The Dictatorship
It’s decision time for states on Trump’s big tax cuts
JEFFERSON CITY, Mo. (AP) — To tax tips or not? That is a question that will confront lawmakers in states across the U.S. as they convene for work next year.
President Donald Trump’s administration is urging states to follow its lead by enacting a slew of new tax breaks for individuals and businesses, including deductions for tips and overtime wages, automobile loans and business equipment.
In some states, the new federal tax breaks will automatically apply to state income taxes unless legislatures opt out. But in many other states, where tax laws are written differently, the new tax breaks won’t appear on state tax forms unless legislatures opt in.
In states that don’t conform to the federal tax changes, workers who receive tips or overtime — for example — will pay no federal tax on those earnings but could still owe state taxes on them.
States that embrace all of Trump’s tax cuts could provide hundreds of millions of dollars of annual savings to certain residents and businesses. But that could financially strain states, which are being hit with higher costs because of new Medicaid and SNAP food aid requirements that also are included in the big bill Trump signed.
Most states begin their annual legislative sessions in January. To retroactively change tax breaks for 2025, lawmakers would need to act quickly so tax forms could updated before people begin filing them. States also could apply the changes to their 2026 taxes, a decision requiring less haste.
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So far, only a few states have taken votes on whether to adopt the tax breaks.
“States in general are approaching this skeptically,” said Carl Davis, research director at the nonprofit Institute on Taxation and Economic Policy.
Trump’s treasury presses states to `immediately conform’
A bill Trump signed on July 4 contains about $4.5 trillion of federal tax cuts over 10 years.
It creates temporary tax deductions for tips, overtime and loan interest on new vehicles assembled in the U.S. It boosts a tax deduction for older adults. And it temporarily raises cap on state and local tax deductions from $10,000 to $40,000, among other things. The law also provides numerous tax breaks to businesses, including the ability to immediately write off 100% of the cost of equipment and research.
Forty-one states levy individual income taxes on wages and salaries. Forty-four states charge corporate income taxes.
Treasury Secretary Scott Bessent this month called on those states “to immediately conform” to the federal tax cuts and accused some Democratic-led states that haven’t done so of engaging in “political obstructionism.” Though Bessent didn’t mention it, many Republican-led states also have not decided whether to implement the tax deductions.
“By denying their residents access to these important tax cuts, these governors and legislators are forcing hardworking Americans to shoulder higher state tax burdens, robbing them of the relief they deserve and exacerbating the financial squeeze on low- and middle-income households,” Bessent said.
But some tax analysts contend there’s more for states to consider. The tax break on tips, for example, could apply to nearly 70 occupation fields under a proposed rule from the Internal Revenue Service. But that would still exclude numerous low-wage workers, said Jared Walczak, vice president of state projects at the nonprofit Tax Foundation.
“Lawmakers need to consider whether these are worth the cost,” Walczak said.
Only a few states offer tax breaks for tips and overtime
Because of the way state tax laws are written, the federal tax breaks for tips and overtime wages would have carried over to just seven states — Colorado, Idaho, Iowa, Montana, North Dakota, Oregon and South Carolina. But Colorado opted out of the state tax break for overtime shortly before the federal law was enacted.
Michigan this fall became first — and, so far, only — state to opt into the tax breaks for tips and overtime wageseffective in 2026. The overtime tax exemption is projected to cost the state nearly $113 million and the tips tax break about $45 million during its current budget year, according to the state treasury department.
Michigan lawmakers offset that by decoupling from five federal corporate tax changes the state’s treasury estimated would have reduced Michigan tax revenues by $540 million this budget year.
Republican state Rep. Ann Bollin, chair of the Michigan House Appropriations Committee, said the state could not afford to embrace all the tax cuts while still investing in better roads, public safety and education.
“The best path forward is to have more money in people’s pockets and have less regulation — and this kind of moved in that direction,” she said.
Arizona could be among the next states to act. Democratic Gov. Katie Hobbs has called upon lawmakers to adopt the tax breaks for tips, overtime, seniors and vehicle loans, and follow the federal government by also increasing the state’s standard deduction for individual income taxpayers. Republican state House leaders said they stand ready to pass the tax cuts when their session begins Jan. 12.
Several states have rejected corporate tax breaks
In addition to Michigan, lawmakers in Delaware, Illinois, Pennsylvania and Rhode Island have passed measures to block some or all of the corporate tax cuts from taking effect in their states.
A new Illinois law decoupling from a portion of the corporate tax changes could save the state nearly $250 million, said Democratic state Sen. Elgie Sims, chair of the Senate Appropriations Committee. He said that could help ensure continued funding for schools, health care and vital services.
