States Benefit From a Wave of Income Tax Reform
Key Findings
- Most states levy personal income taxes, but the rates and structures differ across the country.
- States have returned money to taxpayers by reducing rates, condensing tax brackets, increasing the standard deduction, and limiting spending.
- The recent wave of state tax cuts benefits workers and promotes competition among states.
Overview
Recent years brought a wave of substantial state tax reform. More than a dozen states have cut harmful corporate income tax rates. Several states have cut sales tax rates, and others have made positive, structural changes. However, the most widespread tax reforms have focused on the state personal income tax.
Between 2021 and 2023, an impressive 26 states cut personal income tax rates, leaving workers with more disposable income.1 Personal income tax cuts keep money with those who earned it, boost the economy, and help to curb government excess. As tax reform heats up, people are migrating to affordable, low-tax states.2 States should lower their personal income taxes to remain competitive and affordable and to avoid an exodus of workers and businesses.

Most states levy personal income taxes, but the rates and structures differ across the country
Personal income taxes are often the largest source of a state government’s tax intake. In 2023, the personal income tax made up 33 percent of all state tax collections.3
Each state has its own distinct composition of taxes. Currently, seven states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming—do not levy a personal income tax.4 Washington state taxes only capital gains and New Hampshire taxes dividends and interest, which functions similarly to an income tax.5-6 The remaining states and Washington, D.C. tax personal income.7
There has been a robust movement to cut state income taxes across the country. Top marginal rates among those states that levy the tax range from a high of 13.3 percent in California to a low of 2.5 percent in Arizona.8 And states like Indiana, Louisiana, Mississippi, and West Virginia have taken steps to potentially eliminate personal income taxes altogether.9-12

As the tax landscape becomes more competitive, states do not want to risk falling behind, especially as more people are migrating to lower-tax states. In 2022, more than eight million people moved between states.13 While taxes are not the only contributing factor, affordability goes hand in hand with a friendly tax climate. Florida and Texas—two states without a personal income tax—gained the most new residents.14 California, which boasts the highest personal income tax rate, had the most outbound moves.15
States have returned money to taxpayers by reducing rates, condensing tax brackets, increasing the standard deduction, and limiting spending
The state income tax landscape is consistently evolving. Twenty-six states cut personal income taxes in the recent wave of tax cuts.16 Moreover, states are structurally reforming their tax codes. Many states are moving to a flat tax, and the number of total income tax brackets across all states has dropped by nearly 22 percent over the past decade.17
CUTTING INCOME TAX RATES

Transitioning To A Flat Tax
Flat income tax rates, which are composed of just one tax rate, are simpler for both taxpayers and states’ revenue offices. With a flat rate, taxpayers do not have to debate whether it is most beneficial to work and earn more, as their marginal returns for added labor are the same. Progressive, multi-tiered tax rates disincentivize more work.
Flat rates are also transparent. With a single, flat rate, politicians cannot play bracket groups against each other, picking winners and losers. It is much more difficult to raise a flat tax as this would hike taxes on everyone. Notably, states without an income tax function as flat tax states.
Colorado was the first state to replace its graduated-rate income tax with a single-rate tax structure in 1987.29 Utah went to a flat tax in 2007, followed by North Carolina in 2014.30-31 Today, 12 states have a flat personal income tax structure.32
In 2021 and 2022 alone, five states—Arizona, Georgia, Idaho, Iowa, and Mississippi—condensed their tax rates to a single-rate, flat structure.33 Arizona, for example, passed legislation to allow a flat income tax of 2.5 percent.34 Previously, the state had four tax brackets, with a top rate of 4.5 percent.35 Georgia moved from six personal income brackets to one flat rate.36 Twenty-nine states, however, still have a complicated, graduated rate structure. Hawaii has 12 brackets—the most in the country—and one of the highest tax burdens for any income level.37-38
Lawmakers often feel they have the political license to hike the top marginal rates in the name of social justice. But this imperils small businesses and does nothing to help low-income households. Instead, it punishes wealth- and job-creating behavior. Graduated rates are harmful to the upward mobility that fuels the American Dream.
Increasing The Standard Deduction
The standard deduction, also known as the zero-tax bracket, is the amount of income not subject to taxation. A larger standard deduction results in a smaller taxable income. A larger standard deduction benefits low-income families the most and exempts more individuals from state income tax liability.

