June 28, 2023
Highlights from the 50 Capitals: Which states cut taxes?
High inflation has made it hard for many Americans to afford everyday expenses, including gas, groceries, rent, and electricity. While Washington, DC’s uncontrollable spending triggered much of the inflationary mess the country finds itself in, the federal government has done little to provide relief for Americans.
However, despite Washington’s lack of solutions, the states are stepping up in the form of tax relief. During state legislative sessions (which typically run from January-June each year), states lowered or eliminated their income tax rate, reduced property taxes, and eliminated the franchise tax, among other reforms.
These policies will spur economic growth and help the people and businesses in those states.
Note: While most states hold their legislative sessions sometime between January and June of each year, there are a handful of states that hold their legislative sessions throughout the year or in different months. In addition, there are a handful of states that only meet in odd-numbered years.
The Arkansas Governor and legislative leaders passed a $124 million tax cut on April 10. The Arkansas Policy Foundation applauded Arkansas lawmakers for recognizing the importance of reducing the top state income tax rate from 4.9% to 4.7%, and the corporate rate from 5.3% to 5.1%, retroactive to January 1, 2023.
The Grassroot Institute of Hawaii highlighted how the Legislature approved about $125 million worth of state income tax credits aimed at mostly lower-income residents.
Iowa passed a significant property tax reform measure, which not only consolidates local tax levies, but it creates a strong direct notification requirement. Local governments will now have to inform property taxpayers with a direct notice, which will provide information on how a potential increase will impact their property tax bill and why that budget increase is necessary. This requirement also applies to local bonds and all bond elections must now be held in November. Most importantly, Iowa’s property tax reform is not a shift or tax swap to the state general fund, but it actually forces local governments to begin limiting their own spending.
Iowans for Tax Relief Foundation was involved in this win through their research, numerous op-eds that appeared across Iowa, and working directly with policymakers. ITR Foundation’s Property Tax Toolkit was especially helpful in setting the stage for policy ideas to reform Iowa’s complex property tax system.
Kentucky took yet another step toward eliminating the state’s individual income tax by reducing the rate to 4% from 4.5%. The Bluegrass Institute was involved in this win and applauded lawmakers for reducing Kentuckians’ overall tax burden and improving the commonwealth’s economic competitiveness.
In addition, the Kentucky Legislature closed out its session by agreeing—on the final day of the session— to phase out the bourbon barrel tax, ensuring Kentucky remains the Bourbon Capital of the World. The Bluegrass Institute led the way in making the case in the media and under Frankfort’s dome for removing this barrier for future bourbon entrepreneurs and craft distillers to the Bluegrass State as the place to get their start, rather than being lured to other states without such an anti-growth tax.
On May 31, 2023, the Nebraska Governor signed two bills that enact major tax reforms in the state. The first bill grants more property tax relief to Nebraskans—establishing a three percent annual cap on how much school districts can increase property tax requests. It also eliminates community college property taxes and beefs up a tax credit that offsets the cost of property taxes. The second bill reduces the individual and business income tax rate to 3.99% from 5.84% and 7.25%, respectively. The Platte Institute, an organization that advances policies that improve the lives of Nebraskans, played a key role in passing this historic tax reform package.
On April 27, 2023, the North Dakota Governor signed a tax reform package that will provide $515 million of income and property tax relief for 2023-2025.
In March, Mississippi passed an innovative policy called full expensing. As State Policy Network’s Michael Lucci explains in National Review, “Full expensing enables businesses to immediately deduct the entire cost of capital expenditures from taxable income, rather than spreading out those deductions over years or decades. This simple change unlocks surprising investment and growth. Only one other state—Oklahoma—has adopted full expensing into its tax code. Empower Mississippi, a nonprofit in Jackson, encouraged lawmakers to pass full expensing during the state’s legislative session.
