Tax Cuts: 50% of States Are Pushing for Reductions or Eliminating Taxes Altogether
While the federal government is dealing with a debt ceiling crisis, many local states have a cash surplus: so-called “rainy day funds.” In fact, 27 states are now considering cutting taxes (or eliminating them altogether) as a result.
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According to the National Association of State Budget Officers, there’s been two straight years of widespread budget surpluses amid “recent state policy actions to strengthen their reserves,” including billions in federal aid because of the pandemic. In 2020, reserves totaled $70 billion; by 2023, they’re projected to reach $136 billion, or nearly double.
The Institute on Taxation and Economic Policy (ITEP) suggested many states now have “tax cut fever” and are looking at offering property tax cuts and rebate checks, reducing the amount of income taxes paid — and in the case of Mississippi and Arkansas, cutting state income tax altogether.
Per CBS, there are a number of reasons state lawmakers have provided for the move: “To make their states more economically competitive with others; to boost economic growth; or to boost taxpayers who are struggling with inflation.” In particular for Mississippi and Arkansas, having no state taxes would also be a boon to attract businesses as well as new households.
Though, some experts question who the tax cuts would benefit, noting that the highest earners in the 27 states would get much of the reward while lower- to middle-income families still struggle. As well, some analysts told CBS that the timing is worrisome — though states have budget surpluses now, what happens if the U.S. goes into a full-blown recession?
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Per CBS, here are the 27 states eyeing tax cuts and their suggested proposals:
- Arkansas — a total elimination of the state’s individual income tax.
- Colorado — $200 million in property tax relief.
- Connecticut — lowering percentage owed on individual taxes.
- Georgia — $1 billion in inflation relief payments and another $1 billion in property tax relief.
- Idaho — $120 million in property tax relief.
- Indiana — lowering percentage owed on individual taxes, as well as property tax cuts.
- Iowa — a flat income tax rate of 3.9% and lower property taxes.
- Kansas — either flat income taxes or reduced sales taxes and less income taxes on Social Security.
- Kentucky — bringing the flat income tax down from 5% to 4% by next year.
- Louisiana — adjustments to property and sales taxes, have weighed eliminating income tax.
- Michigan — $180 tax rebate to all state filers, removing a retirement tax, expand their matching of the federal Earned Income credit.
- Minnesota — eliminating Social Security tax.
- Mississippi — a total elimination of the state’s individual income tax.
- Missouri — reducing income taxes as well as sales and property taxes.
- Montana — $1,250 or more in tax rebate checks to residents, plus $500 checks for homeowners.
- Nebraska — cutting down income tax rates and eliminating all Social Security income from taxation.
- New Mexico — $750 tax rebate checks to residents.
- North Carolina — reducing the individual income tax rate.
- North Dakota — totally eliminating individual income tax for low- and middle-income earners.
- Ohio — moving from a graduated to flat income tax.
- Oklahoma — reducing state grocery taxes and individual income tax rates.
- South Carolina — fast tracking tax cuts that reduce the rate owed and changes to brackets.
- Utah — tax rebate checks of $100 or more to residents and reducing income tax rate.
- Vermont — nixing tax on veteran pensions and more tax exemptions for Social Security.
- Virginia — reducing individual tax rates.
- West Virginia — cutting individual tax rates by 50% over the next three years.
- Wisconsin — either introducing a flat tax rate or reduced taxes owed for middle-class earners.
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