Congress is starting to work on federal tax law changes, but states have been at it for a while.
In fact, notes the Tax Foundation, 2023 marks a third consecutive year of substantial state tax reform and relief.
Since 2021, 24 states have cut individual income tax rates. That includes 22 reductions to top marginal rates.
Eight states adopted individual income tax rate reductions, writes Katherine Loughead, senior policy analyst at the Washington, D.C.-based tax policy think tank's website. They are Arkansas, Indiana, Kentucky, Montana, Nebraska, North Dakota, Utah, and West Virginia.
Additionally, Michigan triggered a potentially temporary rate reduction, while previously scheduled or triggered reductions also took effect this year in Arizona, Idaho, Iowa, Missouri, New Hampshire (which is phasing out its interest and dividend income tax), and North Carolina.
On the business side, 13 states have cut corporate income tax rates, and two have cut sales tax rates.
Many more states also have made structural improvements in recent years, says Loughead. These changes include repealing capital stock taxes, adopting permanent full expensing, and raising nonresident filing and withholding thresholds.
The Tax Foundation map below provides an overview of the income tax rate cuts enacted or implemented from 2021 through 2023.
The Tax Foundation's online detailed table also details states' top marginal income tax rates at the start of 2021 and changes over the subsequent two years. The table also shows anticipated 2024 rates, reflecting any rate changes already adopted by legislatures, and notes any further future rate reductions either scheduled in statute or subject to revenue triggers.
Do you live in one of the 24 states — which, by the way earn this weekend's By the Numbers recognition — that reduced their individua tax rates? If so, did it make a difference, large or small, to your personal bottom line?
Broader tax-cut ramifications: While income tax cuts generally are welcome by most of us, the revenue loss can have wider implications.
"There's a troubling trend in state capitols across the country: Some lawmakers are pushing big, permanent tax cuts that primarily benefit the wealthy and using temporary budget surpluses to hide the cuts' true cost," argue a couple of skeptics of the latest state tax cut movement.
Aidan Davis, state director for the Institute on Taxation and Economic Policy (ITEP), and Wesley Tharpe, senior advisor for state tax policy for the Center on Budget and Policy Priorities (CBPP), say the state revenue cuts will deplete funding available for schools, infrastructure, health care, and other public services. They make their case in an op-ed originally published by Route Fifty.
That push-pull has been going on for, well, as long as governments at all levels have existed. In today's state tax reduction trend, it's exemplified by the more conservative, business-friendly position of the Tax Foundation and the liberal/progressive perspectives of ITEP and CBPP.
While it's hard for elected officials to raise taxes, in some cases they've had their hands forced when a critical mass of citizens (read voters) decided the cuts weren't worth their personal savings. I don't, however, see that happening anytime soon in any of these recent tax-cut jurisdictions.
But regardless of what the tax law changes mean to us personally, we all need to be aware of the potential effect on our society and those with whom we share it. That's the only way to accurately judge the full, real-life impact of tax cuts at any level.
You also might find these items of interest:
- The good side of taxes
- Taxes' critical role in times of crisis
- We all built it, together with our taxes
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