Empower Mississippi’s Forest Thigpen noted full expensing will benefit Mississippi’s economy, by “incentivizing and enabling companies to invest more quickly in growing their capacity, which leads to employing more people, which leads to economic development without government grants and subsidies. Empower Mississippi CEO Grant Callen added: “This bill will encourage businesses of all sizes to grow by investing in equipment and other items that will allow them to expand their capacity, hire more employees, and contribute to growing our state’s economy. Because only one other state has taken this step, this change in our law will make Mississippi more attractive to existing businesses that want to stay and grow, as well as to those looking to move from other states.”
On March 13, 2023, the Montana Governor signed the largest tax cut in state history into law. The package included a bill that lowers the income tax rate from 6.75 to 5.9%. The legislation also triples the earned income tax credit and provides $280 million in property tax relief.
As Frontier Institute CEO Kendall Cotton notes in National Review, “instead of spending more on stimulus, bailouts, and handouts, Montana’s leaders have prioritized reducing the government’s burden on taxpayers. Now, while President Biden proposes tax hikes, Montanans of all incomes are enjoying historic tax breaks.”
In its recently passed budget, Ohio adopted policies championed by The Buckeye Institute that will reduce the tax burden on Ohioans and businesses by nearly $2.6 billion over the next two years. By reducing the number of income tax brackets from four to two, lawmakers have put Ohio on the path to a single flat tax, and reforms to Ohio’s commercial activities tax (CAT) raise the tax liability threshold from $1 million to $3 million in fiscal year 2024 and to $6 million in 2025. As The Buckeye Institute has shown, these reforms can improve Ohio’s economy.
The Oklahoma Council of Public Affairs, a nonprofit in Oklahoma City, has long called for major tax reform in the state, including income-tax elimination. And though policymakers did not pass a major tax cut this year, they did vote to eliminate the marriage penalty, which previously imposed a higher tax rate on married couples than those filing separately. They also eliminated the franchise tax, which will save Oklahoma businesses $55 million per year.
In January, the Beacon Center’s Entrepreneurship & Innovation Council outlined a series of tax reforms that would make Tennessee more competitive and business friendly. Soon thereafter, Governor Bill Lee and legislators proposed legislation adopting each of their tax recommendations, all of which ultimately passed. As a result, more than 140,000 small businesses no longer have to pay the state’s business/gross receipts tax, and the top tax rate for other businesses was cut by 37%.
Another reform makes filing personal tangible property tax returns easier on small businesses by streamlining their paperwork, which can often cost more to comply with than they pay in the tax itself. In addition, the Beacon Center has long called on the Legislature to fix Tennessee’s anti-competitive franchise and excise tax, which is tied for the highest corporate tax of all bordering states. Governor Lee’s reform package fixed that problem. Along with a one-time grocery tax holiday of three months, these reforms returned $400 million in tax cuts to taxpayers this fiscal year and $150 million in ongoing tax cuts each year thereafter.
On March 7, 2023, the West Virginia Governor signed a historic tax reform into law. As the Cardinal Institute for West Virginia Policy explained, the bill includes a 21.25% income tax reduction in the first year and continues to reduce the income tax in subsequent years. The legislation additionally includes several personal property tax rebates. “This historic personal income tax cut will ensure working West Virginians keep more of their own money to spend, save, or invest,” said Garrett Ballengee, Executive Director of the Cardinal Institute. “When coupled with other recent—and historic—reforms like the Hope Scholarship program, these tax cuts make West Virginia a much more attractive place to the millions of workers and families who relocate every year.”
West Virginia Poised to Join Ranks of States Cutting Income Taxes
Cardinal Institute in National Review
Montana Cuts Spending and Lowers Taxes
Frontier Institute in National Review
Mississippi’s New Tax Model Can Work for America
State Policy Network’s Michael Lucci in National Review
Strong Revenue and Fiscal Federalism Are Driving a State-Based Tax Revolution
State Policy Network’s Michael Lucci in National Review
A Tax Cut with No Revenue Loss—and More Jobs
Magnolia Tribune