Illinois Gov. JB Pritzkeran outspoken Democratic opponent of Trump, also cited budget concerns for rejecting the corporate tax cut provision. He said states already stand to lose money because of other provisions in Trump’s big bill, such as a requirement to cover more of the costs of running the Supplemental Nutrition Assistance Program.
“The decoupling is an effort to try to hold back the onslaught from the federal government to make sure that we can support programs like the one we’re announcing today,” Pritzker told reporters at a December event publicizing a grant to address homelessness in central Illinois.
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Associated Press writer John O’Connor in Springfield, Illinois, contributed to this report.
BOSTON (AP) — A federal judge on Thursday halted President Donald Trump’s executive order that sought to create a federal voter list and limit who can receive a mail ballot.
U.S. District Court Judge Indira Talwani, who was nominated by Democratic President Barack Obama, sided with a coalition of nearly two dozen states that challenged the Republican president’s order in granting a summary judgment. Her ruling applies to this year’s midterm election cycle.
Plaintiffs argued in two lawsuitsboth filed in federal court in Boston, that Trump’s order should be found unconstitutional because the states and Congress, not the president, have the power to set election rules. The judge agreed, saying in her ruling that the provisions of Trump’s order seeking to create a federal list of eligible voters and using the U.S. Postal Service to determine who can receive a mail ballot are “legally void” because they “unconstitutionally violate the separation of powers.”
It was the second ruling in as many days against executive orders Trump has signed seeking oversight of the nation’s elections. A separate ruling Wednesday prohibited an executive order he had signed last year that would have required people to show documents proving their citizenship when registering to vote.
Order targeted mail voting, administration likely to appeal
Arizona Attorney General Kris Mayes, whose state was among the plaintiffs, celebrated the court’s decision.
“Millions of independents, Republicans and Democrats across Arizona have voted by mail for decades,” she said in a statement, noting that nearly 80% of ballots in the state are cast by that method.
Mayes, a Democrat, singled out military families, voters in the state’s rural expanses and Native Americans who cast ballots from tribal lands.
“Donald Trump’s executive order targeted all of these voters,” she said. “But today, the courts affirmed what the Constitution makes clear: States run their elections, not the President.”
AP AUDIO: Federal judge halts Trump’s election executive order seeking to create a federal voter list
AP Washington correspondent Sagar Meghani reports President Trump has suffered a legal setback for a second straight day in his bid to get oversight of the nation’s elections.
The White House stood by Trump’s executive order and indicated the administration would appeal the ruling. The order, said spokeswoman Abigail Jackson, “lawfully protects our elections, and we are confident that we will ultimately prevail in its implementation.”
The administration, in its motions to dismiss the lawsuits challenging the order, argued that the motions were premature and that plaintiffs lacked the legal basis to bring their claim based on the Administrative Procedure Act, which governs how federal agencies develop and issue regulations.
But in an interim order before Thursday’s ruling, Talwani said the motions pertaining to this year’s election cycle were relevant: “In light of the EO’s specific deadlines over the next three months, and the reality that elections will be occurring throughout this period with the November 3, 2026 midterm occurring in just five months, postponing judicial review is impracticable and may inflict significant hardship on Plaintiffs,” she wrote. That order denied the Trump administration’s motion to dismiss the challenges.
Executive order sought to give Postal Service a central role in elections
Trump’s executive order, the second one aimed at elections during his second term, comes as he continues to raise the specter of widespread voting by noncitizens as a reason to change election rules. But states already have detailed processes aimed at keeping their voter rolls accurate, and voting by noncitizens has been shown to be rare. It also is a felony that can be punishable by deportation.
Trump issued his second order in March after a bill he supported to overhaul voting stalled in Congress. The order would have had the federal government — through the director of U.S. Citizenship and Immigration Services and the commissioner of the Social Security Administration — create a “state citizenship list” of eligible voters. It then directed the U.S. Postal Service to deliver mail ballots only to those on the list.
Election officials argued that it was ripe for abuse and could cause chaos.
The Postal Service has published a proposed rule required by Trump’s executive order in the Federal Register. Among other things, the rule would not apply to primary elections or overseas ballots.
Postal Service workers have pushed back against the order, saying they are not equipped to determine who is eligible to vote in each state. After Trump issued his order last spring, the National Rural Letter Carriers’ Association said forcing its members into such a role “risks politicizing one of the nation’s most trusted public institutions.”
