State lawmakers across the country navigated budget challenges and slowing revenue growth in 2024. This challenge was made worse by the winding down of temporary federal pandemic aid, coinciding with deep, permanent tax cuts. The impact of those tax cuts becomes clearer as they weigh on the ability of places like Arizona and Ohio to fund crucial public services.
Tough decisions must now be made to make up for lost revenue and fully fund key priorities like education, transportation, and health care. Fortunately, evidence-based tax policies can ensure that wealthy families and corporations pay their share toward the public services that benefit us all.
Major Tax Cuts and Their Impact
This year brought smaller tax cuts than the past few years as tax-cutting plans were scaled back so lawmakers could balance state budgets. Many permanent income tax rate cuts that passed were measured by roughly a tenth of a percentage point (in Georgia, Idaho, Iowa, Kansas, South Carolina, and Utah). Half of those –Georgia, Iowa, and South Carolina – sped up cuts already on the books.
A handful of other states pushed through deeper income tax cuts. Arkansas passed a 0.5 percent top income tax rate cut – its fourth rate cut in less than two years. Kansas condensed its income tax brackets and lowered rates (cutting their top rate by 0.12 percentage points in the process). And West Virginia lawmakers announced the state’s personal income tax cut trigger will reduce each bracket’s rate by 4 percent – this results in a percentage point reduction ranging from 0.1 to 0.2, with larger rate cuts going to higher tax brackets.
Kentucky’s debate, however, is beginning to shift in a different direction as lawmakers have started to question the feasibility of a law that would eventually eliminate the state’s individual income tax. The budget cuts required by such a move would be drastic and deeply unpopular.
Hawai’i also stands apart for its unusual approach to tax cutting this year: it did not cut tax rates, but did reshuffle brackets and increase the state’s standard deduction, setting the state up for a staggering $1.4 billion annual revenue loss by 2031, when the policies are fully phased in.
Property Tax Cuts and Their Limitations
Property tax cuts were hotly debated this year, with concerns over housing affordability and property tax affordability front and center. But lawmakers largely failed to deliver effective solutions to these problems. The property tax cuts that passed in Arkansas, Colorado, Kansas, Georgia, and Wyoming, and that were under consideration in Florida, Nebraska, and elsewhere, were disconnected from ability to pay.
This is a missed opportunity for lawmakers who have more targeted options at their fingertips: especially property tax circuit breakers that can keep property tax payments at a manageable share of household budgets for low- and middle-income families.
Grocery Tax Exemptions
This year lawmakers in Illinois and Oklahoma removed groceries from their state sales tax bases. These actions continue a trend of states moving to reduce or eliminate taxes on grocery purchases, following state-level elimination in Virginia, a phasedown to elimination in Kansas, and reductions in Alabama, Arkansas, Tennessee, and Utah (pending voter approval) in recent years.
In Oklahoma, groceries were exempted from the state’s 4.5 percent sales tax, which will result in nearly $420 million in annual lost revenue. In Illinois, groceries were already subject to a reduced rate (1 percent instead of 6.25 percent) and lawmakers decided this year to remove the tax entirely.
Corporate Tax Avoidance
This year marks the second year in a row that Worldwide Combined Reporting, also known as complete reporting, passed a state’s legislative chamber. This makes clear that lawmakers and advocates are becoming more interested in stopping widespread tax avoidance by multinational corporations. Minnesota lawmakers led the charge in 2023 and Maryland lawmakers grabbed the baton in 2024.
Enacting this policy would be a huge step toward eliminating state corporate tax avoidance, as it neutralizes a wide array of tax-planning strategies corporations use to pretend their U.S. profits were generated overseas, outside the reach of state tax authorities.
Tax Credits for Families and Children
Public investments and family economic well-being are inextricably connected. Over the years, states have chosen to bolster support for low- and middle-income families through refundable tax credits that directly lift after-tax incomes.
This year alone, the District of Columbia and Colorado stand out for their moves to do more for children in their communities. D.C. passed a new fully refundable Child Tax Credit that will provide $420 per child under age 6 in low- and moderate-income families. And Colorado lawmakers passed a Family Affordability Tax Credit that builds upon their existing refundable Child Tax Credit.
Colorado lawmakers also boosted their state Earned Income Tax Credit (EITC) to 50 percent of the federal amount in 2024, 35 percent in 2025, and a baseline of 25 percent in the following years with an option to raise it higher, depending on state economic conditions. Lawmakers in Illinois also provided a child bonus for children under 12 who benefit from the state’s EITC.
