Good news for taxpayers, or at least some of you: Statehouses across the country are continuing to cut taxes in a movement that shows no sign of slowing down. By year-end, nearly half of all states will have cut their income-tax rates within a three-year period. The good results so far confirm that we’re in a virtuous economic-political cycle.
At least six states have kicked off their 2023 legislative sessions with income-tax cut proposals. Newly inaugurated Governors in Arkansas and Nebraska campaigned on rate cuts and are asking legislators to follow through. Leaders in Virginia and Montana want to cut rates modestly with bipartisan support. Large GOP majorities in West Virginia and Utah are considering significant cuts after hesitating last year.
Each of these states has at least one neighbor where tax rates have dropped recently, and competition is sustaining the trend. “We were the cool kid on the block 15 years ago when we moved to 5% flat,” said
Rusty Cannon,
president of the Utah Taxpayers Association, referring to his state’s flat income-tax rate this month. But in the past two years Colorado has adopted a 4.4% top rate on income, and Arizona dropped its rate to 2.5%. “We’re no longer the cool kid on the block at all,” said Mr. Cannon.
The tax-cutting trend took off in 2021 as state revenues boomed, driven by postpandemic reopening, rising stock prices and capital gains, and federal aid. By September 2022, 31 states were outperforming their prepandemic revenue trajectories, according to Pew Research. Twenty-one states have cut their income taxes in this period, according to the Tax Foundation, and they’re betting that returning revenue to taxpayers will spur faster economic growth.
The results so far vindicate these choices. Many states that cut taxes in the early stage of the revenue boom have sustained or expanded their surpluses. That’s what happened in Idaho, which boasts one of the best-performing state budgets according to Pew. In May 2021 Gov.
Brad Little
cut the top rate on income to 6.5% from 6.93% amid a $900 million surplus. The state’s surplus grew by more than 50% the next year, and Gov. Little followed up by reducing the income tax to a flat 5.8%.
Flat-rate tax reforms are also spreading. Last year Georgia, Iowa, Mississippi and Arizona joined Idaho in enacting…
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