Maine Secretary of State Shenna Bellows, a Democrat whose state was among the plaintiffs, said the executive order illustrated how Trump was attempting to “abuse power in previously unthinkable ways” to interfere in elections.
She said it “strains credulity” to think the U.S. Postal Service could set up a workable system for pre-screening individual voters to determine whether they would be allowed to vote by mail, adding that it would be “a shocking violation of American constitutional rights.”
The Postal Service did not immediately respond Thursday to requests for comment.
Trump’s second election executive order faces multiple legal challenges
The lawsuit seeking summary judgment was filed by Democratic attorneys general representing 22 states and the District of Columbia. Also signing on were attorneys representing Democratic Gov. Josh Shapiro of Pennsylvania, which has a Republican attorney general.
The states also told the court that the move imposes a costly burden on election officials to comply and would spread fear about the possibility of prosecution. Stephen Pezzi, a lawyer for the Trump administration, had argued that no one would be prosecuted for violating the order.
The other lawsuit filed in Talwani’s court was by the League of Women Voters and other voting rights groups, which have sought a preliminary injunction against the executive order.
In yet another lawsuit filed against the executive order, a federal judge in Washington, D.C., in May agreed with the Trump administration that it was too early to block the order because it had yet to be implemented. That lawsuit was brought by Democratic and civil rights groups, which have appealed.
Since his 2020 presidential election loss to Democrat Joe BidenTrump has groundlessly claimed mail voting is rife with fraud and has launched a federal investigation into that year’s vote, even though repeated audits and investigationsincluding ones run by Republicansfound it was free of widespread fraud. Trump also has said he wants to “take over” election administration in Democratic areas.
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Barrow reported from Atlanta and Hanna from Topeka, Kansas.
California voters will consider a controversial proposal in November to temporarily raise taxes on billionaires after the labor union backing the measure announced Thursday it would forge ahead despite pressure from critics to withdraw it.
The proposal, backed by the Service Employees International Union Healthcare Workers West, would impose a one-time 5% tax on individuals whose net worth exceeds $1 billion and who were living in the state as of Jan. 1, 2026. The goal is to generate $100 billion in revenue, mainly to fund the state’s Medicaid system after federal cuts.
“I am all in on this,” union President Dave Regan said on a Zoom call, adding that opponents of the proposal are “totally out of touch.”
Democratic Gov. Gavin Newsom and many traditional allies of the union oppose the measure. They argue it is a temporary fix for an ongoing problem and that it would push the ultrawealthy to leave the state, taking the money they would contribute in income taxes with them. Newsom, who is considering a presidential run as he prepares to leave office in January, has generally opposed tax increases during his time as governor.
A coalition of healthcare, education and housing groups — including the California Medical Association and California School Boards Association — banded together last week to fight the tax.
“The dangerous wealth tax directly threatens vital funding for education and schools, healthcare and clinics, public safety, and infrastructure projects by making California’s revenue even more volatile,” the coalition said in a statement.
Brian Brokaw, a Newsom political adviser who is leading a political committee opposing the tax, said it would “make California’s biggest challenges worse.”
“Driving away the state’s sustainable tax base for a one-time grab is bad policy and an even worse deal for 40 million Californians who will be left holding the bag,” he said in a statement.
Under the proposal, the state would spend the money generated from the tax over multiple years. The nonpartisan Legislative Analyst’s Office estimates that the proposal would generate tens of billions of dollars in the first few years, but that income tax revenues would subsequently decline by hundreds of millions of dollars annually.
Many of the Silicon Valley tech moguls who oppose the measure have already moved their assets to other states or threatened to do so to avoid the possible tax. They have also spent millions to try to defeat it.
Since the proposal was announced in October, Google co-founder Sergey Brin has donated $82 million to a political committee called Building a Better California that backs a variety of initiatives designed to blunt the billionaire tax proposal. It has raised more than $118 million, counting Brin’s contributions, from fewer than a dozen donors.
California relies on its top 1% of earnersfor nearly half of its personal income tax revenue.
The union offered to scale back its proposal last week, asking Newsom to back a 2% tax on billionaires instead. But the governor’s office said the lower rate didn’t change his stance.
The proposed tax may have piqued the interest of many Democrats because it comes at a time when they are particularly concerned about affordability, income inequality and federal cutbacks to government programs, said Martin Gilens, a political science professor at the University of California, Los Angeles.
“There’s kind of a perfect storm that sort of bolsters preexisting inclinations to be sympathetic to the idea of raising taxes on the well-to-do,” he said.
But there’s a catch. Support for ballot initiatives often declines as the election nears, and if the measure passes, it’s likely to face legal challenges, Gilens said.
