This week Hawaiʻi lawmakers reached a compromise to balance the state budget and maintain tax cuts for most residents by, in part, raising rates on the richest Hawaiians. A joint budget committee reached an agreement that will be finalized in the coming days and weeks of session. Other states are working to generate revenue from their wealthiest residents, too. For instance, a California proposal for a one-time tax on the state’s billionaires seems likely to qualify for the ballot. And, in New York, Gov. Kathy Hochul and New York City Mayor Zohran Mamdani proposed a pied-à-terre tax on luxury second homes.
Major State Tax Proposals and Developments
- HAWAIʻI lawmakers reached a tentative agreement on budget legislation to alter scheduled income tax cuts, raise rates on high-income filers, and repeal tax credits to help balance the state budget, which was estimated to lose $740 million next year due to scheduled income tax cuts. The tentative legislation, which has not yet been posted, reportedly leaves tax cuts in place for filers with incomes below $175,000 (single filers) and $350,000 (joint filers), while allowing them to expire for those at the top of the income scale, maintains scheduled increases to the standard deduction, and creates a new top bracket of 13 percent for filers with incomes above $500,000 (single filers) and $1 million (joint filers). It also repeals renewable energy tax credits for rooftop solar energy systems and the capital goods tax credit for business capital investments. – MILES TRINIDAD
- ARKANSAS lawmakers adopted their state budget earlier this week after it was briefly held up over whether to give $300 million in tax breaks to attract a manufacturing facility to the state. The subsidies were ultimately included. The budget also includes another $309 million for private school vouchers and $40 million to increase the state’s homestead tax credit by $75. Session adjourned on Wednesday but Gov. Sarah Huckabee Sanders is expected to call a special session to push for further income tax cuts. – NEVA BUTKUS
State Roundup
- ARIZONA Republicans introduced their budget proposal, which includes an across-the-board cut of around 5 percent to almost all state agencies to help the state afford conforming to the new 2025 federal tax law provisions. Gov. Katie Hobbs, however, said the GOP is paying for its bill by cutting SNAP and pushing people off Medicaid. The governor also hopes to reel in the state’s private school voucher program, calling it “a rampant drain on funds from public schools.”
- A CALIFORNIA measure intended to limit local real estate transfer taxes has qualified for the ballot. If passed, localities would lose billions in revenue. In Los Angeles only, the transfer tax on real estate over $5 million raises hundreds of millions of dollars per year.
- Meanwhile, a CALIFORNIA proposal to tax the wealth of the state’s billionaires seems likely to qualify for the ballot. If passed, the state would enact a one-time tax of 5 percent of the net worth of all billionaires, which would generate about $100 billion from the one-time tax over the next several years.
- FLORIDA legislators began one special session this week on redistricting and scheduled another for May 12-29 to work on the state budget, with a focus (but no specifics yet) on property tax cuts.
- INDIANA Gov. Mike Braun said he is unlikely to continue the state’s gas tax suspension, which is set to expire on May 8.
- ILLINOIS‘ House Speaker said a proposed constitutional amendment to create a millionaire tax, caught up in controversy over what it would be used to fund, did not have enough votes to pass the House. The proposal would have created a 3 percent tax on income over $1 million that would have been used, in some form, for property tax cuts and K-12 education.
- KANSAS Gov. Laura Kelley vetoed a measure to limit local spending growth to 3 percent or inflation, whichever was lower each year. The state has already cut property taxes this year, and the measure would have dramatically limited local governments’ ability to increase property taxes in the future or collect more revenue as populations grow.
- In his supplemental budget, MINNESOTA Gov. Tim Walz, proposed conforming to some changes under last year’s federal tax law and rejected others. Altogether, his conformity decisions would increase state general fund revenues by $4.2 million in FY 2026-27 and by $268 million in FY 2028-29. He would disconnect from the increased federal research and experimentation deduction but conform to the modified business interest limit and the expanded deduction for businesses. He also recommends conforming to the federal expansions of dependent care pre-tax accounts, the Child and Dependent Care Tax Credit, and the 0.5 percent floor that reduces deductible charitable giving. Outside of the direct conformity debate, the governor chose not to replicate the tax law’s limited tax deductions for tip and overtime income, or deductions for seniors or certain auto loan interest. Gov. Walz’s proposed budget also included a monthly tax on social media platforms.
- NEW HAMPSHIRE’S House Ways and Means Committee advanced a bill that would place a constitutional amendment on the ballot for voters to prohibit the state from enacting an income tax. The proposal passed the Senate and would require a supermajority in the House to pass and end up on the ballot.
- The budgets of NEW YORK state and New York City are both now delayed as key players continue to posture and negotiate. Gov. Kathy Hochul, New York City Mayor Zohran Mamdani, and City Council Speaker Julie Menin find themselves in a difficult triangle: Hochul and Mamdani mutually proposed a pied-à-terre tax on luxury second homes, but it is not enough to address what Mamdani is calling “a budget crisis of historic magnitude;” Mamdani and Menin are now united in asking for increased state aid and a $1 billion reduction in the Pass-Through Entity Tax Credit, the latter of which Gov. Hochul quickly said “is not happening.” Both Hochul and Menin are both opposed to the personal and corporate income tax increases that are key pillars of Mamdani’s campaign and agenda. Meanwhile, lawmakers from parts of the state outside New York City are pushing to expand the pied-à-terre tax to their jurisdictions as well.
- An OHIO ballot initiative to abolish property taxes is unlikely to make it on the fall ballot as the organizing group is falling short of their goal for the number of signatures ahead of a deadline two months away. The proposal is estimated to result in $24 billion in lost local property tax revenue, and Gov. Mike DeWine has warned that the state could have to fill the lost revenue with a sales tax as high as 20 percent.
- TEXAS is estimated to lose out on $3.2 billion in sales tax revenue over the next two years due to an exemption for the data center industry, according to the state’s comptroller’s office. Lawmakers are scheduled to meet in January for the next legislative session, and the chair of the Senate Finance Committee is considering proposals to limit the scope of the tax break or eliminate it.
What We’re Reading
- Stateline covers the growing momentum for millionaires’ taxes in state legislatures across the country. Over the past month, Maine and Washington both enacted their own versions of the tax, joining states like New Jersey and Massachusetts that have moved to tax high-income filers in the past. Per the reporting: the idea is gaining traction in at least a dozen states.
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