State tax cutting trend faces headwinds from declining revenues and tighter budgets

Jan 2, 2024, 10:08 PM

FILE - Minnesota Gov. Tim Walz speaks at a news conference on the Minnesota economic and budget for...

FILE - Minnesota Gov. Tim Walz speaks at a news conference on the Minnesota economic and budget forecast in St. Paul, Minn., Monday, Feb. 27, 2023. Almost every U.S. state has cut taxes in some way in the past three years. But that trend may be slowing as many states head into their 2024 legislative sessions with lagging tax revenues. (Renée Jones Schneider/Star Tribune via AP, FILE)

(Renée Jones Schneider/Star Tribune via AP, FILE)

JEFFERSON CITY, Mo. (AP) — Income, sales, property and gas taxes: Almost every U.S. state cut at least one such broad-based tax as budget surpluses soared over the past three years.

Some states made permanent tax reductions. Others passed one-time rebates or temporary suspensions. One way or another, whether red or blue, all states save Alaska and Nevada joined in.

Though even more tax cuts are likely, the trend may be slowing as 2024 legislative sessions begin. That’s because the pandemic-era revenue surge fueled by federal spending and inflation now is receding and, in some states, even reversing into negative numbers.

“Next year will likely be a return to normal for state budgets,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers. “Funds will be more limited. States will have to make decisions on what areas they prioritize.”

California, where financial swings are felt more sharply than most states, has a projected budget deficit of a record $68 billion, an amount exceeding its hefty reserves. Just years after enjoying a record $100 billion surplus, Democratic Gov. Gavin Newsom is now facing a challenging task as he prepares to present the state budget in January.

Though not in the same hole as California, other states also have seen tax revenues decline and spending exceed forecasts. Arizona could face a $400 million shortfall in its 2024 fiscal year. Maryland’s legislative staff recently projected a $761 million budget deficit in 2025, growing to nearly $2.7 billion by 2029 without significant revenue increases or spending reductions.

And Minnesota’s budget office says a projected $2.4 billion surplus for the current two-year budget cycle could flip upside down in the next period, resulting in a $2.3 billion shortfall by the 2026-27 fiscal years.

It’s hard to say how much, if any, of the projected shortfalls are attributable to tax rebates or reductions passed in each particular state. But in general, as tax collections slow, “we’re seeing the impacts of widespread tax cuts being implemented across states,” said Justin Theal, a state fiscal policy officer for the nonprofit Pew Charitable Trusts.

As a whole, state-level tax reductions are projected to result in $13.3 billion less in general revenue this year compared to what states otherwise would have collected, according to a recent report by the National Association of State Budget Officers. That follows a $15.5 billion net tax reduction from the 2023 fiscal year.

About four-fifths of the states passed some sort of income tax break since 2021, according to a tally by The Associated Press. Those include cash-back plans, such as Delaware’s $300 rebate and California’s rebate of between $200 and $1,050 for individuals earning up to $250,000 and households up to $500,000.

The tally also includes targeted tax breaks such as expanded deductions or credits for families with children and seniors on retirement incomes. And it includes permanent individual income tax rate reductions enacted primarily by Republican-led states such as Missouri and Mississippi, which is now feuding internally over new revenue projections.

The past few years marked the largest wave of individual income tax rate reductions since states began enacting such taxes over a century ago, said Jared Walczk, vice president of state projects at the nonprofit Tax Foundation.

Alaska and Nevada are among nine states that levy no individual income tax. Alaska also has no statewide sales tax, instead relying heavily on oil revenue and earnings from investment funds.

The bulk of Nevada’s revenue comes from sales and gambling taxes, which fall heavily on out-of-state travelers spending money in places like the Las Vegas Strip. As a result, Nevada’s revenue plummeted when the COVID-19 pandemic kept tourists away, then rebounded to produce a historic $11.6 billion biennial budget as tourists returned and inflation took hold.

New Republican Gov. Joe Lombardo proposed last year to suspend the state’s gasoline tax, which would have added Nevada to the national tax-cutting trend. But the plan went nowhere in the Democratic-led Legislature. Lombardo said in a statement to the AP that his plan “would have saved Nevada families and small businesses millions” of dollars,

But Democratic state Sen. Rochelle T. Nguyen, who sits on the Senate Finance Committee, said there was no way of ensuring Nevada residents would have been the main beneficiaries, or that oil companies wouldn’t have hiked prices despite the suspension. Nevada’s two metro areas, Las Vegas and Reno, are a short trip from the California border, along with Nevada’s side of Lake Tahoe.

“Why would we spend $250 million in Nevada taxpayer money cutting gas taxes for Californians?” Nguyen said.

