While some may be excited for a romantic Valentine’s Day this weekend, many state lawmakers are breaking up and decoupling from recent federal tax changes that are poised to leave states with revenue shortfalls – much like a bad date who forgets their wallet and asks you to pick up the tab.
In Oregon, the Senate is preparing to vote on a bill that would decouple the state from some of the federal business tax provisions as it faces a $650 million budget gap. In Maine, Gov. Janet Mills proposed limited conformity with the federal tax changes, which is estimated to cost the state $50 million. Meanwhile, caught in a toxic relationship, the District of Columbia awaits a Senate vote on a resolution that could further hamper the District’s fiscal autonomy by forcing it to piggyback on federal tax cuts passed under the recent federal tax and spending law. The move would undermine the Council’s decision to improve both the District’s Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), which were estimated to reduce child poverty in D.C. by one-fifth.
Governors’ Annual Addresses and State of State Speeches
- In NEW HAMPSHIRE Gov. Kelly Ayotte’s speech, she acknowledged recent increases in property taxes in the state. However, she did not propose any specific solution and rejected proposals to increase or create new revenue streams. Instead, she warned against adopting any form of income tax in the state.
Major State Tax Proposals and Developments
- The House of Representatives and the Senate Homeland Security and Government Affairs Committee voted to block the DISTRICT OF COLUMBIA from decoupling from the 2025 federal tax law. Blocking the District’s earlier actions could cost the city more than $650 million in revenue over the next five years, resulting in administrative chaos, increased inequality, far less funding for key services, and long-term damage to D.C.’s ability to self-govern. The resolution is likely to be voted on by the full Senate later this week. – MARCO GUZMAN
- MAINE Gov. Janet Mills released her supplemental budget proposal, which includes $300 “affordability checks” for residents with incomes below $75,000; limited conformity to the federal tax bill, including the expanded standard deduction, research and development changes, and charitable contributions for nonitemizers; and a new tax on pass-through entities. – MARCO GUZMAN
- MICHIGAN Gov. Gretchen Whitmer introduced her new budget recommendation. The plan will continue phasing out Michigan’s retirement tax, maintain eliminated taxes on Social Security income, tips, and overtime pay until 2028 and create a 10 percent property tax refund for eligible seniors. It also proposes a new sales tax holiday on school supplies. However, the state may face constraints due to a $900 million revenue shortfall. To close some of that shortfall, Whitmer also proposed tax increases on cigarettes, tobacco, vaping products, and gaming. – MILES TRINIDAD
- The OREGON Senate is preparing to vote on a bill that would partially disconnect the state from several federal tax provisions – including the new federal deduction for auto loans, the Qualified Small Business Stock exclusion, and the bonus depreciation deduction for businesses — in order to recapture lost revenue and address a projected $650 million budget gap. The bill would also increase the state’s EITC by 5 percentage points — from 12 to 17 percent for those with a child under age 3, and from 9 to 14 percent for other eligible individuals — and create a new job‑creation tax credit for corporations. – MILES TRINIDAD
State Roundup
- COLORADO‘s Title Board rejected challenges to the eight graduated income tax ballot measures that recently gained approval. However, opponents are likely to have the state Supreme Court weigh in.
- Meanwhile, COLORADO legislators killed a proposal that would have allowed resort towns like Vail and Aspen to tax vacant properties. Ski towns in the state contend with severe housing shortages for workers and vacancy rates as high as 50 to 60 percent.
- DELAWARE Gov. Matt Meyer’s proposal to increase annual fees for LLCs, partnerships, and other non-corporate business entities is estimated to generate $81 million in additional revenue a year. State officials say these changes, in addition to other revenue increases such as increases to the state’s cigarette tax, will help address a roughly $500 million deficit.
- GEORGIA lawmakers are considering legislation that would increase the state’s standard deduction to $100,000 for married filers and $50,000 for other filers, up from $24,000 and $12,000, while also reducing personal and corporate income tax rates from 5.19 to 4.99 percent. The bill would also eliminate a range of corporate tax breaks for data centers, insurance companies, banks, and more.
- The IDAHO Tax Commission anticipates longer wait times for issuing tax refunds if proposed budget cuts go into effect. This comes on top of tax conformity changes Gov. Brad Little is expected to approve that would require time for the commission to adopt.
- ILLINOIS lawmakers may take up a billionaire wealth tax bill this session. The proposal would apply the state’s personal income tax to the appreciation of billionaires’ assets.
- Legislation in KANSAS would phase out property taxes by 2028 and replace the revenue with a retail surcharge of $1.60 per transaction under $20 and 7.6 percent of transactions over $20.
- NEBRASKA Gov. Jim Pillen is getting little traction on his proposals to close the state’s $470 million revenue shortfall. Those proposals include cutting $152 million from health care services and ending tax credits for historic preservation and Main Street revitalization, each of which saw stark opposition in recent public hearings. Even Gov. Pillen’s most sound tax idea, expanding the sales tax to consumer services, received no support at its hearing.
- A NEW HAMPSHIRE bill passed by the House to reduce the state’s Business Enterprise Tax, or BET, is estimated to cost the state $26 million annually, according to a study by the New Hampshire Fiscal Policy Institute. The report also finds that previous tax cuts have not generated offsetting economic growth and instead increase pressure on local property taxes when the state reduces aid to towns.
- OHIO Gov. Mike DeWine warned that eliminating property taxes — an idea being pushed via a ballot effort — could require raising the state sales tax to 17 to 20 percent, which he says would be harmful to families, businesses, and low-income residents.
- OKLAHOMA Senate Majority Leader Lonnie Paxton criticized a proposed ballot initiative that aims to eliminate property taxes on most homesteads. Paxton claims the measure is unaffordable and would require enormous increases in property taxes paid by farms, businesses, and renters.
- The UTAH House approved a bill that would apply a 2 percent tax on funds wired abroad anonymously or by immigrants who are undocumented.
- WEST VIRGINIA lawmakers are debating a measure to let data centers avoid paying nearly any taxes for a decade. Despite the significant cost surely associated, the state has not provided an estimate regarding the revenue loss.
- Negotiations between lawmakers and Gov. Tony Evers continue in WISCONSIN. Although the two sides have not reached an agreement, the governor has expressed openness to some version of property tax cuts proposed by the legislature.
What We’re Reading
- The Tampa Bay Times published an opinion piece by former Florida Senator Jeff Brandes in which he warns any large state-wide cut or elimination of homestead property taxes would strain local governments, reduce services, and likely shift costs through increased fees, and increased millages on renters, commercial property, and new homeowners.
- As states face growing revenue risks due to major cuts to IRS enforcement funding, ITEP explains how states should look towards closing the ING trust loophole, which is used by wealthy individuals to shift income to tax-haven states, to protect their tax bases and ensure high-income residents pay taxes where they actually live.
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