Trump Proposes Tax Cuts, States Join the Push

Today at 12:45 pm

1652 posts

Trump Proposes Tax Cuts, States Join the Push/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ President-elect Donald Trump’s proposed federal tax cuts, including lowering corporate tax rates and exempting Social Security from taxation, align with efforts in several states to reduce income and property taxes. While many states face tighter revenues, governors and lawmakers continue pushing tax relief. Critics warn of potential long-term budget shortfalls from these cuts.

FILE – Republican presidential nominee former President Donald Trump speaks at a campaign rally in Asheville, N.C., Aug. 14, 2024. (AP Photo/Matt Rourke)

Trump and States Push for More Tax Cuts: Quick Looks

Federal Proposals: Trump aims to extend and expand 2017 tax cuts, reduce corporate tax to 15%.
State-Level Action: Governors propose income and property tax reductions despite slowing revenues.
Budget Pressures: State tax revenues declined 0.6% in 2024; cuts could strain budgets.
Bipartisan Push: Some Democratic governors also back tax relief to offset inflation.
Critics’ Concern: Analysts urge caution, warning of potential fiscal imbalances.
Key Examples: Kentucky, Missouri, and New York lead state tax cut initiatives.

Trump Proposes Tax Cuts, States Join the Push

Deep Look

As President-elect Donald Trump readies sweeping federal tax cuts, state governments are following suit with their own proposals to reduce income, sales, and property taxes. Despite slowing revenue growth, governors and legislators in both parties are pushing for tax relief to address inflation and economic concerns.

Trump’s Federal Tax Agenda

Trump’s proposals include extending expiring provisions of the 2017 tax reforms, which would add an estimated $4 trillion to the federal deficit over a decade. He also supports new measures, such as lowering the corporate tax rate to 15% from its current 21%, and exempting overtime pay, workers’ tips, and Social Security benefits from federal income tax.

Eighteen states and the District of Columbia would automatically align their tax codes with these changes unless they opt out, potentially triggering additional state-level tax cuts.

State-Level Tax Cuts

After a period of budget surpluses fueled by post-pandemic federal aid and economic recovery, many states are proposing further tax reductions. However, state revenues have begun to flatten. From July to November 2024, total state tax revenues declined 0.6%, according to the Urban Institute.

Lucy Dadayan, a principal research associate at the Urban Institute, cautioned against further cuts, describing current revenue trends as “weak.” Jared Walczak of the Tax Foundation, however, argued that revenues remain above pre-pandemic levels and states can afford relief.

Notable State Initiatives

Kentucky: The GOP-led House approved a bill to lower the state income tax rate to 3.5% by 2026, marking its third tax cut since 2023.
Missouri: New Governor Mike Kehoe floated the idea of eliminating the state income tax altogether.
New York: Democratic Governor Kathy Hochul proposed income tax cuts, expanded child tax credits, and an “inflation refund” of up to $500 for residents.
Mississippi: A Republican proposal seeks to phase out income tax, reduce grocery sales tax, and partially offset revenue loss with increased local sales and gas taxes.

Property Tax Relief

Some states are targeting property taxes to address rising housing costs:

North Dakota: Governor Kelly Armstrong proposed using oil tax revenues to phase out residential property taxes.
Wyoming: The state’s Freedom Caucus advocates a 25% cut in residential property taxes.
Kansas: Republicans propose reducing school property tax levies and capping property value increases.

Budget Challenges

State revenues are expected to grow just 1.9% this fiscal year, far below the rate of inflation. While proponents argue that tax cuts stimulate economic activity, critics warn they could jeopardize essential services like education, infrastructure, and social programs.

Kansas Governor Laura Kelly, a Democrat, emphasized caution, saying, “We must ensure our tax cuts are sustainable and don’t harm long-term fiscal health.”