State Rundown 2/26: House Budget Plan Could Further Strain State Budgets

States would be wise to keep a close eye on happenings in Washington, D.C. Republicans in the House of Representatives recently passed their budget resolution, which could spell trouble for state budgets. The plan tees up major cuts to Medicaid, SNAP, and college tuition assistance—all likely to allow for tax cuts that will overwhelmingly benefit the wealthy. If approved, trillions of dollars would be cut from programs supported by federal dollars and states and localities could bear the brunt of those shifting costs. Many states are already facing delicate fiscal outlooks and those considering cutting taxes further should seriously reconsider. The governor of Idaho, Brad Little, has already acknowledged the effect federal cuts could have on the Gem State when discussing the gap between his and state Republicans’ tax plans.  

Major State Tax Proposals and Developments

• IDAHO Gov. Brad Little expressed concern over the gap in tax cuts proposed by his office and Republican legislative leaders. The governor previously recommended setting aside $100 million for cuts, while Republicans have put forth a series of bills that would cut income and property taxes and increase the grocery credit, reducing revenues by more than $400 million. Little further hinted that the state needs to brace for the likelihood that cuts coming from the Trump administration could affect other funding priorities. – MARCO GUZMAN 

• The MISSISSIPPI Senate passed their tax plan, which includes reducing the state’s flat personal income tax rate from 4.4 to 2.99 percent, reducing sales taxes on groceries from 7 to 5 percent, and increasing the state’s gas tax by 9 cents, up to 27.4 cents per gallon. ITEP’s analysis of the plan shows that it would result in a regressive tax shift and will cost the state $876 million when fully phased in–more than the state spent on higher education in 2024. – NEVA BUTKUS 

• The VIRGINIA General Assembly adjourned after passing amendments to the biennial budget, which passed with overwhelming bipartisan support. It includes an increase to the standard deduction of $250 for individuals and $500 for couples, a boost to the state’s Earned Income Tax Credit from 15 to 20 percent of the federal credit, and a one-time, non-refundable rebate of $200 for individuals and $400 for couples. The bill now moves to Gov. Glenn Youngkin, who faces a March 24 deadline to act on budget amendments. – MILES TRINIDAD 

State Roundup

• The GEORGIA Senate has unanimously passed a bill that would expand the state’s child and dependent care credit to 40 percent of the federal credit and would create a $250 nonrefundable Child Tax Credit for qualifying dependents under age 7.   

• The INDIANA Senate unanimously passed a new tax credit for newborns. The $500 per newborn credit would be available to families making under 720 percent of the federal poverty line.  

• Voters in Platte County, MISSOURI are suing the county over a stalled new tax to support a children’s services fund. Voters created the fund via ballot initiative in November 2024, and the county has refused to implement the new sales tax. 

• Meanwhile, the MISSOURI state Senate advanced from committee a measure to exempt capital gains from the state’s income tax. The state estimates that the measure, which primarily benefits high earners with income from capital, would cost the state about $300 million annually. 

• MONTANA Republicans and Democrats are finding common ground on property taxes, as both parties have received bipartisan support for their respective proposals. The governor’s bill would cut property taxes for resident homeowners and landlords by increasing them on second homes and short-term rentals. Competing bills would create a property tax credit for low- and middle-income residents (including renters) and modify the governor’s plan to specify a progressive rate structure for residential properties.  

• A NEW YORK lawmaker introduced legislation that would enact worldwide combined reporting, which would close a corporate tax loophole that costs the state an estimated $737 million each year. The legislation would prevent multinational corporations from shifting their profits overseas to avoid paying taxes. 

• The OKLAHOMA Senate’s revenue committee approved a proposal to eliminate the state’s lower income tax brackets and move the state to a flat rate system. The measure, which would cost about $100 million, would also increase the standard deduction and eliminate personal exemptions. 

• OREGON’S Joint Transportation Committee is seeking an additional $1.3 billion in new funding to improve state infrastructure, and Democratic leaders are contemplating several ways to generate the revenue, such as higher gas taxes, increasing vehicle registration fees, or other new taxes and fees.  

• The Philadelphia Tax Commission in PENNSYLVANIA released a report calling for the elimination of the city’s business income and receipts tax, or BIRT. The report also supports lowering the city’s wage tax rate. The proposal would cost the city between $500 million and $2.2 billion over 10 years. 

What We’re Reading

• The Florida Policy Institute published a report on property taxes and equitable alternatives to reform amidst Gov. Ron DeSantis’ support for eliminating all property taxes.  
• ITEP’s Rita Jefferson highlights how policymakers can learn from California’s damaging property tax cut (known as Proposition 13) experience and avoid repeating past mistakes.  

 

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