States are increasingly facing difficult choices as revenues stagnate and deficits come clearer into focus. The economy is slowing and many Americans continue to tighten their purse strings as they grapple with the affordability of basic necessities this holiday season. Colorado, Kansas, Virginia, and Washington state made headlines recently over revenue and budget woes as they head into their 2026 legislative sessions.
Although taxes are not a driving factor in these affordability issues, many states are focusing on cuts to property tax as one lever they can pull. For instance, Vermont and Cook County, Illinois are grappling with increases in resident property tax bills during a time when budgets are increasingly tight for low- and moderate-income families. At the same time, Florida and Texas lawmakers are proposing extreme and expensive cuts that will disproportionately benefit wealthy homeowners and jeopardize local revenues.
Major State Tax Proposals and Developments
- Four constitutional amendments to cut property taxes in FLORIDA have cleared another hurdle on the way to the 2026 ballot. Of these four proposals, one includes a full elimination of non-school homestead property taxes which would cut local revenues by $14.1 billion during its first year of implementation. The proposals will next be heard in the House Ways and Means Committee before they can move to the full House floor. Eliminating non-school taxes on homesteads would likely result in regressive sales tax increases or property tax increases on renters and businesses. – NEVA BUTKUS
- OREGON petitioners say they have gathered more than enough signatures to block the scheduled increases to the state’s gas tax, transit payroll tax, and vehicle registration and title fees until the package can be put on the ballot next November. If successful, the measure would block the emergency funding law that was passed in this fall’s special session to raise $4.3 billion for transportation priorities for the next decade and close the $350 million transportation funding deficit for the 2025-27 budget. This could lead to cuts in operations and services across the transportation system. – MILES TRINIDAD
State Roundup
- COLORADO Gov. Jared Polis signed an executive order declaring that the state will have insufficient revenues due to the new federal tax law, which will result in having to suspend services to meet a revenue shortfall for the fiscal year 2026.
- Property tax increases in Cook County, ILLINOIS, are impacting many Black and Latino communities on the South and West sides of Chicago. Taxes in the predominantly BIPOC communities of Englewood, North Lawndale, and West Garfield Park have doubled.
- Corporate income tax and retail sales tax revenues are below estimates for November in KANSAS, while personal income tax collections are up. Gov. Laura Kelly is pushing lawmakers to become increasingly cautious about budget decisions as the state is on pace to erode its $3 billion cash reserve.
- NEVADA lawmakers decided not to massively expand the state’s film tax credits after all, showing their responsiveness to concerns about subsidizing the movie industry at the potential cost of cuts to schools and other services. The special session wrapped up with no major tax legislation passed.
- Lawmakers in SOUTH CAROLINA are exploring new infrastructure funding needed to keep up with the state’s growing population. Increasing the gas tax is off the table at the moment, but lawmakers are considering increasing fees for electric vehicle owners or toll roads and lanes in high traffic areas.
- The TEXAS Comptroller is updating the state’s franchise tax rules and allowing large corporations to benefit from the bonus depreciation passed in the new Trump tax law.
- A lawmaker in TEXAS is proposing elimination of school property taxes for homesteads.
- VERMONT’S Tax Department is estimating a 12 percent increase in property taxes based on projections of preliminary school budgets. After property taxes have increased by 41 percent over the past five years, Gov. Phil Scott, the Senate President, and the House Speaker have all called for pursuing education system reforms.
- VIRGINIA budget analysts are warning that the state’s long period of budget surpluses is likely ending as analysts raise concerns of a “downside” outlook driven by inflation, federal job cuts, tariffs, and rising state obligations for programs like Medicaid and education. This could also be worsened by an additional $1.1 billion revenue drop if the state conforms its income tax provisions to recent federal changes from the Trump tax bill.
- The contours of WASHINGTON state’s 2026 budget debate are coming into focus. Gov. Bob Ferguson has announced his official budget proposal will rely solely on funding cuts to bring the budget into balance. And while he has said he won’t sign any sales or property tax increase into law, he is framing his proposal as a starting point rather than a line in the sand, signaling some openness to tax increases. Meanwhile lawmakers are actively discussing creating an income tax on high-income households, or taxing large corporations on their highest-paid employees through a bill that would impose a 5 percent payroll tax on those earning over $125,000 a year, which would raise an estimated $5.5 billion per biennium.
What We’re Reading
- Governing explores the history of Opportunity Zones and the mixed bag of results from a policy intended to spur investment and create jobs in under-resourced and low-income communities. Read more on this issue in our recent brief.
- The Commonwealth Institute argues that Virginia should allow cities and counties to tax income to make the state’s local tax system more fair.
- ITEP Senior Fellow Nick Johnson explains how recent Trump administration action expands the “no tax on tips” exemption beyond the law Congress enacted, which raises costs at the federal level and makes conforming to this provision both riskier and costlier for states considering doing so.
- Wisconsin Watch lays out the slow decline of the Wisconsin homestead tax credit. The credit was designed to help offset the property tax payments of low-income families. However, because its eligibility requirements and amount are not adjusted for inflation, it has become slowly less useful since its enactment in 1963. As a result, fewer families can receive the benefits each year, despite growing costs.
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