State tax cutting trend faces headwinds from declining revenues and tighter budgets

Almost every U.S. state has cut taxes in some way in the past three years

JEFFERSON CITY, Mo. -- Income, sales, property and gas taxes: Almost every U.S. state cut at least one such broad-based tax as budget surpluses soared over the past three years.

Some states made permanent tax reductions. Others passed one-time rebates or temporary suspensions. One way or another, whether red or blue, all states save Alaska and Nevada joined in.

Though even more tax cuts are likely, the trend may be slowing as 2024 legislative sessions begin. That's because the pandemic-era revenue surge fueled by federal spending and inflation now is receding and, in some states, even reversing into negative numbers.

"Next year will likely be a return to normal for state budgets," said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers. "Funds will be more limited. States will have to make decisions on what areas they prioritize."

California, where financial swings are felt more sharply than most states, has a projected budget deficit of a record $68 billion, an amount exceeding its hefty reserves. Just years after enjoying a record $100 billion surplus, Democratic Gov. Gavin Newsom is now facing a challenging task as he prepares to present the state budget in January.