On August 15, 2025, a wave of tax policy debates and reforms swept across the United States, with California and other blue states at the center of a renewed push to ensure that the wealthiest individuals and most profitable corporations pay what many argue is their fair share. The conversation is heating up in the wake of the One Big Beautiful Bill Act (OBBBA), signed into law by President Donald Trump and congressional Republicans, which made permanent many of the 2017 tax cuts and added new tax relief provisions while slashing federal spending on programs like Medicaid. As states scramble to plug budget gaps and shield public services from federal cutbacks, a patchwork of new tax initiatives is emerging—each with its own twist on who should pay and how much.
According to the California Budget & Policy Center, the Golden State’s corporate tax system has long stood out for its simplicity—and, critics say, its inequity. Currently, California levies a flat 8.84% tax rate on C corporations, regardless of their profit levels. This means that a tiny fraction of large corporations, which earned more than four-fifths of all corporate profits in California in 2022—about $180 billion—pay the same rate as their smaller counterparts, despite representing less than 1% of all C corporation tax returns. The report published by the Center highlights how this structure allows the most profitable firms to benefit disproportionately, particularly as they often have more resources to exploit tax loopholes and benefit from generous federal tax breaks, such as those extended by the Trump administration.
Meanwhile, as corporate profits have soared, wage growth for workers has lagged behind, and families are feeling the squeeze from rising costs of living. Funding for essential federal programs like Medicaid and food assistance has been cut, exacerbating economic and racial inequalities. "Large tax breaks for corporations widen economic and racial inequality because they largely benefit corporate shareholders, who are disproportionately wealthy and white," the California Budget & Policy Center asserts.
In response, California policymakers are considering a shift to a graduated corporate tax system—much like the state's personal income tax structure, which applies higher rates to higher levels of income. One legislative proposal from 2023 would have increased the C corporation tax rate to 10.99% on California taxable income above $1.5 million, while lowering it to 6.63% for income below that threshold. The plan, which excluded S corporations from a rate increase but lowered their rate on lower income, was estimated to raise around $6 billion annually at first, dropping to $4 billion once the lower rate's revenue loss was factored in. The Center notes that 13 other states, including New York and New Jersey, already have graduated corporate tax systems or surtaxes targeting the most profitable businesses. For example, New York adds a 0.75% higher rate for profits over $5 million, and New Jersey imposes a 2.5% surtax on profits above $10 million.
But tax reformers aren’t stopping at rate changes. The California Budget & Policy Center recommends pairing any increase with measures to limit the use of corporate tax credits and to close loopholes, such as the so-called "water’s edge" election, which allows companies to shield offshore profits from state taxation. "If policymakers pursue corporate tax rate changes, it is also critical to pair this with other corporate tax changes to reduce the ability of corporations to avoid the tax increase," the Center advises. Such a comprehensive approach, they argue, is necessary to ensure that corporations contribute adequately to the public services that underpin the state’s economic vitality.
This focus on tax fairness and revenue is not unique to California. According to Fox Business, blue states across the U.S. are rolling out or considering new taxes on wealthy residents and luxury property owners to compensate for federal funding losses tied to the OBBBA. Rhode Island, for instance, enacted the so-called "Taylor Swift tax" this summer—a special levy on vacation homes valued at over $1 million, named after the pop star who owns a $17 million property in the state. The tax amounts to $2.50 for every $500 of assessed value above $1 million, which, in Taylor Swift’s case, translates to an additional $136,000 in property taxes. The move, according to The Wall Street Journal, is designed to tap into the wealth of high-end property owners, many of whom are not full-time residents.
Montana, meanwhile, is increasing property taxes on non-primary residences to 1.9% while reducing rates for owner-occupied homes. The goal is twofold: give about 230,000 homeowners a break and encourage owners of vacation properties or second homes to sell, thereby boosting housing inventory in a tight market. Maryland has taken a different tack, raising income tax rates on those earning over $500,000 a year to address its budget deficit. And in Connecticut, lawmakers are weighing a proposal to hike income tax rates on individuals making $250,000 or more, with the aim of offsetting an expected drop in federal support.
Washington state, which lacks an income tax due to constitutional restrictions, passed a budget this spring that raises its capital gains tax from 7% to 9%. The tax, which excludes real estate sales, targets transactions involving stocks, bonds, or business interests. While these measures are intended to shore up state finances, they’re not without controversy. High-tax states such as California, New York, New Jersey, and Illinois have seen a steady exodus of wealthy residents and corporations seeking lower-tax environments. Fox Business points to the example of Amazon founder Jeff Bezos, who left Washington for Florida, a state with no income tax.
Amid all this, the clean energy sector received a jolt of good news. As Bloomberg reported, the Trump administration’s newly released guidance on tax credit eligibility for clean energy projects turned out to be less restrictive than many in the industry had feared. Residential solar systems will still qualify under previous rules, and the new standards won’t apply retroactively. Larger projects, however, will now have to meet requirements for a certain amount of physical construction to qualify. The announcement sent clean energy stocks soaring, as the impact was seen as less severe than initially anticipated.
All told, the tax landscape in the United States is shifting rapidly, with states experimenting with new ways to balance budgets and fund essential services in the face of federal retrenchment. Whether through targeted property taxes, higher rates on the ultra-wealthy, or reforms to corporate taxation, the debate over who pays—and how much—shows no sign of slowing down. As policymakers weigh their options, the choices they make will shape not only state finances but also the broader contours of economic opportunity and fairness for years to come.