Since taking office one week ago, Bill Pulte, the acting director of national intelligence, has busied himself on social media posting flattering photos of President Donald Trump, trivia about a former counterintelligence agent and praising his current staff.
What the Trump loyalist with no intelligence experience has not done is address the public about his plans, or calm the unease and confusion inside the Office of the Director of National Intelligence, which is being described by top officials as “chaotic” amid firings of senior personnel with threats of more to come.
One image posted to the official X account of the Office of the Director of National Intelligence, apparently artificial intelligence-generated, features Trump raising a clenched fist in the air with two B-2 stealth bombers in the sky behind him. Another is an image of the president, his fist clenched, glowering as he stands behind the Oval Office’s Resolute Desk.
In another post, Pulte, who was expected to gut the workforce of the National Counterterrorism Center, instead declared the staff there “true professionals and American patriots” after he said he spent time with them, adding “it is a privilege to work beside them.”
And in an apparent attempt at levity, Pulte reposted a message reminding Americans that Tuesday was “National Typewriter Day” and informing them of the role that a former Army counterintelligence agent played.
“Fun CI fact,” the post reads. “Former Army CI Special Agent Leroy Anderson composed ‘The Typewriter’ on October 9, 1950.”
But Pulte’s arrival has sparked anxiety and fear among the office’s workforce, three former U.S. intelligence officials told MS NOW, granted anonymity to address a sensitive topic.
They said that a half dozen political appointees were removed from their posts and several dozen staffers were sent back to their home intelligence agencies. Beyond that, little else is known about Pulte’s plans.
Rep. Jim Himes, D-Conn., the top Democrat on the House Intelligence Committee, told MS NOW that his requests for more information from the office, known by the acronym ODNI, have been rebuffed.
“I’ve been calling over there all day and can’t get my calls returned,” said Himes.
He later said, “I spoke directly to their office of congressional affairs. They said they had nothing for me.”
“It seems like it’s totally chaotic at the Office of the Director of National Intelligence,” Sen. Mark Warner, D-Va., the ranking Democrat on the Senate Intelligence Committee, said on a podcast Wednesday. “There was word that there was going to be firings and then he said he changed his mind. We don’t know.”
Marc Polymeropoulos, a former senior CIA official and now an MS NOW contributor, said that staff in the intelligence community do not know what to think.
“Everyone is in the same boat and unsure of what is going on,” he said. “That said, there is no love lost for the DNI, as many believe that there is redundancy that does need to be cut.”
The other former U.S. intelligence officials said they agree that the Office of the Director of National Intelligence is in need of reform. The agency was created after a lack of information sharing among U.S. intelligence agencies played a role in the failure to stop the Sept. 11, 2001, attacks. ODNI’s mission is to ensure that the country’s now 18 different intelligence agencies share information with one another.
But the former intelligence officials said Pulte is patently unqualified to design or carry out those reforms.
“As with many things Trump alights upon, there is a sliver of truth here but he goes about addressing it in the worst possible way,” a former senior U.S. intelligence official told MS NOW, granted anonymity over concerns of retaliation. “But mass firings without any kind of sense of what you are trying to accomplish is addressing it in the most ham-handed way.”
That former official, as well as Warner and Himes, have said they fear that Pulte’s mission is to use his position as the nation’s top intelligence official to help Trump interfere in the midterm elections in November.
Pulte, who simultaneously serves as the Trump administration’s top federal housing official as head of the Federal Housing Finance Agency, used government mortgage information to file several criminal referrals against Democrats whom Trump considered enemies, including Sen. Adam Schiff of California and New York State Attorney General Letitia James. None of Pulte’s referrals have resulted in criminal convictions.
One fear expressed by Warner and some former intelligence officials is that Pulte may try to falsely claim that his office has found evidence that foreign governments are secretly funding Democratic candidates.
One way he could do that, they say, is by falsely claiming foreign actors have hacked U.S. voting machines and altered vote totals in favor of Democrats. And Pulte and FBI agents could seize voting machines, ballots and election records in November — as Gabbard did in Fulton County, Georgia, last year at Trump’s behest — as part of voter fraud investigations that please the president.
“I have to tell you, I was extraordinarily concerned about the former director of national intelligence, Tulsi Gabbard, interfering in our election,” Warner told NPR earlier this month. “The concerns I had with Tulsi Gabbard now, upon reflection, look small versus the concerns I have with Bill Pulte.”
David Rohde is the senior national security reporter for MS NOW and a two-time winner of the Pulitzer Prize for International Reporting. Previously he was the senior executive editor for national security and law for NBC News.
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