JEFFERSON CITY, Mo. — President-elect Donald Trump has put forth a proposal for substantial tax reductions totaling trillions of dollars aimed at individuals and businesses. Notably, several state governors and legislators are also striving to implement millions more in tax cuts.
This drive for additional tax relief follows a trend where many states have already made significant cuts to income, sales, or property taxes in recent years. The push for further reductions is occurring even as state revenue growth has slowed or remains stagnant. As Congress deliberates Trump’s tax-cutting plans, state lawmakers will need to evaluate their capacity to reduce taxes while still fulfilling essential government obligations, including funding for education, public safety, infrastructure, and social services. Unlike the federal government, which can operate with a deficit, states are typically required to maintain balanced budgets.
So, what tax cuts is Trump proposing? The Republican majority in Congress is contemplating the extension and expansion of several income tax reductions that were enacted in 2017 during Trump’s first term. Some of these provisions are set to expire this year, and the Congressional Budget Office has projected that continuing them would add approximately $4 trillion to national deficits over the next decade. Trump is also advocating for new cuts, such as lowering the corporate income tax rate to 15%, a reduction from the previous 35% to 21% during his first term.
During last year’s campaign, Trump suggested that federal income taxes should not apply to overtime pay, worker tips, and Social Security benefits. Should these proposals be enacted, they could prompt additional tax reductions at the state level. In 18 states and the District of Columbia, modifications to federal income taxes automatically affect state income taxes unless explicitly rejected by the states. In other states, federal tax changes must be actively adopted to influence state taxes.
As states emerge from the challenges presented by the coronavirus pandemic, many have gained substantial surpluses due to a robust economic recovery and significant federal aid. This economic boost has contributed to a wave of tax reductions across nearly all states in recent years. However, state revenues have recently stagnated, partly as a consequence of these tax cuts. Budgets for the current fiscal year project a modest increase of 1.9% in general fund revenues, according to the National Association of State Budget Officers.
According to a recent report from the Urban Institute, state tax revenues actually dropped by 0.6% from July to November—the initial five months of the budget year for most states. In light of this decline, Lucy Dadayan, a principal research associate at the Urban Institute, has suggested that states should refrain from further tax reductions. On the other hand, Jared Walczak, vice president of state projects at the Tax Foundation, contends that even with a decrease from their peak, most state revenues remain robust and exceed pre-pandemic levels, even when adjusted for inflation.
In 2025, many states are once again leaning toward tax cuts over tax increases. Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers, noted that while budget conditions are becoming tighter, there remains a strong desire among lawmakers and governors to offer tax relief.
Regarding income taxes, Kentucky has taken the lead, with its Republican-controlled House passing a bill to reduce the individual income tax rate by half a percentage point to 3.5%, effective in 2026. Democratic Governor Andy Beshear has expressed support for this measure, which would mark the state’s third tax rate reduction since 2023. New Missouri Governor Mike Kehoe has also proposed phasing out the state income tax. Additionally, governors from Montana, Georgia, and South Carolina are echoing similar sentiments regarding further income tax cuts.
In Utah, Governor Spencer Cox is advocating for the elimination of state taxes on Social Security benefits, while Virginia’s Governor Glenn Youngkin is focusing on exempting tips from state income tax and assisting low- and middle-income residents with auto tax relief. Notably, even Democratic Governor Kathy Hochul of New York has introduced an extensive tax reduction plan aimed at lowering income taxes and expanding the state’s child tax credit, as well as providing inflation-related payments to New Yorkers.
Furthermore, Mississippi’s Republican-led House has passed a bill aimed at gradually phasing out the income tax, along with reducing the grocery sales tax while offsetting losses through increased local sales and gas taxes. Louisiana has recently implemented new income tax cuts, which are being balanced by a hike in sales tax.
A number of states are also prioritizing reductions in property taxes, largely in response to the escalating costs of housing. In North Dakota, a recent ballot measure seeking to abolish local property taxes was defeated, but the newly elected Republican Governor Kelly Armstrong is proposing gradual cuts to property taxes using revenue generated from the state’s oil tax savings. In Wyoming, a conservative faction wants to reduce residential property taxes by 25%. Kansas Republicans are considering several strategies, including a 7.5% cut to school property tax levies, while Nebraska’s Governor Jim Pillen is proposing a plan to allocate more funds toward property tax relief.
In summary, as discussions surrounding tax cuts continue to evolve at both federal and state levels, the impact on state budgets and public services remains a pivotal concern for lawmakers and citizens alike.
