Playbook in Action

The anti-tax playbook has been on full display in recent weeks as state policymakers run their offenses against public services and shared priorities.

As the playbook dictates, if you have a little breathing room in your budget, propose cuts to the one major tax (personal income tax) that tends to ask more of those who can most afford to contribute, as seen in action by Utah Gov. Spencer Cox, Virginia Gov. Glenn Youngkin, and Missouri senators. Or if you find yourself in a hole because you already passed such income tax cuts for your highest-income residents, the playbook advises you to run a reverse to slashing spending or property taxes, like certain policymakers in Hawaii, Kansas, and Nebraska. Some lawmakers in Kentucky are trying a classic sneak-it-up-the-middle play, hoping to ignore their income-tax-cut-imposed budget woes and simply add more cuts on top of them.

Not all state lawmakers use this playbook, however, as leaders in Colorado look for targeted assistance for renters, and Washington Gov. Jay Inslee proposes a small tax on the state’s wealthiest residents to bring balance to its budget and its tax code.

Major State Tax Proposals and Developments

• UTAH Gov. Spencer Cox unveiled his budget proposal for fiscal years 2025-2026, which includes a proposal to eliminate the state’s tax on Social Security income. The plan is estimated to cost the state nearly $144 million a year, little of which would flow to lower-income families because their benefits are already excluded from taxation. — MARCO GUZMAN
• VIRGINIA Gov. Glenn Youngkin released his proposed amendments to the 2024-2026 budget. The proposal would create a $50 million private-school voucher program. It would include, among other things, exempting tipped income from income taxes, which is estimated to cost $70 million a year in revenue, and the creation of a $1.1 billion income tax credit for households earning under $50,000 (or $100,000 if filing jointly) for local property tax paid for personal-use vehicles. – MILES TRINIDAD
• In his final budget proposal, WASHINGTON Gov. Jay Inslee is calling for a balance of spending restraints and new revenues to fill the state’s budget gap. Most notably, he proposes a small wealth tax on the richest Washingtonians – 1 percent on wealth exceeding $100 million, affecting about 3,400 residents – to raise about $2.5 billion a year to protect shared priorities like schools and housing. – DYLAN GRUNDMAN O’NEILL

State Roundup

• COLORADO’s property tax commission suggested that lawmakers consider a tax cut for renters next session following years of policy changes targeted to homeowners.
• HAWAII faces an estimated $8 billion reduction in state tax revenue over the next eight years due to recently enacted tax cuts led by House Finance Committee Chair Kye Yamashita. Meanwhile, the Chairman warned that a law set to expire in 2030 that provides nearly $400 million annually to cities and counties is not guaranteed to be renewed as the state looks to replace that lost revenue.
• KANSAS lawmakers expressed interest in cutting property taxes during the 2025 legislative session, likely by reducing the statewide mill levy for schools or capping growth at the municipal level – an approach that has resulted in local budget crises in neighboring Iowa.
• Despite falling revenue, KENTUCKY lawmakers are preparing to push for another cut to the state’s personal income tax. Given pre-existing tax cuts and falling revenues, the state will already need to cut current levels of spending and cannot increase spending on priority programs without deeper cuts.
• MISSOURI senators proposed various cuts to the state’s personal income tax, aiming to reduce the permanent rate from 4.5 percent to 4.0 percent. There are also similar proposals in the House. Opponents, which include the Missouri Association of Realtors, argue that the cuts will require increases in the state’s regressive sales tax.
• After spearheading tax-cutting efforts in recent years that have created a $432 million hole in the state budget and a “missing year” hole in residents’ property tax credits, NEBRASKA Gov. Jim Pillen unsurprisingly wants to shift the focus from those fiscal problems to social issues in the coming legislative session. On the tax side, he wants to expand the sales tax to more services and direct the revenue to property tax cuts through school aid changes.
• NEVADA’s revenue forecasters predicted modest growth but expressed worries about how policies promoted by the incoming Trump administration pose significant risks to the state’s economy and revenues. Inflation resulting from tariffs and struggles for industries like hospitality and construction, resulting from deportations and immigration restrictions, were of particular concern.
• SOUTH DAKOTA lawmakers plan to introduce legislation that would raise the state sales tax rate from 4.2 percent to 5 percent in order to reduce the property tax levy for general education and special education to zero, effectively reducing property taxes by an estimated $416 for every $100,000 of assessed value. The sales tax increase is intended to offset the cost of eliminating the property tax levy, which is estimated at $280 million.
• A new study shows Harris County, TEXAS – home to the city of Houston – will lose $1 billion of revenue to business tax breaks.

What We’re Reading

• A loophole in Texas’s affordable housing program has allowed developers to remove properties from the tax rolls for up to 99 years regardless of the number of affordable units, removing over $600 million in property value from the property tax rolls in Houston.
• Wealthy homeowners in wildfire-prone areas are installing personal fire hydrants to protect their homes, highlighting who’s left behind when vital public services are underfunded.
• NPR highlights the early success of Washington, D.C.’s Early Childhood Pay Equity Fund, which boosts educators’ and providers’ pay with revenue from an additional tax on filers earning over $250,000 a year.

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