States differ in their standard deduction offerings and amount. Some states tie their standard deductions to the federal tax code (the Tax Cuts and Jobs Act nearly doubled the federal standard deduction) while others set their own or forgo it altogether.
Kansas increased its standard deduction in its recent tax reform package.39-40 North Carolina has increased its standard deduction more than fourfold, from $3,000 in 2013 to $12,750 today.41-42 In 2023, Oklahoma nearly passed a tax package that included a 63 percent increase in the standard deduction.43 Moreover, some states index their standard deduction to inflation, as the IRS does at the federal level.44 Inflation indexing combats the bracket creep that occurs when wages increase with inflation. Without indexing, an individual could owe more in taxes despite a decrease in standard of living and real wages.
Additional efforts to protect taxpayers include setting revenue limits as Colorado did with its Taxpayer Bill of Rights.45 Other states have proposed similar changes.46 Limiting budget growth to the sum of inflation and the state’s population growth, as Colorado did, restrains state government spending and allows excess funds to be returned to state taxpayers. Finally, some states, like Florida, require a supermajority to raise taxes, providing a critical safeguard for taxpayers.47

The recent wave of state tax cuts benefits workers and promotes competition among states
Personal income tax cuts deliver money back to the people who earned it and away from bureaucrats who are incentivized to grow government. In fact, the majority of state spending goes to paying government employees through salaries, benefits, and pensions.48-49 Ballooning state spending means more state employees, salaries, and long-term liability on taxpayers.
Money belongs to those who earn it. Some on the Left call tax cuts harmful saying they jeopardize critical services.50 But state spending is at a record high.51 No amount of funding can satisfy the ever-changing supposed “needs” as defined by the Left. Moreover, most states have a spending problem, using taxpayer dollars for non-core functions. Even in fiscally conservative North Carolina, for example, lawmakers have requested several hundred million dollars for “special provisions” like high school athletic facilities, parks, or local non-profits.52 This compels tax cuts, not tax increases on workers.

Especially during times of inflation, tax revenues surge.53 Inflation often benefits the government, while workers are worse off. Meanwhile, personal income tax cuts help the economy, small businesses, and low-income individuals. High personal income taxes, on the other hand, discourage work.
The Bottom Line: States should lower their personal income taxes to help grow the economy and encourage work.
Tax cuts increase disposable income and encourage business investment and job creation, which are crucial to a flourishing economy. Advocates for big government claim tax cuts threaten already starving state budgets. But simple and low taxes mean more jobs and bigger paychecks for workers. And state budgets are snowballing, growing faster than inflation and population growth.54-55 In general, states that have cut taxes have grown their budgets.56 Personal income tax reduction is good for economic growth.57
Finally, tax cuts are crucial to curb government excess. Returning money to the people who earned it helps avoid the tax-and-spend cycle. When government increases taxes to fund its non-core functions, taxpayers foot the bill and government balloons. A century ago, in 1924, government expenditures were 3.3 percent of the economy.58 Today, U.S. government spending is more than 36 percent of GDP.59 Government creates nothing on its own, yet it continues to grow. States should cut personal income taxes to put money back in the pockets of those who earned it.

