The 2026 Ballot Measures Shaping State Taxes

Janelle Fritts (0:00)

So, Missouri has a really interesting proposal, which once again, sounds nice when you first think about it. So they want to start putting aside money year after year for approximately 100 years, in order to make an account that will, through the interest on the savings, pay for all of Missouri's services and expenses and revenue and budget. The goal is that there will be no taxes in Missouri after 100 years. Now, I mean, so I went to a tiny Christian school and we had an endowment fund, and that did, you know, it paid a pretty good portion of the school's budget.

Having to do it for an entire state is probably a little more tricky.

Kyle Houlihan (0:44)

Hello and welcome to The Deduction, a Tax Foundation podcast. I'm your host, Kyle Houlihan, and we're back today with another episode, and I am joined by my co-host, Erica York. And today we are joined by Janelle Fritts, Senior Policy Analyst at Tax Foundation.

So today we are going over state ballot initiatives. So there are roughly 40 tax measures on ballots this November. States are moving in both directions, somewhat higher taxes on top earners, while others are trying to write low rates into their constitution. Property tax relief is a big category, and voters are kind of secretly changing a lot of tax rules and how they get passed. Now, there's a really interesting thing going on in Missouri, where they are trying to start a fund that could one day replace all taxes on the state so that they don't have to have taxes anymore. That'll definitely work.

But we're gonna start with income taxes. Now Janelle, I'm wondering, why are some states raising income taxes on top earners while others are writing low rates into their constitution? What are we seeing here? Could you walk us through some of this?

Janelle Fritts (1:53)

Right, thanks for asking Kyle and thanks for having me on. So excited to talk about ballot proposals today. So when it comes to income tax proposals on the ballots, a lot of states have been moving towards lower personal income tax rates for the last couple years. So following COVID, we saw a really big trend of states really being concerned about their top rates because with the rise of remote work, people and businesses are all a lot more mobile than they used to be. So states are trying to find ways to attract more people, attract more businesses. One of the best ways to do that is your top income tax rate. Either corporate or individual both matter because a lot of businesses do file through the individual income tax. So even though it's not a corporate rate, still matters for businesses. So that's why a lot of states are kind of pushing their rates lower. Since 2021, we've actually seen about almost half of states decrease their top income tax rate at least once. A lot have done it more than once. But like you said, we do have kind of a split going on. So we've been seeing in recent years that we actually used to have kind of an average top income tax rate of around 6%.

That doesn't really exist anymore. Mostly states are either moving below that, or they are really, really increasing. You've got your California, you've got your New York, you've got your Hawaii that are way on that other end of the spectrum. When it comes to the states that are increasing those top rates, usually the conversation is about people paying their fair share and making sure that the rich are in fact contributing to taxes. So that's kind of what, it's kind of a difference in priorities. People who are lowering taxes are thinking about attracting more people.

States that are raising taxes are trying to think about, okay, who is paying their fair share? How do we make sure that everyone is paying what they should be? So it's kind of a difference in priority.

Kyle Houlihan (3:38)

Janelle, what amendments or what ballot initiatives here in the income tax stand out to you most?

Janelle Fritts (3:43)

So one of the big ones that I know that you have talked about with Jared before is, of course, the wealth tax proposal from California, which is not necessarily on income, but still does really matter to high earners. So that's one that we will certainly be watching. We also care about those income tax amendments that are limiting income taxes, that are concerned with the top rates that income taxes can be, and how easy it is for states to raise those or not raise those. Those are other ones that we're watching here.