State Rundown 11/20: Some Budgets and Tax Proposals Fail to Defy Gravity, Fall Short

This week, there are high-profile budget and tax debates at both the state and local levels. The Louisiana legislature continues to debate Gov. Jeff Landry’s deeply regressive tax package in a special session focused on replacing corporate and personal income tax revenue with additional sales taxes, but some efforts to find offsets for the cuts failed to advance through the legislature.

Meanwhile, Maryland leaders continue to face a budget shortfall that, without action, could increase to nearly $6 billion by the end of the decade. And New York City’s congestion pricing will soon be reintroduced after Gov. Kathy Hochul blocked its implementation earlier this year, but Hochul’s changes to the program will lead to only half of the revenue initially expected.

Major State Tax Proposals and Developments

• LOUISIANA‘s special session on tax reform has passed its halfway point. Lawmakers remain intent on cutting corporate and personal income taxes as well as eliminating the corporate franchise tax, but key policies that would have made up that revenue have not passed. House lawmakers did not advance a bill to extend sales tax to services which would have raised nearly $500 million. And the initial plan to axe the film tax credit and the tax credit for rehabilitating historic buildings fell through. Increases to the state sales tax rate and smaller cuts to the corporate income tax are being considered to make up for the difference. – NEVA BUTKUS
• MARYLAND leaders are weighing spending cuts and tax increases as the state faces a growing budget shortfall. In 2026, absent policy change, the state is projected to have a $2 billion budget deficit, which is expected to increase to $5.8 billion by 2030. — MILES TRINIDAD
• MONTANA Gov. Greg Gianforte released his 2027 biennium budget that includes a cut to the state’s top marginal income tax rate from 5.9 percent to 4.9 percent and an increase to the state Earned Income Tax Credit, for what the governor claims will be an $850 million permanent tax cut. — MARCO GUZMAN
• NEW YORK Gov. Kathy Hochul reintroduced Manhattan congestion pricing to fund transit infrastructure work but has set all tolls 40 percent lower than originally planned. The governor suspended the program before its planned June start date, arguing the toll was too high. The state is working with the Federal Highway Administration to finalize the program before the end of President Biden’s term. The new rates are expected to collect $500 million per year, half of the revenue anticipated under the original proposal. — RITA JEFFERSON

State Roundup

• Tax rebates paid out to ARIZONA residents in 2023 will remain taxable for federal income tax purposes after a U.S. District Court judge threw out a claim by state Attorney General Kris Mayes that the rebates were exempt under rules adopted by the Internal Revenue Service.
• Roughly $14.5 million in IDAHO state revenue that was planned to have gone toward property tax cuts this year will be added to a potential surplus next year after IT challenges led to reporting delays.
• IOWA Gov. Kim Reynolds has identified property tax cuts as a focus for the 2025 legislative session, raising concerns from some lawmakers already worried about the budget due to an expected $1 billion reduction in revenue over 24 months from deep cuts to the state’s personal income tax.
• Republicans in KANSAS intend to prioritize property tax cuts during the 2025 legislative session.
• Senior KENTUCKY lawmakers indicate that they want to pass an unspecified personal income tax cut in the coming session. However, they also said that local tax reform is less likely this session and would require a constitutional referendum. Meanwhile, the state’s League of Cities has called for expansive new taxing authority for cities and reform of gas tax disbursements, which presently heavily favor rural counties.
• A MARYLAND state commission is expected to recommend the state adopt revenue-generating measures to fund programs to address climate change. However, the decision was postponed to next week as the members assess the impact of potential federal tax changes on state policymaking.
• MISSISSIPPI Gov. Tate Reeves reiterated his commitment to continue to push lawmakers to phase out the state’s income tax, despite the drastic equity and revenue implications.
• MISSOURI’s state auditor released a highly critical audit of the Department of Revenue’s implementation of the state’s Property Tax Credit. The roughly $80 million credit is designed as a circuit breaker for seniors with modest incomes paying high property taxes. However, the audit indicates the program is poorly managed, with very high error rates and inaccurate cost reporting. The auditor has recommended that the amount and income limits of the credit be increased and tied to inflation, or that the credit be eliminated.
• After failing to orchestrate anything close to the major property tax reductions promised last year, NEBRASKA Gov. Jim Pillen is starting with a more modest request by asking lawmakers to take a close look at the state’s school aid formula. Considerations will include how reforms might provide schools and residents with more consistency and transparency around property taxes. Meanwhile, the U.S. Justice Department warned the state that it is excessively segregating and institutionalizing people with serious mental illness, in violation of the Americans with Disabilities Act and case law. The department’s announcement lays out the types of changes the state will need to take to avoid legal action, which will likely require increased funding and impact the legislature’s tax and budget debate this coming year.
• OKLAHOMA lawmakers have proposed an automatic 0.25 percentage point tax cut every year that the state experiences a $400 million year-over-year revenue increase. Meanwhile, the state’s Education Appropriations Chair expressed widespread frustration with the implementation of the state’s new Parental Choice Tax Credit Act, which provides $150 million to private schools. Instead of a standard refundable tax credit, the credits are being paid out over the course of the tax year, with checks mailed directly to private schools.
• PENNSYLVANIA Gov. Josh Shapiro signed a law that delays the implementation of the new electric vehicle road user fee from January 1, 2025 to April 1, 2025.
• A Republican supermajority in SOUTH CAROLINA is prioritizing deeper tax cuts and private school vouchers in 2025.
• WASHINGTON state will enter its next budget cycle with a sizable revenue shortfall and outgoing Gov. Jay Inslee is asking state agencies to prepare cost-saving options as he crafts the budget proposal that will serve as the starting point for negotiations for lawmakers and Gov.-elect Bob Ferguson. Local advocates for tax justice are pointing out that Washington voters overwhelmingly approved of the steps the state has taken to improve its tax code in recent years and would likely support efforts to address the shortfall through further progressive revenues.
• Also in WASHINGTON, a Seattle City Council member is proposing a 2 percent local capital gains excise tax based on the state’s popular 7 percent tax.

What We’re Reading

• Highlighting progressive tax victories and pro-worker reforms in Illinois, Washington, and elsewhere, Sarah Anderson writes for Other Words about the recurring truth that when given a choice, voters support tax justice and well-funded public priorities time and time again.
• Meanwhile, ITEP’s local policy director, Kamolika Das, aptly summarizes election results where voters approved a wide range of state and local ballot measures on taxation and public investment.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Aidan Davis at [email protected]. Click here to sign up to receive the Rundown via email.

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