Martin Luther King may have said that “the time is always ripe to do right,” but most states are adopting a very cautious approach so far this year as legislators begin their sessions and governors make their annual addresses, thanks to ongoing economic uncertainty and federal retrenchment. In states like Nebraska, Oklahoma, and Vermont, property tax cuts remain on the agenda but have moved lower down the priority list. South Carolina is seeing the same dynamic with income tax flattening and elimination, which is advancing in the legislature but with less fanfare than it might otherwise receive, and with fewer parallel efforts in other states than in most recent years.
In other news: officials and advocates in Colorado, Rhode Island, and Washington, are boldly pushing now for the kinds of progressive revenue that can help states weather this storm and those to come.
Governors’ Annual Addresses and State of State Speeches
- In his 2026 State of the State address, COLORADO Gov. Jared Polis asked lawmakers to come together to cut the income tax rate. Meanwhile, officials have approved a proposed graduated income tax initiative that is expected to appear on this November’s ballot.
- GEORGIA Gov. Brian Kemp in his address called for another accelerated cut to the state’s personal and corporate income tax rates, which are currently only phasing down if the state meets certain economic and revenue benchmarks. The proposal would bring the state’s income tax rate from 5.19 to 4.99 percent. Gov. Kemp also called for a fourth round of tax rebates of $250 for single filers and $500 for married filers.
- NEBRASKA Gov. Jim Pillen’s address alternated between downplaying the state’s “make-believe budget crisis” and laying out the hundreds of millions of dollars in cuts and shifts required to bring the budget into balance. The largest cuts will be $152 million from Health and Human Services, including $18 million from revoking retroactive Medicaid coverage for expenses incurred before final acceptance into the program. Another aspect of the budget is an $18 million cut to special education funding paired with a $7 million increase to private school subsidies. Gov. Pillen also outlined a tentative goal to reduce property taxes by $170 million.
- NEW MEXICO Gov. Michelle Lujan Grisham called for eliminating gross receipts tax on medical services and asked the legislature to approve $150 million in tax credits to help support industries like quantum computing and fusion technology in her 2026 address to the state.
- VERMONT Gov. Phil Scott delivered his budget address, in which one of his key proposals was using state tax revenue to provide $105 million to lower local property taxes, estimated to cut the projected average 12 percent increase by half.
- In his annual address, WASHINGTON Gov. Bob Ferguson once again promoted his plan for a millionaires’ tax to help bring greater equity to the state’s tax system. Gains from the tax would help expand access to the Working Families Tax Credit, lower taxes on small businesses, and allow the state to further invest in K-12 education.
Major State Tax Proposals and Developments
- MARYLAND Gov. Wes Moore’s proposed budget in the face of a $1.5 billion deficit includes no new taxes or fees and aims to address the deficit by cutting spending instead. The budget also proposes conforming to some of the 2025 federal tax law’s business tax provisions – such as allowing companies to immediately deduct eligible research expenses and deducting business interest – while also decoupling from new depreciation allowance for production property and replacing a federal calculation for bonus depreciation benefits with a state-specific calculation. – MILES TRINIDAD
- NEW YORK Gov. Kathy Hochul’s executive budget, released this week, fleshes out some of the points alluded to in last week’s State of the State address. Progressive tax policies enacted during previous administrations, combined with a surging stock market, have created reserves that allow Gov. Hochul’s budget to remain in balance in the short term while funding the first two years of a major child care expansion as well as other priorities, including increased subway police presence. Other tax items include extending a temporary corporate surcharge, jumping on the federal “no tax on tips” bandwagon, and enhancing the child and dependent care credit. The budget raises about $1.4 billion in new revenue a year by decoupling from some of last year’s federal business tax breaks (specifically items 1 and 2 described here). – DYLAN GRUNDMAN O’NEILL
- OKLAHOMA lawmakers are debating competing desires to cut property taxes and maintain or strengthen education. Although some lawmakers have proposed exempting homesteads from the property tax—at the cost of $4 to $5 billion—no clear plan has been proposed to sustain the state’s education system. – ELI BYERLY-DUKE
- RHODE ISLAND Gov. Dan McKee introduced his proposed budget for 2027 that includes a 3-percentage point income tax surcharge for millionaires, which is estimated to raise about $135.5 million a year, as the state faces an estimated budget deficit exceeding $100 million. This is in addition to his previously announced proposal to eliminate taxes on Social Security income and create a new refundable Child Tax Credit that is mostly paid for by eliminating exemptions for dependents. – MILES TRINIDAD
- The SOUTH CAROLINA Senate Finance Committee advanced legislation previously passed by the House in 2025 that would collapse the state’s personal income tax rates into a 1.99 percent flat rate, then enact triggers to bring that down until the personal income tax is eliminated. Additionally, the Senate committee passed property tax legislation that would triple the homestead exemption for senior, blind, and disabled homeowners from $50,000 to $150,000. – NEVA BUTKUS
- SOUTH DAKOTA Gov. Larry Rhoden introduced legislation that would allow counties to vote on substituting their property tax share with a half-cent sales tax. The legislation comes as lawmakers continue to debate property tax cuts. – MILES TRINIDAD
State Roundup
- In a recent cabinet meeting, ALASKA Gov. Mike Dunleavy announced that a fiscal plan will be a key priority for the legislative session. The plan will include a new seasonal sales tax, a limit on government spending, oil tax changes, and new formula for the Permanent Fund Dividend.
