While many Americans ponder what they are thankful for this week, residents of two more states can add that their lawmakers have wisely said “no thank you” to federal tax cuts that would have flowed through to their state tax codes and undermined funding for their priorities. Pennsylvania’s decoupling decisions will save them more than $1 billion, and Delaware’s will help close a more than $400 million shortfall. Similarly, Oregon lawmakers are considering doing the same to address their own nearly $400 million shortfall in their upcoming budget cycle.
Unfortunately for Arizona, Gov. Katie Hobbs is taking the opposite approach, pushing to couple to the expensive and, in many cases, ill-advised federal cuts. Several other states are focused instead on property taxes: Ohio lawmakers passed a package of tax cuts totaling $2 billion over four years, legislative committees in Florida and Wyoming both advanced even more extreme property tax cut bills for further consideration, Iowa Gov. Kim Reynolds said she is focused on property tax cuts as well, and Oklahoma lawmakers began the process to put property tax elimination to a statewide vote at the ballot box.
Major State Tax Proposals and Developments
- DELAWARE Gov. Matt Meyer signed legislation to address a projected $410 million budget shortfall caused by federal tax changes that reduced corporate income tax revenue. The new law decouples parts of Delaware’s tax code from the federal system that would spread out deductions for research and development and bonus depreciation over multiple years instead of immediate expensing. -MILES TRINIDAD
- The OHIO Senate passed legislation, which now heads to Gov. Mike DeWine’s desk, to reduce property taxes by expanding tax credits and limiting future tax increases. Expected to cost the state $2 billion over the next four years, the legislation would increase rollbacks for owner-occupied homes from 2.5 percent to 15.38 percent over the next four years, allocate $465 million to schools to offset revenue losses, and limit tax growth to a measure of inflation. In a recent piece, ITEP explains the steep harm of property tax limits. -MILES TRINIDAD
- In addition to their move to enact a new Working Pennsylvanians Tax Credit, a state EITC, PENNSYLVANIA lawmakers adopted legislation that saves the state more than $1 billion by decoupling the state from major corporate tax provisions under the federal tax bill. Decoupling will occur for provisions related to domestic research and experimental expenditures, limitations on interest expense, and deductions for qualified production property. -MILES TRINIDAD
State Roundup
- The city council of Mobile, ALABAMA, voted to adopt a vacancy tax. The city will create a vacancy registry for properties inside the Henry Aaron Loop with plans to adopt a vacancy tax in the near future.
- ARIZONA Gov. Katie Hobbs signed an executive order directing the Department of Revenue to update tax forms to reflect federal tax conformity changes resulting from the passage of the Trump tax bill. While the state is not automatically coupled to all of these changes, the order would lead to a state-level increased standard deduction, exemptions on tipped and overtime income, a car loan interest deduction, and a senior deduction.
- FLORIDA House members passed multiple property tax cut proposals out of committee. Two of the largest would eliminate homestead non-school property taxes at a cost of $18.3 billion annually and eliminate homestead non-school property taxes for seniors at a cost of $6.7 billion. Additional proposals would further limit assessed value growth, create new homestead exemptions, and phase out non-school homestead property taxes over time. The plans are opposed by House Democrats who are concerned about local revenues as well as Gov. Ron DeSantis who thinks the proposals don’t go far enough.
- A GEORGIA legislative committee discussed using the state’s $30 billion in tax credits and exemptions as a means to eliminate the state’s personal income tax. Georgia’s personal income tax currently raises $16 billion annually. The steeply regressive implications of eliminating the personal income tax were recently laid out in a new report by the Georgia Budget and Policy Institute.
- The budget committee in Chicago, ILLINOIS, rejected a budget proposal from the mayor that would have, among other things, reinstituted the city’s head tax on large businesses. The city needs to pass a 2026 budget by the end of the year that closes a gap of over $1 billion.
- IOWA Gov. Kim Reynolds is considering proposals to cut property taxes this coming session, despite acknowledging that cuts in revenue would also require cuts in local services.
- NEBRASKA’s revenue woes continue to mount. In addition to the effects of budget-draining income tax cuts that are still phasing in and the use of short-term federal funding for long-term state commitments, the state’s penny pinching on tax administration and enforcement in recent years is now also adding to the revenue shortfall. The State Auditor sent a letter to the Tax Commissioner detailing how unpaid taxes have soared while enforcement staff has been cut.
- NEVADA remains in a special session focused on film tax credits. The bill to expand the credits by $110 million per year has passed the Assembly and now moves to the Senate despite concern that the subsidies will force the state to cut funding for schools and other priorities.
- NEW YORK Gov. Kathy Hochul is reportedly open to corporate tax increases to help fill the state’s revenue shortfall, but her full intentions won’t be known until her budget and State of the State speech in January.
- Former and current OKLAHOMA lawmakers have filed for a petition to let voters determine the fate of homestead property taxes. The proposal would phase out property taxes until they are eliminated in 2029. Local and county government officials have spoken out against the proposal and expressed concern for local revenues and the ability to maintain local public services.
- OREGON lawmakers are facing an estimated $373 million budget deficit over the next two years. One problematic factor: the federal Trump tax bill is estimated to reduce state revenue by $888 million over the next two years due to the state’s conformity to federal tax changes. Lawmakers may consider reevaluating their connection to the federal tax code during the 2026 legislative session.
- Meanwhile, after OREGON Gov. Tina Kotek signed the state’s transportation funding package into law, groups in the state have begun gathering signatures to force a vote on a ballot referendum to block the new taxes. The package includes $4 billion in new funding through increases to the gas tax and other transportation-related fee increases. In order to be placed on the ballot, the referendum needs to gather 78,000 signatures, which is about 4 percent of the total voting population of the previous gubernatorial election, with a deadline of Dec. 31.
- SOUTH DAKOTA Gov. Larry Rhoden said the state will participate in a federal program that would fund private education by providing a 100 percent nonrefundable tax credit for donating up to $1,700 to approved scholarship organizations.
- A package of WYOMING proposals that would eliminate residential property taxes and increase sales taxes to replace the revenue loss has passed the legislature’s Joint Revenue Committee.
What We’re Reading
- Governing covers a report from the National League of Cities on the many concerns currently troubling local budgets, including rising costs due to tariffs, loss of federal funding, and declining income tax revenues.
- In a recent commentary piece, Kelly Allen of the West Virginia Center on Budget and Policy breaks down what further cuts to the state’s personal income tax would mean for state services. She explains how the “winners” under the governor’s tax plan are high-income households who are already receiving a windfall from steeply regressive federal and state tax cuts.
- The Idaho Center for Fiscal Policy released a report that highlights how a string of state income tax cuts (five cuts over five years) has put in jeopardy the state’s ability to invest in public education, infrastructure, public safety, etc.
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.
