Deck: Key Takeaways from the 2025 Elections and 2026 State Partisan Control
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Key Takeaways:

  • More states are expected to experience state revenue challenges in 2026, with ten states projected to have a challenging state fiscal outlook in 2026 and another thirteen in a conditional status.
  • The surge in state revenues during the pandemic led to increased spending and tax cuts, but as expenses outpace revenue growth in some states, state budget deficits in 2026 are becoming more common.
  • States with a less stable state fiscal outlook in 2026 are more likely to consider business tax increases.


Several times a year, our tax team does a survey of each state’s short-term fiscal outlook to determine if a state's revenues are relatively stable, or if it will likely face short-term fiscal challenges. A state’s fiscal picture is a major policy driver, so it’s important for state government affairs professionals to keep an eye on state fiscal health.

State Revenue Trends: From Pandemic Surplus to 2026 Challenges

More states will have a perceived need for revenue in 2026. During the pandemic, state revenues surged, with many states seeing increases of almost fifty percent. States often used this revenue for new program spending or tax cuts, and for several years, legislators enjoyed breathing room in the budget process. Beginning in FY 24, a few states saw large deficits, although this was mostly limited to states with expensive spending programs instituted in the wake of the pandemic.


2026 State Fiscal Outlook and Tax Policy Implications

This year, however, more states are beginning to face revenue pressure as expenses outpace revenue growth and revenues normalize. As of December 2025, we predict that ten states will face a challenging fiscal outlook in the short term (pink on the map). An additional 13 states are in a conditional status – meaning things could easily change or the projected deficits don't begin for a few years (gold on the map). States facing challenging or conditional revenue environments are more likely to pursue business tax increases.

State Budget Tracker

Tax policy can be one of the most challenging areas for government affairs executives. MultiState’s team understands the issues, knows the key players, and helps you effectively navigate and engage. We offer a customized, strategic solution to help you develop and execute a proactive multistate tax legislative agenda. Learn more about our Tax Policy Practice.