REFERENCES
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/data/ all/state/state-income-tax-rates-2024.
- Haley Holik, “Why Florida is a national model for regulatory reform,” Foundation for Government Accountability (2022), https://thefga.org/research/florida-is-a-national-model-for-regulatory-reform.
- Author’s calculations using U.S. Census Bureau, “2023 state government tax tables,” U.S. Census Bureau (2024), https://www.census.gov/data/tables/2023/econ/stc/2023-annual.html.
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/data/ all/state/state-income-tax-rates-2024.
- Washington state does tax capital gains. See Washington Senate Ways and Means Committee, “A legislative guide to Washington’s tax structure,” Washington State Legislature (2022), https://leg.wa.gov/Senate/Committees/WM/Documents/ Citizen%27s%20guides/2022%20Guide%20to%20Washington%20State%27s%20Tax%20Structure.pdf.
- While some argue that New Hampshire has no personal income tax, the state does tax dividends and interest, which have a similar function. See New Hampshire Department of Revenue Administration, “Interest & dividends tax,” New Hampshire Department of Revenue Administration (2024), https://www.revenue.nh.gov/taxes-glance/interest-dividends-tax.
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/data/ all/state/state-income-tax-rates-2024.
- Ibid.
- Chris Rosato, “State lawmakers are looking at ways to eliminate state income tax,” WAFB9 (2024), https://www.wafb.com/2024/06/21/state-lawmakers-are-looking-ways-eliminate-state-income-tax.
- Emily Wagster Pettus, “Mississippi Republican governor again calls for phasing out personal income tax in his budget plan,” WLBT3 (2024), https://www.wlbt.com/2024/02/02/mississippi-republican-governor-again-calls-phasing-out-personal-income- tax-his-budget-plan.
- Whitney Downard, “Senate proposes reevaluating state’s tax structure,” Indiana Capital Chronicle (2022), https://indianacapitalchronicle.com/2022/12/20/senate-proposes-reevaluating-states-tax-structure.
- P.R. Lockhart, “Are tax cuts coming? It’s complicated. Here’s how West Virginia’s income tax trigger works, and why it’s causing confusion,” Mountain State Spotlight (2024), https://mountainstatespotlight.org/2024/05/17/income-tax-trigger-west-virginia- special-session.
- Mehreen S. Ismail, “Number and percentage of state-to-state movers increased between 2021 and 2022,” U.S. Census (2023), https://www.census.gov/library/stories/2023/11/state-to-state-migration.html#:~:text=The%20number%20of%20people%20 who,released%20U.S.%20Census%20Bureau%20estimates.
- U.S. Census Bureau, “Guidance for state-to-state migration flows,” U.S. Census Bureau (2024), https://www.census.gov/topics/ population/migration/guidance/state-to-state-migration-flows.html.
- Ibid.
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/data/ all/state/state-income-tax-rates-2024.
- Katherine Loughead, “Kansas lawmakers should prioritize pro-growth, structurally sound tax reforms in special session,” Tax Foundation (2024), https://taxfoundation.org/blog/kansas-tax-reform-2024.
- Senator Jonathan Dismang, “Senate Bill 6 – to create the middle class tax relief act of 2015; to amend the income tax rates and brackets for individuals, trusts, and estates; to amend the income tax on capital gains; and to declare an emergency,” Arkansas State Legislature (2015), https://www.arkleg.state.ar.us/Bills/Detail?ddBienniumSession=2015%2F2015R&measureno=sb6.
- Press Release, “Legislature cuts $438 million a year in state income taxes,” Arkansas Senate (2024), https://senate.arkansas.gov/senate-news/posts/2024/june/legislature-cuts-438-million-a-year-in-state-income-taxes.
- Associated Press, “Arkansas Gov. Sarah Huckabee Sanders signs income, property tax cuts into law,” Fox News (2024), https://www.foxnews.com/politics/arkansas-governor-signs-income-property-tax-cuts-law.
- Representative Timothy Brown et al., “Indiana House Bill 1002,” LegiScan (2022), https://legiscan.com/IN/text/HB1002/2022.
- General Assembly, “House enrolled Act no. 1001,” State of Indiana (2023), https://iga.in.gov/pdf-documents/123/2023/house/ bills/HB1001/HB1001.06.ENRS.pdf.
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/data/ all/state/state-income-tax-rates-2024.
- Speaker Roger Hanshaw et al., “Committee substitute for House Bill 2526,” West Virginia Legislature (2023), https://www.wvlegislature.gov/Bill_Text_HTML/2023_SESSIONS/RS/bills/hb2526%20sub%20enr.pdf.
- Virginia’s 2024 top rate is 5.75 percent, Kentucky’s is 4.0 percent, and Ohio’s is 3.5 percent. Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/data/all/state/state-income-tax- rates-2024.
- John Locke Foundation, “North Carolina budget, tax, and economic highlights: 2024,” John Locke Foundation (2024), https://www.johnlocke.org/wp-content/uploads/2024/05/Budget_Tax_and_Econ_Highlights_2024_c_web.pdf.
- Paige Terryberry, “Happy 10th birthday, Tarheel tax reforms,” The Carolina Journal (2023), https://www.carolinajournal.com/ opinion/happy-10th-birthday-tar-heel-tax-reforms.
- Fiscal Research Division, “North Carolina history of major tax rates,” North Carolina General Assembly (2022), https://sites.ncleg.gov/frd/wp-content/uploads/sites/7/2022/06/History-of-State-Tax-Rates_Updated.pdf.
