Midterm tax measures may threaten state, local revenue

Voters in 16 states will vote on tax questions that carry implications for state and local government income and property tax revenue.

The proposals include nine income or wealth tax measures, the most since 2000, according to Ballotpedia.

"The wave of income, wealth and property tax changes across the country reflects a broader tension between the need for public revenue and the political demand for tax relief. For municipal bond investors, the implications are real but will emerge gradually," Nuveen said in an Aug. 26 report outlining various ballot proposals. "General obligation debt service is protected in nearly all cases, but issuers with limited revenue diversity face operating budget risk."

Eight income or wealth tax measures will appear on the Nov. 3 ballot in California, Colorado, Iowa, North Carolina, and Washington. Three are competing proposals in California.

Income-tax measures have an even chance of passing, according to Ballotpedia. From 2000 through 2025, voters decided 40 statewide income tax ballot measures. Of these measures, voters approved 20 and defeated 20, the group said.

Missouri has already rejected a proposal to eliminate the state income tax in an Aug. 4 vote that crushed the question by a margin of 83.3% to 16.7%.

Voters in seven states will decide on 13 statewide ballot measures regarding property taxes: Florida, Georgia, Louisiana, North Carolina, Oklahoma, Tennessee, and Wyoming.

Property tax measures have a strong history of approval, according to Ballotpedia. Between 2020 and 2025, voters decided on 58 property tax measures, approving 45 and defeating 13. Twenty-four of those measures dealt with property tax exemptions for homeowners.

Florida's property tax referendum and California's wealth tax are among the most prominent and controversial.

The sweeping measure in Florida, which does not have an income tax, would effectively eliminate property taxes for many homeowners, except for debt service for existing bonds and schools, and severely curtail a local government's property tax revenue.

Amendment 3 would would change the state constitution to increase the homestead property tax exemption in the first year to $150,000 from $50,000 and to $250,000 in the second year and indexed to inflation by 2029.

The measure needs 60% of voters' approval. A recent poll suggested the measure may not pass.

California's Proposition 40 would raise an estimated $100 billion by imposing a one-time tax of up to 5% on taxpayers with assets over $1 billion.

The measure would spark a temporary state revenue increase of tens of billions of dollars overs several years, but could also lead to an ongoing decrease of less than $1 billion per year in state income tax revenue collected from billionaires as they "respond to a new wealth tax in ways that reduce their income tax payments," according to the California Legislative Analyst's Office.

A recent Public Policy Institute of California survey found that a slight majority of 52% support the proposition. But a majority also support a pair of competing proposals on the ballot: Proposition 41, which invalidate the wealth tax because of how its revenue would be allocated, and Proposition 42, which would bar taxes on financial assets such as stocks and investments.