Governors plan to cut taxes and expand school vouchers across many of the Midwest's Republican-led states in fiscal year 2027, among other priorities.
The governors of Iowa, Indiana, Missouri, Nebraska and South Dakota gave their State of the State speeches last week, and some common threads ran through their remarks.
In Iowa, Gov. Kim Reynolds set her sights on property taxes after trumpeting the state's elimination of inheritance and retirement income taxes, its reform of the corporate income tax, which is headed toward a flat 5.5%, and its flat 3.8% individual income tax.
"We've cut taxes more than any other state," Reynolds said in her speech. "Yet for all the progress we've made, one issue continues to impact Iowans in every community and across every income level: property taxes… (They) are rising faster than inflation, faster than paychecks, and faster than population growth. In fact, over the last two years, they've gone up more than 10%."
Reynolds said she will introduce legislation that caps overall revenue growth for local governments. She also plans to freeze property tax bills for seniors in homes valued below $350,000.
The 2024 tax cuts — which included the flat individual income tax and halving the unemployment insurance tax — fully took effect in the 2025 tax year. Since then, state revenues have underperformed projections, said Kylie Spies, senior policy advocate at Common Good Iowa, a nonpartisan policy analysis nonprofit based in Des Moines.
General fund revenue projections for fiscal 2026 have been revised downward three times from their initial estimate in March 2024, Spies said by email.
Net receipts are also projected to be $741 million lower than in fiscal year 2025. Corporate tax revenue is projected to drop 11.5% from 2025, and 26% from fiscal year 2021 receipts, she said.
"The state is expected to take in $1.3 billion less than it spends this year, and the governor has proposed a budget that would continue to operate at a deficit with a $1.1 billion shortfall in fiscal 2027," Spies said. "Permanent tax cuts cannot be sustained through the use of temporary surplus dollars without cutting critical services."
Spies said the governor's property tax plans would hamstring local governments.
"Many rural Iowa communities are already operating on low tax bases and receiving very limited services, with volunteer EMS departments that are unable to respond to emergencies within recommended time frames," she said. "We prefer policy solutions that address the root cause of rising property tax bills — the skyrocketing cost of housing — rather than providing tax relief to select groups."
Cutting taxes was also a theme in Indiana. Gov. Mike Braun touted his state's property tax reform efforts, which
"Our historic property tax cut will save taxpayers $1.5 billion over the next three years. It ensures local governments have resources for essential services," Braun said in his address.
Asked whether the law does in fact guarantee local governments have the necessary resources, Stephanie Wells, president of the Indiana Fiscal Policy Institute, said by email, "I don't think we know that yet."
As the new property tax reform law phases in over the next few years, she said, "local governments and schools will realize changes from the bill over time."
But she noted that IFPI expects some changes during the current legislative session to the property tax restrictions passed in 2025.
Missouri Gov. Mike Kehoe advocated a phased elimination of the individual income tax, leading up to a full repeal within five years, while adding new taxes on commerce.
He called on state legislators to pass a joint resolution that would put the proposal to a referendum vote.
"Our plan pairs tax relief with closing loopholes. Today, much of our commerce happens through monthly subscriptions and digital services like online advertising, e-books, and AI platforms that fall outside our current sales tax base," he said. "When these types of modern services are taxed, it will create new revenue for local governments."
Kehoe called property tax reduction "a high priority for Missourians and many of us in this room," but offered no details about specific plans.
"It is very easy to advocate for cutting taxes, but what Missouri legislators need to do is make really tough decisions about where to cut spending," said Patrick Tuohey, senior fellow at the Show Me Institute, a St. Louis public policy think tank devoted to free markets.
"If Missouri doesn't make the required cuts in spending, then you wind up in a situation where government can't provide the basic services that people count on, and then you may have a backlash against the tax cutting regime," he said.
South Dakota Gov. Larry Rhoden pointed to a recently passed
He said it's time for "more substantial relief" and called on legislators to cut owner-occupied property taxes by giving counties the option to replace the county's share of property taxes with a half-cent sales tax.
"The areas with the biggest property tax increases are also those that attract the most visitors, so this proposal will allow those counties to cut property taxes and draw more revenues from tourists and out-of-staters," he said.
Nebraska Gov. Jim Pillen called on the legislature to pass a budget "that delivers lasting and transformative tax relief" through cuts in spending.
The governor proposed an assortment of changes, including cuts to welfare programs and holding the University of Nebraska's funding at its current level, but requiring the university to offer full scholarships to every resident high school student who scores 33 or above on their ACT test.
Pillen estimated the state's general fund reserve at nearly $2 billion — though
Nebraska is rated Aaa by Moody's Ratings
The governors also highlighted what they described as efficiencies, with Iowa's Reynolds touting partnerships with Amazon Web Services, to reorganize 50-plus state call centers into one system, and Google, which will build out the state's child welfare system.
Indiana's Braun pointed to 10% across-the-board cuts to Indiana's state agencies.
Missouri's Kehoe announced an executive order that calls on business leaders and members of the governor's cabinet to recommend efficiencies and accountability measures to the governor and the General Assembly.
He also criticized state voters'
School choice was another prominent theme for the GOP governors, headlined by school vouchers, which allow students to use taxpayer money to pay for private schools. Reynolds noted that this year marks the first time Education Savings Accounts, as vouchers are called in Iowa, are available to all students.
Spies of Common Good Iowa said for many years, state aid to public schools has failed to keep pace with inflation. That dynamic "is exacerbated by the Educational Savings Account program directing more funding away from public schools toward private and charter schools that do not have the same level of oversight or accountability," she said.
Early data shows families who used ESAs largely chose to send their children to private schools, according to Spies.
Indiana's Braun celebrated the universal school vouchers taking effect in his state this fall, expanding
Kehoe called on Missouri lawmakers to pass legislation implementing open enrollment in K-12 schools. He said he will include $7.5 million in his budget "to make open enrollment a reality as soon as possible."
Nebraska's Pillen noted he signed an executive order opting his state into the Trump administration's federal scholarship tax credit, which applies to private and homeschooled students as well as public school students.
South Dakota's Rhoden said he was proud to join the same tax credit program.
"Over the next year, we will be working with leaders from private schools, public schools, and the homeschooling community, so that our state is ready to implement this program on January 1, 2027," he said.