- Legislative Council Staff, “Colorado online tax handbook home, individual income tax,” Colorado General Assembly (2024), https://leg.colorado.gov/agencies/legislative-council-staff/individual-income-tax%C2%A0.
- Office of Legislative Research and General Counsel, “Tax relief & reform: What does it mean for taxpayers?” Utah Legislature (2007), https://le.utah.gov/lrgc/Briefings/TaxReliefandReform2007.pdf.
- Fiscal Research Division, “North Carolina history of major tax rates,” North Carolina General Assembly (2022), https://sites.ncleg.gov/frd/wp-content/uploads/sites/7/2022/06/History-of-State-Tax-Rates_Updated.pdf.
- Jared Walczak and Katherine Loughead, “The state flat tax revolution: Where things stand today,” Tax Foundation (2024), https://taxfoundation.org/blog/flat-tax-state-income-tax-reform.
- Patrick Gleason, More state to join the flat tax club,” Forbes (2022), https://www.forbes.com/sites/patrickgleason/2022/09/02/ more-states-to-join-the-flat-tax-club.
- Ballotpedia, “Arizona reduce number of income tax brackets to flat rate of 2.50% referendum (2022),” Ballotpedia (2022), https://ballotpedia.org/Arizona_Reduce_Number_of_Income_Tax_Brackets_to_Flat_Rate_of_2.50%25_Referendum_(2022).
- Ibid.
- Representative Shaw Blackmon et al., “House Bill 1437,” Georgia General Assembly (2022), https://www.legis.ga.gov/ legislation/62346.
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/ data/all/state/state-income-tax-rates-2024.
- Seth Colby, “Comparing Hawaii’s income tax burden to other states,” State of Hawaii Department of Taxation (2023), https:// tax.hawaii.gov/blog/blog14-comparing-hawaii-income-taxes.
- Senate President Ty Masterson et al., “Senate Bill 1,” Kansas Legislature (2024), https://kslegislature.org/li_2024s/b2023_24/ measures/sb1.
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/ data/all/state/state-income-tax-rates-2024.
- North Carolina Department of Revenue, “2014 individual income tax changes,” North Carolina Department of Revenue (2014), https://www.ncdor.gov/documents/policies/2014-individual-income-tax-changes/open.
- Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/ data/all/state/state-income-tax-rates-2024.
- Ray Carter, “Tax reform discussion advances in Oklahoma Senate,” Oklahoma Council of Public Affairs (2023), https://ocpathink.org/post/independent-journalism/tax-reform-discussion-advances-in-oklahoma-senate.
- Jared Walczak, “Inflation adjusting state tax codes: a primer,” Tax Foundation (2019), https://taxfoundation.org/research/all/ state/inflation-adjusting-state-tax-codes.
- Colorado Department of Revenue, “Taxpayer’s Bill of Rights (TABOR) information,” Colorado Department of Revenue (2024), https://tax.colorado.gov/TABOR.
- Representative Dennis Riddell, “House Bill 146,” General Assembly of North Carolina (2023), https://webservices.ncleg.gov/ ViewBillDocument/2023/723/0/DRH10074-NIxfy-61.
- Ways and Means Committee, “House Joint Resolution 7001: Supermajority vote for state taxes or fees,” The Florida Senate (2018), https://www.flsenate.gov/Session/Bill/2018/7001.
- Paige Terryberry, “Where does the money really go?” John Locke Foundation (2022), https://www.johnlocke.org/where-does- the-money-really-go.
- Brian Balfour, “The state budget: Where the money actually goes, and how to cut spending,” Civitas Institute (2020), https://www.nccivitas.org/2020/state-budget-money-actually-goes-cut-spending.
- Wesley Tharpe, “States’ recent tax-cut spree creates big risks for families and communities,” Center on Budget and Policy Priorities (2023), https://www.cbpp.org/research/state-budget-and-tax/states-recent-tax-cut-spree-creates-big-risks-for- families-and.
- National Association of State Budget Officers, “State expenditure report,” National Association of State Budget Officers (2024), https://www.nasbo.org/reports-data/state-expenditure-report.
- Paige Terryberry, “Pork wish lists this budget season, revealed,” John Locke Foundation (2023), https://www.johnlocke.org/ pork-wish-lists-this-budget-season-revealed.
- William McBride, “Inflation is surging, so are federal tax collections,” Tax Foundation (2022), https://taxfoundation.org/blog/ federal-tax-collections-inflation-surging.
- Joseph Coletti, “Ten fat years,” John Locke Foundation (2021), https://www.johnlocke.org/ten-fat-years.
- National Association of State Budget Officers, “Fiscal survey of states,” National Association of State Budget Officers (2024), https://www.nasbo.org/reports-data/fiscal-survey-of-states#:~:text=The%20median%20nominal%20growth%20rate,in%20 fiscal%202025%20recommended%20budgets.
- Jared Walczak, “Can states afford their recent tax cuts?” Tax Foundation (2024), https://taxfoundation.org/blog/state-tax-cuts- revenue.
- Timothy Vermeer, “The impact of individual income tax changes on economic growth,” Tax Foundation (2022), https://taxfoundation.org/research/all/state/income-taxes-affect-economy.
- International Monetary Fund, “Government expenditure, percent of GDP,” International Monetary Fund (2022), https://www.imf.org/external/datamapper/exp@FPP/FRA/JPN/GBR/SWE/ESP/ITA/ZAF/IND/USA.
- Ibid.