State Budget Challenges

The One Big Beautiful Bill, enacted July 4, 2025, created a pair of interlocking fiscal challenges for states, according to Wesley Tharpe, senior advisor for state tax policy at the Center on Budget and Policy Priorities. The first challenge comes from the tax portion of the bill, which has begun to “wreak havoc on state revenue systems” due to the technical interactions between federal and state tax codes, a process known as conformity.

States that automatically conform to the federal Tax Code could see their own revenues decline unless they take action to “de-link” from the federal changes. This comes at a time when a broad swath of states have already made costly policy choices, with 26 states cutting either their personal or corporate income tax rates between 2021 and 2025.

To dig deeper, visit the original article on the Thomson Reuters blog.