State legislative sessions are wrapping up, and final tax and budget packages are making their way to governors’ desks. Georgia ended the legislative session with property and personal income tax cut bills that fell short of some lawmakers’ ambitions of full elimination but will likely threaten state and local revenues, nonetheless. Governors in Maryland and Nebraska signed budget bills that temporarily close their shortfalls but leave their states vulnerable to large structural deficits in the years to come.
The power of the gubernatorial veto has been front and center this week as governors balance their budgets. Kansas Gov. Laura Kelly rejected an expansion of allowable tax credits for the state voucher program, Vermont Gov. Phil Scott threatened a budget bill veto if the legislature does not further buy down school property taxes, and Wisconsin Gov. Tony Evers rejected the legislature’s proposal to exempt tips from state income tax. Others, like Maine’s Gov. Janet Mills, are throwing support behind new revenue raisers on wealthy taxpayers to fund their budget priorities. And at the local level, residents of St. Louis and Kansas City, Missouri, overwhelmingly confirmed their support of the cities’ local earnings tax – which will now be extended for another five years.
Major State Tax Proposals and Developments
- GEORGIA wrapped up their legislative session with two major tax cut bills. Despite an early session push to eliminate the state’s personal income tax by 2032, lawmakers opted to pass another accelerated rate cut that lowers the state’s flat personal income tax rate from 5.19 to 4.99 percent for 2026, as opposed to allowing the rate to trigger down based on economic growth as originally intended. The bill includes further triggers that could bring the rate down to 3.99 percent in the coming years. The same economic measures needed to drop the rate to 3.99 percent will also be used to increase the standard deduction to $15,000 for single filers and $30,000 for joint filers. And the first $1,750 of tipped and overtime income will also be exempt from tax. Some lawmakers initially proposed a similarly extreme elimination of property taxes earlier in the session. Instead, local governments will be mandated to cap annual increases to homestead assessments to inflation or 3 percent with the option to raise sales taxes. Both bills now sit with Gov. Brian Kemp for his signature. – NEVA BUTKUS
- Gov. Laura Kelly of KANSAS vetoed the legislature’s bill that would increase the allowable tax credits for the state’s voucher program and participate in the new federal tax credit program for vouchers. Upon vetoing the legislation, Gov. Kelly called on the legislature to instead focus on her stated budget priority of boosting funding for K-12 special education. The legislature did not pass their voucher bill with a veto-proof majority. – NEVA BUTKUS
- MAINE Gov. Janet Mills announced her support for the proposed 2 percent surcharge on income over $1 million recently included in the state budget. The governor requested that revenue from the tax be used to provide property tax cuts, and in response, Democrats on the budget panel voted to increase the state’s Property Tax Fairness Credit. – MARCO GUZMAN
- VERMONT Gov. Phil Scott said he will veto a budget passed by the House and a property tax bill unless lawmakers in the Senate make his proposed changes to use more state funds to buy down a projected statewide education property tax increase. Currently, property taxes are expected to increase by 7 percent. While lawmakers in support of the current legislation say it will help carry over money for a buydown next year, Gov. Scott said he wants the rates to be lowered further and pushed lawmakers on education reforms. – MILES TRINIDAD
State Roundup
- Gov. Sarah Huckabee Sanders of ARKANSAS called for a special session on income tax cuts in her state address.
- ALABAMA House members amended their $1,000 deduction on overtime income bill to include a grocery sales tax holiday which would suspend the state’s 2 percent sales tax on groceries in May and June.
- The ALASKA House passed a new version of a bill that would move the state to market-based sourcing for corporate income tax purposes. The previous version was vetoed by Gov. Mike Dunleavy last year.
- CONNECTICUT Gov. Ned Lamont announced his support for expanding the state research and development tax credit program.
- Louisville, KENTUCKY, may soon be able to tax vacant lots and surface parking lots at a higher rate than other properties. HB 607 would, among other things, allow the city to use split roll property tax system to encourage development for currently underutilized properties. The bill now awaits the governor’s signature.
- MARYLAND Gov. Wes Moore signed the state’s budget into law. It does not include any increase to taxes or fees, as lawmakers closed a nearly $1.4 billion budget deficit by instead using various cuts and moving existing funds to close the shortfall. The budget does not address the structural deficit the state faces as the shortfall is projected to grow to $2.3 billion in July 2027 and nearly $4 billion by July 2030 if no action is taken.
- While MICHIGAN Gov. Whitmer resisted suspending the state’s gas tax as the war in Iran pushes gas prices higher, she declared a statewide energy emergency and issued an executive order to ease certain gas regulations so gas stations can sell cheaper fuel.
- MISSISSIPPI lawmakers approved a smaller salary increase for teachers of $2,000, down from previous proposals of $5,000 to $6,000 after revenue collections were down in February. Mississippi passed legislation last year to phase out, and ultimately fully eliminate their personal income tax.
- The MISSOURI Senate is debating a measure to authorize expansion of the state’s sales tax and automatic cuts to the personal income tax that would eventually eliminate the tax. If carried through completely, the measure would increase taxes for middle-class Missourians by about $500. The measure is drawing increasing opposition from business groups who are concerned about the budget’s sustainability and do not want to be included in the sales tax base.
- Meanwhile, voters in St. Louis and Kansas City, MISSOURI, loudly approved the continuation of the cities’ local earnings tax. Though the statehouse tried to end the earnings tax in 2010, both cities and their residents have continued to support the tax. The earnings tax makes up more than one-third of city revenues in St. Louis and about 20 percent of city revenues in Kansas City.
- NEBRASKA Gov. Jim Pillen signed the spending side of the state budget with no vetoes, locking in hundreds of millions of dollars’ worth of funding cuts and cash fund sweeps. Some minor revenue bills – which raise some fees and close some sales tax exemptions – are expected to close the remainder of what was as much as a $646 million revenue shortfall for the current budget. Unfortunately, lawmakers left the state’s underlying structural issues mostly untouched, so the current forecast has them facing a shortfall of more than $700 million in their next budget cycle.
- NEW YORK lawmakers missed a soft April 1 budget deadline, as they often do, with taxes on the rich remaining a central component of the debate.
- The U.S. Supreme Court declined to hear an appeal to an OKLAHOMA Supreme Court ruling that stated federal court rulings compelling states to respect tribal treaty obligations do not apply to civil cases.
- TEXAS is set to lose out on $1.31 billion in sales tax revenue this year due to data center sales tax exemptions. The revenue loss balloons to $1.75 billion by 2030.
- WISCONSIN Gov. Tony Evers vetoed a bill passed by the state legislature that would have exempted cash tips from the state’s income tax. Gov. Evers has supported the idea but said he vetoed the passed legislation because it was temporary and linked to the federal exemption.
What We’re Reading
- A New York Times piece highlights the impacts of Medicaid service cuts in Idaho, finding that the elimination of the assertive community treatment (ACT) program has led to complications and even deaths of patients with chronic health conditions. The program cuts are due in large part to changes at the federal level and budget trimming spurred by years of continuous income tax cuts at the state level.
- Wes Tharpe of the Center on Budget and Policy Priorities debunks exaggerated claims of millionaire migration for tax purposes by analyzing newly released migration data from the IRS.
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