President Trump proposes another IRS funding cut. Trump’s new budget proposal would cut annual IRS funding by $1.4 billion for fiscal year 2027, continuing a sharp pullback after earlier reductions. The agency’s annual appropriation already fell from $12.3 billion in fiscal 2025 to $11.2 billion for fiscal 2026, and Congress also canceled about $11.7 billion in remaining modernization and enforcement funds from the 2022 Inflation Reduction Act. The latest proposed cut comes as the IRS is still navigating staffing reductions and leadership changes and is trying to wrap up a demanding filing season.
Trump opens the door to steep drug tariffs, reduces steel and aluminum tariffs. President Trump signed two executive orders last week. One could impose pharmaceutical tariffs of up to 100 percent on some patented drugs from companies that do not strike pricing deals with his administration or shift production to the US. TPC estimates these tariffis will raise $81 billion over ten years. The second order streamlines and reduces tariffs on imported aluminum, steel, and copper. TPC estimates this would reduce revenue by $130 billion over ten years.
TIGTA finds gaps in IRS return-to-office tracking. A new report from the Treasury Inspector General for Tax Administration (TIGTA) says far fewer IRS employees were teleworking by May 2025, but also finds weaknesses in how the agency tracks compliance with its return-to-office rules. The share of employees reporting any telework fell from 65 percent to 25 percent between early March and early May 2025. But about 11 percent of daily time charges recorded as in-person work had no matching building access card data, though IRS officials said that could reflect miscoded time or badge problems. TIGTA said the IRS still needs to finalize its monitoring procedures and coordinate expectations with Treasury.
ACA subsidies can lead to painful tax bills. People who get health coverage subsidies through the Affordable Care Act (ACA) may be in for unpleasant surprises at tax time if their actual income turns out to be higher than they estimated. For 2025 returns being filed now, many taxpayers still have some protection because repayment caps limit how much of those excess subsidies they must pay back. But next year the rules will get tougher: last year’s tax law eliminated those caps for 2026 subsidies, meaning some households could be required to repay the full amount. That makes it even more important for ACA enrollees to track their income during the year and update their marketplace estimates when earnings change. As Urban Institute’s Jason Levitis put it, “If taking that extra shift … is going to cost you $10,000 in repayments, maybe don’t take that shift.”
Georgia speeds up its income tax cuts. Georgia lawmakers have approved a plan to accelerate reductions in the state’s personal income tax, lowering the rate from 5.19 percent to 4.99 percent in 2026 and continuing to reduce it until it reaches 3.99 percent. The bill also increases standard deductions and dependent deductions, and from January 2026 through the end of 2028 it would exempt up to $1,750 of tips and overtime pay from state tax. To offset some of the cost, the measure repeals several existing tax credits, including ones tied to telework expenses, electric and hybrid vehicles, and medical equipment manufacturing.
Washington’s millionaire tax heads for court. Opponents of Washington state’s new tax on income above $1 million are preparing to fight it in court and, if possible, at the ballot box. The 9.9 percent tax, signed into law by Gov. Bob Ferguson (D-WA), is set to begin in tax year 2028 and marks a major change in a state with no traditional income tax. Supporters say it will make the state tax code less regressive. Critics argue it conflicts with long-standing Washington constitutional precedent treating income as property that must be taxed uniformly and at no more than 1 percent.
Itemized: Fact of the Week. State tax collections rose 3.0 percent in the median state in the third quarter of 2025, but 11 states still saw declines. Personal income taxes drove much of the growth, while corporate income tax revenues fell 15.4 percent in the median state and sales tax growth remained sluggish. Many states are heading into 2026 with only modest revenue gains and growing fiscal uncertainty.
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