Lawmakers across the country are weighing whether to mirror a new set of federal tax breaks backed by President Donald Trump’s administration—changes that would lower taxes on tips, overtime pay, vehicle loans, and certain business equipment. Only a small number of states would automatically take on the new rules; most would need to act to update their own tax codes.
The Treasury Department sharply criticized several Democrat-led states for not aligning with Trump’s “One Big Beautiful Bill” (OBBB) Act, accusing them of effectively shortchanging residents who would otherwise benefit.
Treasury Secretary Scott Bessent said, “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.”
Policy analysts, however, caution that the deductions could be short-lived or deliver benefits unevenly across different groups. They say state lawmakers will need to balance potential revenue losses against the immediate financial relief the changes could provide.
Analysts also warn the new rules could ripple into federal programs such as Medicaid and SNAP, potentially triggering offsets or shifting eligibility in ways that reduce the overall fiscal and social gains.
Some states may choose to “decouple” from the federal provisions to avoid major budget holes—meaning they would keep taxing income that the federal government now treats more favorably. States such as New York, California, and Illinois could be among those most likely to take that approach.
The Treasury is presenting state resistance as partisan obstruction that blocks promised relief for workers. State officials, meanwhile, argue that adopting the federal cuts could undermine funding for essential services, including education and infrastructure.
