State Tax 2020 Referendum Results Show Voters’ Reluctance to Fill Budget Gaps With Tax Increases

While much of the nation’s focus was on the 2020 federal elections, a number of state ballot initiatives will have significant tax consequences for residents in certain jurisdictions. Voters in California and Illinois rejected measures that would have raised taxes. In Colorado, voters approved a referendum to lower the state’s flat income tax rate. California’s failed Proposition 15 would have partially overturned the property tax limits that have existed since voters approved Proposition 13 in 1978. An outlier was Arizona, where voters approved the imposition of an additional 3.50% income tax.

Below is a summary of significant state ballot measures and the results.

Voters Split the Difference

Arizonans narrowly embraced a large income tax rate increase for high earning individuals, which will increase the top rate dramatically from 4.5% to 8% and the brackets will not be adjusted for inflation. Illinois voters rejected an amendment which would have removed the constitutional mandate for a flat-rate income tax and would have allowed a graduated system to be created. Passage of the amendment would have cleared the path for a bill that would have established a six-rate personal income tax with a top rate of 7.99%. Colorado was the only state to offer a tax decrease, which voters overwhelmingly approved.

California Proposition 15 would have shifted the property tax burden onto commercial properties and was narrowly defeated. At the same time, California Proposition 19 was narrowly approved, which gives a property tax break to homeowners over 55 moving to new homes, increases property taxes on those inheriting property from their parents, and provides some relief for wildfire victims.

The Takeaway

The results of the state referendums could offer a glimpse into the budgetary challenges ahead for states when the legislatures in many jurisdictions convene in January. Unlike the federal government, most states must adhere to balanced budget requirements that prohibit them from spending more than they collect in revenue. The revenue shortfalls created by the COVID-19 pandemic will likely present difficult choices for states. State and local tax policy changes can be difficult to predict. Andersen can analyze your tax position and help you to consider options for mitigating any increased tax risk exposure as a result of major policy changes.