State Rundown 4/24: States Push Tax Cuts Despite Fiscal Uncertainty

While some states are preparing for uncertainty – slowing revenue growth, chaos from unpredictable tariffs, cuts to federal programs, etc. – others continue to move forward with plans for deep tax cuts.  

For instance, Georgia Gov. Brian Kemp signed legislation accelerating the cut to the personal income tax rate, which is currently phasing down. A tax cut package in Montana that will lower the state’s top income tax rate by 0.5 percentage points over two years, among other things, heads to Gov. Greg Gianforte’s desk. And lawmakers in both North and South Carolina are pushing major income tax cuts. Meanwhile, North Dakota and Texas are close to finalizing legislation to establish private school voucher programs – despite pushback from rural lawmakers. 

Still yet, lawmakers in other states are pushing for more equitable tax proposals to raise revenue and center low- and moderate-income families and workers. Lawmakers in Washington continue to weigh a range of revenue raisers, and Connecticut lawmakers are considering tax increases on high earners through higher income tax rates and higher taxes on capital gains income. Both Connecticut and Montana are also considering the creation or expansion of refundable tax credits.

Major State Tax Proposals and Developments

• The NORTH CAROLINA Senate passed a budget that would further reduce the state’s personal income tax to 1.99 percent through steeper phaseouts and a rate reduction trigger between 2029 and 2036. With a current income tax rate of 4.25 percent, the state already struggles to fund key services. The House now moves to develop its budget proposal. – MILES TRINIDAD

• GEORGIA Gov. Brian Kemp signed legislation to accelerate a phased reduction in the state’s income tax rate. The bill will reduce the state’s flat tax rate from 5.39 to 5.19 percent at a cost of $880 million. The state’s income tax rate is expected to hit 4.99 percent in 2027. Gov. Kemp also signed legislation authorizing additional one-time income tax rebates of $250 for single filers and $500 for married filers. Additional legislation that would expand the state’s Child and Dependent Care Credit and create a nonrefundable Child Tax Credit awaits the governor’s signature. – NEVA BUTKUS  

• A MONTANA tax cut bill now heads to Gov. Greg Gianforte’s desk after making its way through the legislature. The bill (HB 337) increases personal income tax and capital gains income thresholds, cuts the top marginal income tax rate from 5.9 percent to 5.4 percent over two years, and increases the Earned Income Tax Credit from 10 to 20 percent. Meanwhile, lawmakers continue to debate property tax cuts. – MARCO GUZMAN 

State Roundup

• ALASKA is another step closer to requiring corporations doing business in the state to apportion their income accordingly. This follows the Senate’s 16-4 vote to approve SB 113, which could raise as much as $65 million in new revenue per year. 

• ARKANSAS Gov. Sarah Sanders signed legislation to eliminate the state’s 0.125 percent state sales tax on groceries. The tax change is expected to cost the state $10.6 million a year.  

• A bill is advancing through the NEBRASKA legislature to subsidize defense contractors with an income tax credit. 

• CONNECTICUT lawmakers are gearing up to debate varying tax proposals as budget deadlines approach. Some legislators, bracing for potential cuts in federal spending, have proposed ideas like increasing the capital gains tax by one percentage point, creating a $600 per child refundable Child Tax Credit, and increasing the top two marginal personal income tax rates. 

• The NORTH DAKOTA House agreed to Senate changes that would establish an Education Savings Account for private school students. The bill, which is estimated to reduce revenue by $20 million in the first year, would provide private school vouchers of up to $4,000 per year (amounts would vary depending on household income). The bill now moves to Gov. Kelly Armstrong for his signature. 

• SOUTH CAROLINA lawmakers are seeking to revive stalled tax cut legislation which faced significant backlash after analyses showed that the plan would raise taxes on many South Carolinians. Lawmakers have released three alternative plans, two of which would create a flat income tax with larger deductions. The third would revise the state’s tiered income tax system.  

• Having already passed an increase to the state’s homestead exemption for seniors, TEXAS lawmakers are now considering another $51 billion in property tax reductions – most of which would be an extension of previous cuts. 

• While TEXAS is the last conservative state to hold out on vouchers, it is poised to pass a $1 billion education savings account bill that would provide private school vouchers after years of bipartisan pushback by Democrats and rural Republicans whose districts have few, if any, private schools.  

• WASHINGTON lawmakers continue to attempt to reach consensus on how to address the state’s revenue shortfall before their deadline this coming Sunday, but much remains in flux. Leaders in both houses had originally proposed loosening a 1 percent cap on property tax growth that has kept schools and other local governments from keeping up with funding needs, but that idea appeared to be abandoned on Monday, only to be partially revived on Tuesday. A new tax on financial assets of wealthy households had also been proposed in both houses, seemingly dropped, and then recently brought back at a much smaller scale as a test. Other considerations remain as lawmakers weigh Business and Occupations Tax increases and the House’s proposal to create a progressive payroll tax. 

What We’re Reading

• The Center on Poverty and Social Policy at Columbia University published a report that reviews the design choices of the many state-level Child Tax Credits that were enacted since 2020 and identifies how those choices impact child poverty. Key takeaway: Credits have the most substantial impact on child poverty when they are fully refundable, not limited in age, and are substantial in value. 

• A new report by Good Jobs First highlights the runaway spending by states for data center tax breaks – of which 32 states partake. As a result, at least 10 states are already losing tax revenue upwards of $100 million annually.  

• ITEP Research Director Carl Davis demonstrates the true cost of fully exempting capital gains from taxation in Missouri in a recent op-ed. 

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. 

---

---