Several States Strengthened Revenues in 2026, While Others Chose More Harmful Path

States entered 2026 facing intensifying strain from the sweeping federal tax and spending changes enacted last year and other fiscal pressures. Several states have risen to the occasion by taking prudent and sometimes bold steps to raise or protect revenues to better meet residents’ needs. But some other states have doubled down on a reckless path of costly tax cuts that primarily benefit the wealthy. In several states, voters are also poised to decide consequential tax measures at the ballot later this year.

Some States Took Positive Steps to Protect and Raise Revenues

Seven states this year enacted significant revenue-raising policies to advance key priorities and mitigate the massive federal cuts to health coverage, food assistance, and clean energy investments in Republicans’ 2025 reconciliation law.

Most importantly, four states enacted signature “millionaires’ taxes,” which will raise considerable revenues from wealthier households, who are best able to pay and received outsized gains from the highly skewed federal tax cuts:

• Hawai‘i lawmakers spent much of this year’s session debating revisions to a massive tax cut plan the state enacted in 2024 in light of its swelling cost and new pressure from federal cuts. They eventually compromised by halting the prior cuts for household incomes above $350,000 and adding a new top rate of 13 percent on household incomes above $1 million ($500,000 for single filers).
• Maine approved a 2 percent surcharge on household incomes above $1.5 million ($1 million for single filers). Policymakers also improved the state’s Property Tax Fairness Credit and delinked the state tax code from some of the costly federal tax changes in the reconciliation law.
• Rhode Island lawmakers concluded a lengthy debate by approving a compromise to phase in a 3 percent surtax on household incomes above $1 million and create a refundable child tax credit to help families meet basic needs. The move is expected to raise $142 million a year once fully implemented, helping Rhode Island address public needs such as housing, child care, and education.
• Washington state approved a new 9.9 percent tax on annual incomes above $1 million. This historic step will make the tax code fairer and generate more than $3 billion annually for new investments, including a major expansion of the state’s Working Families Tax Credit. Opponents are challenging the tax in court, and voters are slated to decide the issue this fall.

Three other states adopted noteworthy revenue-raising policies. Illinois approved up to $1.8 billion in new annual revenue from multiple sources, including new levies on advertising and social media companies and limits on how federal tax changes affect the state’s tax code. New York adopted progressive revenue-raisers including a new tax on high-value second homes in New York City and an extension of the state’s 7.25 percent top corporate income tax rate. And Virginia enacted a temporary tax on the energy consumption of data centers designed to help the state close a current shortfall by bringing in $1.2 billion over the next two years.

Lastly, a few states took steps to trim, pause, or forgo tax cuts in the wake of the reconciliation law and other fiscal pressures. In addition to Hawai‘i’s sunsetting of some prior tax cuts, Kentucky lawmakers declined to take the steps necessary to trigger additional income tax cuts for at least the next two years. Louisiana lawmakers chose not to follow the governor’s call for further tax cuts so they could see how growing budget strains from federal policies and prior state cuts play out. And in North Carolina, legislators agreed to delay some scheduled tax cuts until 2030, albeit as part of a broader policy package that left the state’s destructive fiscal trajectory largely intact.

Other States Took Costly Steps Backward

Unfortunately, some other states chose to weaken their revenue systems through expensive and regressive income tax cuts, continuing a harmful trend. These policies will exacerbate the new fiscal pressures stemming from the federal reconciliation law and, in some states, compound the growing cost of previous state tax cuts.

Five states enacted new tax cuts:

• Arkansas lawmakers concluded a special session by rushing through personal and corporate income tax cuts with an annual cost of $192 million, the sixth income tax cut in the past six years. The measure will do the most for the wealthiest residents; Arkansans with incomes in the bottom 80 percent of the distribution will see an average annual tax cut of only $71 or less.
• Georgia lawmakers concluded a lengthy debate over whether to eliminate the state’s income (and possibly property) taxes with a slimmed-down yet still expensive plan to accelerate and deepen previously approved cuts. Once fully implemented, the measure could eliminate about one-third of Georgia’s income tax by 2034, reducing state revenues by more than $6.5 billion.
• South Carolina approved legislation putting the state on a path toward eliminating the income tax. This will cost an estimated $309 million in 2026 and over $6.6 billion a year if fully implemented — nearly 45 percent of the state’s current general fund — with the benefits overwhelmingly tilted toward the wealthy.
• Utah cut the state income tax for the sixth time in as many years, costing another $87 million in annual revenue that could otherwise support key services. The average family will save $66 per year; the wealthiest will save nearly 20 times more.
• West Virginia lawmakers adopted a 5 percent tax cut on the final night of the legislative session, which will cost $125 million annually on top of expensive tax cuts approved in prior years that have put the state on a path to income tax elimination. Like those earlier tax cuts, the new measure favors the wealthy, delivering 65 percent of the benefit to the highest-income 20 percent of households.

In five additional states, lawmakers referred measures to cut taxes to voters in the upcoming August and November elections. Those include a strict new supermajority requirement designed to hamstring future revenue advances in Iowa, a pair of measures in North Carolina that would hobble the personal income tax and property tax, and costly and regressive property tax initiatives in Florida and Oklahoma.

The most consequential ballot proposal is in Missouri. It would eliminate the state’s personal income tax while allowing the legislature to partly offset the cost by raising sales taxes, which fall more sharply on people with low to moderate incomes. If approved, it would make Missouri the first state to eliminate its income tax since oil-rich Alaska in 1980, setting a dangerous precedent for tax-elimination forces in other states.

Policymakers considering costly, regressive tax cuts should heed the lessons from other states: progressive revenue-raising and sound investments in people and communities offer a brighter path.