States That Raised Revenue Offer Brighter Roadmap for Others

As state policymakers convene in early 2026 for this year’s legislative season, they will face monumental choices between either cutting funding for vital public services or preserving and raising revenue to adequately meet their constituents’ needs.

In the past five years, many state policymakers have chosen to make irresponsible tax cuts. They did this often under the cover of temporary budget surpluses — which were largely due to federal pandemic relief funding and the resulting economic recovery — with the false promise the tax cuts would pay for themselves. These states are now reckoning with the impact of these tax cuts and facing additional pressures on revenue, including federal funding cuts in the harmful Republican megabill enacted in 2025 that shift health care and food assistance costs to states; private school voucher programs that are draining public education funds; a wave of broad property tax cuts; and increasing economic headwinds.

However, over that same time period, policymakers and voters in another group of states took a second, more promising path and raised revenue to bolster and protect public investments. Many did so by increasing taxes on the wealthy and closing tax loopholes to ensure corporations pay their fair share. These states have used this revenue to enact universal school meals, fund paid leave, invest in affordable housing, boost spending on public education and school construction, and improve transportation infrastructure and other vital services. Overall, these investments support hardworking families as the cost of living continues to rise.

To build forward and invest in a brighter future, states should avoid cutting taxes and follow the example of these revenue-raising states to fund public services that support affordability for families and communities, ensure that everyone pays their fair share of taxes, and meet the current fiscal challenges from a position of strength.

Several States Have Raised New Revenues to Protect, Enhance Vital Investments

The following brief offers a high-level overview of steps states have taken in recent years to generate new revenues for public investment. Eleven states and the District of Columbia meaningfully raised new revenues from 2021 to 2025, policies which are already paying dividends and helping these places build stronger, more adequate tax systems capable of meeting the growing demands of the moment.^[2]

Policymakers in other states should follow their lead and have a broad suite of revenue-raising levers at their disposal, including bolstering personal income taxes, tackling corporate tax avoidance, exploring new taxes on wealthy households, reforming property and sales taxes to more closely track ability to pay, and leaning in on an emerging suite of revenue-raising tools linked to helping fight climate change. (For state-by-state information on the range of revenue options available, please navigate to CBPP’s “State and Local Revenue Options for Advancing a Brighter Future” online interactive).^[3]

Colorado

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Colorado has taken two noteworthy steps in recent years to help protect and grow revenues for key investments. First, voters in 2022 approved — and in 2025 expanded — a ballot measure to limit various deductions available to high-income taxpayers to support access to universal school meals. In 2022, the measure reduced the cap on income deductions for households making over $300,000 from $30,000 for single filers and $60,000 for joint filers to $12,000 and $16,000 respectively, generating $100 million annually for school meals. In 2025, to provide additional funding for school meals, the measure reduced the caps further for those making over $300,000 to $1,000 and $2,000 for single and joint filers, respectively. The change will generate an additional $95 million in revenue each year beyond the original amount to maintain the highly successful program.^[4]

Second, the Colorado legislature recently strengthened its corporate tax system in response to an emerging shortfall created by passage of the Republican megabill’s tax components, which bleed down to states through various technical interactions known as “conformity.” Namely, the legislature extended indefinitely a provision set to expire at the end of 2025 that requires businesses to add back the percentage of their domestic and foreign income they deducted on their federal taxes when calculating state corporate income.^[5] The legislature also took further steps to crack down on corporate tax avoidance by updating the state’s list of tax havens. These are countries the state presumes companies are incorporated in for the purpose of tax avoidance, and the state requires that income in these countries be reported. Combined, these changes are estimated to increase state revenue by $82 million in the current 2026 fiscal year, $168 million in the next fiscal year, and $175 million in the fiscal year after that.^[6]

District of Columbia

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In 2021, District of Columbia lawmakers approved an income tax rate increase on individuals with taxable income over $250,000 to expand access to affordable housing and child care. Since that time, the District has seen concrete benefits: increased access and quality of child care services, less turnover at child care facilities, and all child care educators lifted out of poverty.^[7] The Pay Equity Fund, a fund created by the revenue from this tax to increase child care worker pay, incentivized a 7 percent increase in child care and early education educator employment through improved retention and stability for educators.^[8] Reports have also found that there was no drop in the number of high-income individuals in the District following the tax change; the number of residents earning over $1 million has increased since it was enacted.^[9] In addition to the income tax rate increase, the D.C. council enacted in the 2025 budget an increase of the property tax rate for property valued over $2.5 million. The new mansion tax is estimated to bring in $6 million annually.^[10]

Maine

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In 2023, Maine enacted a 1 percent payroll tax increase that will generate $360 million a year in revenue to fund a 12-week paid family and medical leave program, scheduled to launch in 2026.^[11] This would provide a needed benefit for Maine workers — only 28 percent of whom currently have access to paid leave — as well as compensation to 166,000 family caregivers currently providing an estimated $3 billion in unpaid care.^[12] Research has linked the availability of paid leave to several positive outcomes, including increased financial security and better health for both parents and children.^[13]

Moreover, in the 2025 legislative session, Maine established an additional $3.80 real estate transfer tax levied on every $500 in property value over $1 million starting in November 2025. This additional tax is projected to bring in $45 million over the next four years,^[14] of which about 80 percent will be used in part for housing programs that build more affordable homes, help first-time homebuyers, provide rental assistance, and offer aid to people experiencing homelessness. Roughly 20 percent will go towards the state’s general fund, where it can support a wide range of areas such as health, education, and infrastructure.^[15] In the same budget, Maine lawmakers passed an increase in the tobacco tax by $1.50 per pack, which while a comparatively regressive resource source,^[16] is expected to bring in an additional $110 million over two years for public services.^[17]