- ARIZONA Gov. Katie Hobbs vetoed a budget bill backed by the Republican-controlled legislature that would have fully conformed to the 2025 federal tax law. The governor, meanwhile, is in favor of conforming to fewer tax changes, which she claims are more focused toward benefiting the middle class.
- The San Diego, CALIFORNIA, City Council is considering adopting a vacancy fee for second homes and vacation rentals. The annual fee would be higher for short-term rental properties owned by corporate entities.
- COLORADO lawmakers will decide whether to pursue tax breaks for data center developers. The proposed legislation would give developers a 100 percent exemption from state sales taxes for up to 20 years, with the possibility of an additional 10-year extension.
- CONNECTICUT Gov. Ned Lamont’s administration won’t issue new valuations for agricultural land after facing pressure from farmers who claimed the changes would increase taxes and cause hardship. This means that the land values that were last adjusted in 2020 will remain in place.
- New legislation has entered FLORIDA’s property tax debate. The proposal would phase out non-school property taxes for homestead owners over ten years. Starting in 2028, the state homestead exemption would increase by $100,000 annually until 2037 at which point non-school property taxes would be eliminated. Counties across the state, especially rural communities, have expressed deep concern over the proposal and its impact on ability to fund vital services.
- The Senate tax committee in INDIANA moved forward with a bill that would piggyback off the federal deduction on tipped and overtime income for the 2026 tax year, which would reduce revenues by $251 million.
- MICHIGAN faces an estimated budget shortfall of nearly $1 billion as a result of tax changes on the state and federal level, as well as a new $2 billion road repair plan that was funded by a new wholesale tax on marijuana and an increase to the gas tax. Officials lowered revenue estimates by almost $780 million. Michigan recently exempted Social Security, overtime, and tipped income from state taxes, mirroring provisions from federal law. This was estimated to cost the state $158 million.
- NEW HAMPSHIRE legislators held a hearing on a bill that would force localities to vote every two years on whether to cap property taxes. The bill received criticism during the hearing, but the bill comes as legislative leaders continue to seek to limit local spending as education spending continues to increase.
- NEW MEXICO lawmakers are again pursuing a tax on alcohol—this time with a 3 percent sales tax on alcoholic beverages.
- Despite funding and revenue concerns, legislative leaders in UTAH are still eyeing another income tax cut, even as Gov. Spencer Cox refrained from including one in his budget.
- The WISCONSIN state Senate advanced measures to exempt cash tips and some overtime pay from the state’s income tax. Although many would not receive a tax cut, the measures would cost about $7 and $150 million annually.
- The WYOMING State Board of Equalization is challenging a tax cap on residential property that lawmakers approved in 2024 as a way to cut property taxes while staying within the parameters of the state constitution.
What We’re Reading
- In a newly released op-ed, ITEP’s Aidan Davis and Wesley Tharpe from the Center on Budget and Policy Priorities encourage states to protect revenue and raise new progressive revenue in the face of last year’s reckless federal tax and spending cuts.
- Professor Michael J. Hicks of Ball State University explained in the Indy Star how Indiana’s property and local tax overhaul bill that passed in 2025 will likely result in local income tax increases for Hoosiers while providing a windfall tax cut in the form of business personal property taxes for companies.
- Seattle is approaching the legal property tax rate limit in Washington, despite voters’ willingness to pay for public services. This is a problem for making citywide investments, as the state has been unwilling to consider adopting a broad-based income tax, or amending existing restrictions on property taxes for localities.
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