Though fewer states may pursue income tax cuts this year, more may be looking to provide property tax relief, Walczak said.

“Lawmakers are hearing from their constituents about dramatically higher property tax bills and dramatically higher assessments, and they’re under pressure to do something,” he said.

Colorado lawmakers meeting in a November special session approved legislation increasing residential deductions for property tax purposes and decreasing the property tax assessment rate.

Kansas lawmakers are expected to consider a range of proposals for reining in local property taxes during their 2024 session, including a state constitutional cap on how much home values can rise annually for tax purposes, a cut in taxes on homes, and aid to cities and counties to replace property tax revenues.

Wyoming Gov. Mark Gordon is proposing a $20 million expansion of a property tax relief program as part of his 2025-26 budget. But he’s also recommending the state stash more money in savings.

“A realistic and conservative approach means Wyoming must strive to prepare for a future that could well see declining revenues,” Gordon said in a written budget message.

States ended their 2023 fiscal years with total savings and cash balances of a record $407 billion — up significantly from the $111 billion they had at the close of 2020, according to NASBO. Though those fund balances are projected to decline in the current year, they still should provide states a cushion against declining tax revenues.

“Overall states remain in a strong fiscal condition,” Sigritz said.


Associated Press writers Gabe Stern in Reno, Nevada; John Hanna in Topeka, Kansas; and Brian Witte in Annapolis, Maryland, contributed to this report.

United States News

Associated Press

Lithium ion battery caused fatal fire in New York City apartment building, officials say

NEW YORK (AP) — A lithium ion battery sparked a fire that killed one person and injured 17 others at a New York City apartment building, fire officials said Saturday. Friday’s two-alarm fire began just after 2 p.m. on the third floor of a six-story building in Harlem. New York Police Department video shows firefighters […]

11 minutes ago

Associated Press

Federal prosecutors accuse a New Mexico woman of fraud in oil and gas royalty case

ALBUQUERQUE, N.M. (AP) — A New Mexico businesswoman is accused of defrauding the U.S. government and two Native American tribes of taxes and royalties due to them for oil and gas that her companies extracted from leased federal and tribal lands. Federal prosecutors announced this week that Teresa McCown recently was indicted by a grand […]

1 hour ago

Associated Press

Kansas man pleads guilty to causing crash that killed officer, pedestrian and K-9 last February

KANSAS CITY, Mo. (AP) — A Kansas man has pleaded guilty to smashing into a Kansas City, Missouri, patrol car last year and killing an officer, his K-9 partner and a pedestrian. Jerron Lightfoot of Tonganoxie, Kansas, pleaded guilty Friday to two counts of involuntary manslaughter and admitted speeding through a red light before the […]

2 hours ago

Associated Press

Brother of suspect in nursing student’s killing had fake green card, feds say

ATHENS, Ga. (AP) — The brother of the man charged with killing a Georgia nursing student has been accused of presenting a fake green card to police as they investigated the woman’s death, according to federal authorities. The brothers, Jose and Diego Ibarra, are from Venezuela, the U.S. Attorney’s Office for the Middle District of […]

2 hours ago

Associated Press

Death of beloved New York City owl, Flaco, in apparent building collision devastates legions of fans

Tributes poured in Saturday for Flaco, the beloved Eurasian eagle-owl that became a feel-good New York story after escaping its Central Park Zoo enclosure and flying free around Manhattan. Flaco was found dead on a New York City sidewalk Friday night after apparently flying into a building. It was a heartbreaking end for the birders […]

4 hours ago

Associated Press

New Jersey man acquitted in retrial in 2014 beating death of college student from Tennessee

NEW BRUNSWICK, N.J. (AP) — A New Jersey man has been acquitted in a retrial in the beating death of a college student from Tennessee a decade ago. Jurors in Middlesex County deliberated for five hours before acquitting Timothy Puskas of all charges Wednesday in the 2014 death of 22-year-old former Rutgers student William McCaw […]

7 hours ago

Sponsored Articles


DISC Desert Institute for Spine Care

Sciatica pain is treatable but surgery may be required

Sciatica pain is one of the most common ailments a person can face, and if not taken seriously, it could become one of the most harmful.


Fiesta Bowl Foundation

The 51st annual Vrbo Fiesta Bowl Parade is excitingly upon us

The 51st annual Vrbo Fiesta Bowl Parade presented by Lerner & Rowe is upon us! The attraction honors Arizona and the history of the game.


Collins Comfort Masters

Avoid a potential emergency and get your home’s heating and furnace safety checked

With the weather getting colder throughout the Valley, the best time to make sure your heating is all up to date is now. 

State tax cutting trend faces headwinds from declining revenues and tighter budgets