Maryland

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In the face of a $3 billion budget deficit and a tax system where the top earners paid the least, Maryland policymakers in 2025 made several changes to the income tax for high-income earners. These include higher tax rates for those earning over $500,000 and $1,000,000 and a phase down of itemized deductions for high-income earners. In addition, Maryland also instituted a 2 percent tax on capital gains for those making over $350,000. Together, these changes are estimated to increase general fund revenue by over $700 million each year, with 82 percent of the revenue coming from those earning more than $845,000.^[18]

Massachusetts

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In 2022, voters in Massachusetts approved a new top income tax rate for those with annual incomes over $1 million. Since its enactment, the tax has outpaced expectations by $3 billion, bringing in a total of $5.7 billion in additional revenue.^[19] This has enabled numerous investments that have helped workers and families, including universal school meals, fare-free regional transit, free community college, expanded financial aid for university students, and significant investments in aging transportation infrastructure and K-12 education.^[20] Data from the year before the tax’s enactment, when high-income individuals may have preemptively left the state to avoid the tax, showed that only 1 in 6 outmigrants had income over $200,000. Instead, the vast majority who left the state were younger individuals earning under $200,000 — more revenue to improve transportation or provide essential services can help attract this group.^[21]

Minnesota

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Minnesota lawmakers put in place several new revenue raising changes in 2023. The legislature implemented a new payroll tax to fund a universal paid leave program, set to go into effect in 2026; raised taxes on large amounts of investment income through a first-of-its-kind levy known as a “wealth proceeds tax;”^[22] phased out itemized deductions faster at high income levels; and conformed to part of the federal tax code known as GILTI to discourage corporate tax avoidance.^[23] From these changes, they’ve been able provide $2.3 billion in additional funds for K-12 public schools, enact a fully refundable child tax credit, expand public services and benefits to people without a documented immigration status, and replace all lead pipes in the state. In addition, the state has been able to provide universal free meals for public school students, helping families save $1,000 per child on meals and resulting in fewer absent students.^[24]

New Jersey

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In New Jersey, policymakers in recent years have approved two important revenue-raising measures. First, the state implemented a graduated mansion tax for property sales of $1 million and above. The change implements a 2 percent tax for sales over $2 million and adds a half percentage point for every $500,000 increase in value up to 3.5 percent. Second, New Jersey enacted a corporate transit fee of 2.5 percent on corporate income over $10 million that will last through 2028. Together, these changes are expected to raise over $1.3 billion in revenue;^[25] $500 million from the mansion tax is set to fund affordable housing efforts in the state, while $800 million from the corporate fee will improve public transportation through infrastructure investments and backfilling funding deficits.^[26]

New Mexico

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In 2024, lawmakers in New Mexico revamped the corporate income tax to a flat 5.9 percent rate; previously it had been a tiered rate of 4.8 percent for taxable income under $500,000 and 5.9 percent for taxable income above $500,000.^[27] They also significantly tightened an expensive capital gains loophole that had overwhelmingly benefitted the state’s wealthiest residents.^[28] The extra revenue from these changes allowed for New Mexico to restructure its income tax brackets to provide targeted tax reductions to low- and middle-income households instead.^[29] Further, the state has utilized its oil-funded sovereign wealth fund to fund mental health care, Medicaid, and a universal child care program that launched in November 2025.^[30]

New York

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The New York legislature enacted a higher income tax rate on high-income earners in 2021 that was recently extended through 2032. The surcharge imposes a 9.65 percent tax on income over $2,155,350; a 10.3 percent tax on income over $5 million; and a 10.9 percent tax on income over $25 million. Since enactment, New York has seen higher than expected revenue, with the tax bringing in about $3.6 billion annually.^[31] That has helped New York policymakers stabilize funding for key services including education and build up their historically low reserve funding.^[32] Meanwhile, New York also adopted in 2021 — and further extended in 2023 — a corporate surcharge of 0.75 percent for corporations with more than $5 million in profits, bringing the total tax rate for these corporations to 7.25 percent. The measure, which since enactment has raised more than $1 billion a year in revenue,^[33] is currently scheduled to expire April 1, 2026, unless policymakers act.

Rhode Island

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In 2025, Rhode Island implemented a new surcharge aimed at secondary homes worth more than $1 million. The surcharge imposes $2.50 tax for every $500 in value over the first $1 million. Rhode Island is also implementing a tax on luxury real estate that will levy a $3.75 tax on every $500 in value above $800,000. The changes are estimated to raise $14 million annually for the state and $11 million annually for local governments beginning in 2026 and increasing to $19 million and $15 million in 2027. This new revenue is being dedicated to producing affordable housing and giving resources to people experiencing homelessness.^[34]

Vermont

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In 2023, Vermont passed a 0.44 percent increase to its payroll tax rate, to be split between employers and employees.^[35] The goal of the tax was to raise $125 million in new funding to provide child care subsidies through the Child Care Financial Assistance Program (CCFAP).^[36] Since taking effect in 2024, studies have found multiple improvements in Vermont’s child care industry, such as a 2.4 percent increase in the number of child care providers. Interviews with families have also noted an easier time finding child care and less stress as a result. With more consistent funding, child care providers have been able to increase salaries and provide benefits to employees.^[37]

Washington

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Washington has taken several actions in recent years to raise revenue. In 2021, the state enacted an excise tax on income from the sale of stocks and other investments that has led to half a billion dollars in new revenue to build and repair K-12 schools and expand child care and early learning supports for young children. In 2025, the legislature took further action, implementing an increased capital gains tax rate; a new and increased business and occupation surcharge; a series of estate tax enhancements; and an expansion of the services and items covered by service and tobacco excise taxes. The state also repealed tax exemptions that were not working as intended. All together, these new changes are set to raise an additional $9 billion in revenue over four years.^[38]