As many legislative sessions end, lawmakers are revealing their priorities.
Georgia Gov. Brian Kemp signed into law the legislature’s most recent tax cut, plunging the state into a $1.3 billion revenue shortfall for the coming year, despite Georgia having a $14 billion surplus just last year.
In North Carolina, a yearlong budget negotiation seems to be nearing the finish line. Lawmakers agree the state’s ongoing phased-in income tax cuts can’t continue at the previously scheduled pace. But, at the same time, they are set on a long-term plan that would still deeply cut taxes and result in far less funding for teacher pay and other key priorities. The agreement would also seek voter approval of a measure tying the hands of localities by limiting property tax increases, and another measure aimed at benefiting high-income North Carolinians by amending the constitution to prevent an income tax rate over 3.5 percent.
Deals have also been reached in Colorado, New York, Wisconsin, and elsewhere.
Major State Tax Proposals and Developments
- COLORADO Gov. Jared Polis signed the state’s budget late last week after lawmakers and budget writers were faced with filling a $1 billion revenue shortfall. While funding for education and safety net programs was protected, cuts made to Medicaid, including an across-the-board provider rate cut, reduced support for people who live with family members with developmental disabilities, and a program to insure undocumented pregnant women and children helped fill the gap. Meanwhile, following a veto threat from Gov. Polis, two bills that would have decoupled the state from business tax breaks included in last year’s federal tax bill to help fund a tax credit for families with young children, were abandoned in the Senate Finance Committee. – MARCO GUZMAN
- GEORGIA Gov. Brian Kemp signed House Bill 463 into law, immediately resulting in a $1.3 billion revenue shortfall for next year’s budget. The legislation reduces the state’s income tax rate from 5.19 to 4.99 percent, retroactive to 2026. Beginning in 2027, the standard deduction increases from $12,000 (single) and $24,000 (joint filers) to $15,000 and $30,000. The dependent exemption and retirement exclusion for seniors are also increased from $4,000 to $5,000 and from $65,000 to $70,000, respectively. The bill temporarily exempts $1,750 of tipped and overtime income from state income taxes, with sunsets at the end of 2028. Future tax cut triggers were also put into place to bring the flat rate to 3.99 percent, increase the standard deduction to $18,000 and $36,000, and increase the dependent exemption to $6,000. Gov. Kemp rejected $300 million in new spending to help cover the now impending deficit. Cuts will be felt by Georgians with disabilities and on transportation funding for schools. – NEVA BUTKUS
- NEW YORK state and New York City’s budgets are reportedly complete, though they are not yet enacted and some questions remain. At the state level, the centerpiece of the budget deal announced by Gov. Kathy Hochul is a $1.7 billion package of investments in childcare intended to make care free or affordable for every family in the state. That package includes an enhanced Child and Dependent Care Credit. For the city, Mayor Zohran Mamdani did not convince leaders in Albany to pass all his progressive tax goals, but the state did authorize $500 million in new revenue for the city from a new pied-à-terre tax on high-value second homes and a reduction in an existing business tax credit. The rest of the city’s $12 billion budget shortfall was filled through a combination of direct state aid, local cost savings, restructuring debt payments, and relaxed funding mandates from the state. – DYLAN GRUNDMAN O’NEILL
- NORTH CAROLINA lawmakers reached a budget deal after a year of negotiations between the House and Senate. The agreement slows the pace of previously scheduled income tax cuts for up to three years, setting the tax rate at 3.49 percent from 2027 to 2029. It then continues to deeply cut the income tax rate to 3.24 percent from 2030 to 2032, and to 2.99 percent in 2033 to 2034. The agreement would also seek voter approval of a measure tying the hands of localities by limiting property tax increases, and another measure amending the constitution to prevent the levying of any income tax rate over 3.5 percent (the current cap is set at 7 percent). – MILES TRINIDAD
- WISCONSIN Gov. Tony Evers and the legislative majority announced a deal to increase spending on education and cut taxes. About an additional $600 million will be spent on education, split between general and special education funding. Meanwhile, roughly $850 million will be spent on one-time direct rebates to all filers and by permanently piggybacking the state income tax to the federal exemption of tips and overtime. The deal is controversial and many lawmakers and others across the state say they will not support it. – ELI BYERLY-DUKE
State Roundup
- Candidates in an ALABAMA House race may not agree on many things but getting rid of the state’s sales tax on groceries is one issue that brings them together.
- The ALASKA legislature approved a bill that would establish gold-backed currencies, gold and silver coins and bullion stamped with their metal content–known as specie–as legal tender. The legislation would exempt sales of the currencies from sales taxes.
- The COLORADO legislature approved legislation – referring a measure to the November ballot – that would ask voters to decide on increasing the annual TABOR spending cap to help fund K-12 education. It could take at least 10 years for the full funding boost of over $4 billion to take effect, but funds would go toward increasing teacher pay, reducing class sizes, and early childhood programs.
- ILLINOIS lawmakers are still hashing out the state budget, with some Democrats calling for new taxes on the rich and corporations, alongside the elimination of certain economic development tax credit programs.
- LOUISIANA’s official revenue forecast was lowered by over $200 million over the next two years, according to the most recent forecast released this week.
- Montgomery County, MARYLAND will adopt a progressive local income tax structure. The county currently has one rate that applies to all taxpayers. The new rates lower the rate for filers making less than $150,000 and raise the rate for filers making more than $150,000. Negotiations included an ill-advised plan of eliminating the county’s Working Families Income Supplement (their local EITC). Lawmakers landed on a more progressive and sustainable plan.
- RHODE ISLAND is estimated to collect $233 million more in tax revenue than expected as the state continues to debate Gov. Dan McKee’s proposed millionaires’ tax. While opponents argue that the revenue windfall reduces the need for the proposal, supporters say the new tax could fund critical programs while setting up the state to address future revenue shortfalls.
- VIRGINIA Gov. Abigail Spanberger signed legislation that establishes the first paid family and medical leave program in the South. The program would allow up to 12 weeks of paid leave that is available to parents caring for a new child, those recovering from illness, caring for a family member, military members dealing with injury, or those fleeing domestic violence. The program will be funded by payroll contributions split between employers and employees that is equal to about 0.72 percent of wages for the first year, and the amount will fluctuate depending on demand of the program.
- A conservative WASHINGTON political committee announced their launch of a signature-gathering campaign for an initiative to repeal the state’s recently passed millionaires’ tax.
What We’re Reading
- A new report by ITEP’s Nick Johnson makes the case for modernizing state sales tax bases by taxing advertising arguing that, with the rise of big technology platforms, advertising drives the consumption of goods and services that are already taxed and that most advertising today is targeted using personal data.
- An op-ed coauthored by ITEP’s Rita Jefferson and Good Jobs First breaks down the Chicago Bears stadium deal making its way through the Illinois legislature, and how the new “megaprojects” designation created by legislation will benefit developers over communities.
- The Arizona Center for Economic Progress published a report outlining priorities of focus following Gov. Katie Hobbs’s veto of the Republican-backed budget plan that linked the state to the recent costly federal tax changes. The group argues that if the state wants to truly address affordability, lawmakers cannot continue reducing revenue needed to fund essential services and long-term priorities.
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.
