America has long shown the world that competition between businesses drives growth, technological innovation and new investment. That is how we became the most prosperous nation in the world.
Now the 50 states are proving that competition between states to provide the best government at the lowest cost also makes America stronger and richer. States with lower taxes attract new investment, jobs, and families.
States with higher taxes lose jobs, businesses and people.
And this competition is heating up. This is increasingly obvious to all Americans.
U-Haul’s annual report on state growth found Texas and Florida – two of the seven no-income-tax states – had the largest net gain of one-way U-Haul trucks arriving in their borders in 2022. Americans are moving to lower-tax states.
Over that same period, U-Haul has consistently found California, Illinois, New Jersey, and New York – four states with high income tax rates and high tax burdens overall – to be in the bottom 10 growth states. In fact, California and Illinois are usually just fighting for 49th.
Right now, there are seven no-income-tax states: Texas, Florida, Tennessee, Nevada, South Dakota, Alaska and Wyoming. New Hampshire – which does not tax wage income – will be the eighth no-income-tax state on January 1, 2025, when it completes a phase-out of its income tax on interest and dividends.
State personal income tax rates were cut in at least 20 states over the past three years. Governors and state legislative leaders in many of these states have publicly stated that these tax cuts were the first step on the path to zero.
Which state will be the tenth to appear on no-income-tax list?
Arizona is one to watch. Thanks to the hard work of House Speaker Ben Toma, Senate Finance Committee Chair J.D. Mesnard, and former Gov. Doug Ducey, Arizona’s old, graduated income tax -- which had a top rate of 4.5% -- has been streamlined to a flat rate of 2.5%.
Toma, Mesnard, and many other Republicans in the state House and Senate want to continue to chip away at the income tax until it is phased out completely.
Kentucky is also at the forefront of this movement. Senate President Robert Stivers, House Speaker David Osborne, and House Speaker Pro Tempore David Meade overrode a veto from Democrat Gov. Andy Beshear in order to get a full phase-out of the income tax in law. The phase-out has already reduced Kentucky’s flat income tax from 5% to 4.5% and is reducing it to 4% on Jan. 1, 2024. Republican gubernatorial candidate Daniel Cameron is committed to seeing the income tax elimination through if he is elected.
Mississippi Gov. Tate Reeves and House Speaker Phil Gunn have also made significant progress towards their goal of eliminating the income tax. The Mississippi Tax Freedom Act of 2022 is now in the process of transforming Mississippi’s previously graduated income tax to a flat rate of 4% by 2026.
The original version of this new law – which was approved by the House of Representatives by a vote of 107-4 – would have eliminated Mississippi’s income tax completely, but Lt. Governor Delbert Hosemann – who runs the state Senate and is more focused on throwing tax dollars at already bloated spending programs – refused to allow a full income tax phase-out to move forward. Hosemann is currently facing a primary challenger.
Iowa Governor Kim Reynolds, Senate Majority Leader Jack Whitver, Senate Ways & Means Chair Dan Dawson, and House Speaker Pat Grassley are also working to eliminate the income tax. Thanks to their leadership, Iowa’s graduated income tax, which had a top rate of 8.53%, is now being streamlined to a flat rate of 3.9% by 2026.
On Iowa’s heels, neighboring state Nebraska, under the leadership of Gov. Jim Pillen, Speaker John Arch, and Senator Lou Ann Linehan, now has a law in place that will reduce its top income tax rate to 3.99% by 2027.
West Virginia is also moving forward. Gov. Jim Justice and Republican lawmakers put West Virginia on the path to being a no-income-tax state, including a 25% rate cut across all brackets. Governor Justice’s efforts have now made him the front-runner to become the Mountain State's next U.S. Senator.
Arkansas Gov. Sarah Huckabee Sanders ran on eliminating the state income tax. This year, House Revenue & Taxation Committee Chair Les Eaves and many others in the House and Senate delivered Gov. Sanders a bill that reduced the top income tax rate – the part of the income tax that is sued to make decisions about investment – from 4.9% to 4.7%.
Louisiana is another state to watch. Under the leadership of Senate Majority Leader Sharon Hewitt and Senate Revenue & Fiscal Affairs Committee Chair Bret Allain, all of the state income tax rates were reduced from 2%, 4%, and 6%, to 1.85%, 3.5%, and 4.25%. Multiple Republican gubernatorial candidates have said they would like to see Louisiana become a no-income-tax state.
Georgia Gov. Brian Kemp, House Ways & Means Chair Shaw Blackmon, and House Majority Leader Bruce Williamson are also driving their income tax down. Georgia’s graduated income tax, which has a top rate of 5.75%, will be streamlined to a flat rate of 5.49% on Jan. 1, 2024, and then, as certain triggers are met, gradually reduced to 4.99%.
Gov. Gregg Gianforte recently enacted legislation that will reduce Montana’s top individual income tax rate – the rate that is paid by most Montana income taxpayers – from 6.75% to 5.9%. This rate was 6.9% in 2021 when Gov. Gianforte took office. Montana does not impose a state sales tax.
Indiana, thanks to the leadership of Gov. Eric Holcomb, House Speaker Todd Huston, and many others, will have an income tax rate of 2.9% by 2027. Lawmakers in Idaho, Missouri, North Carolina, North Dakota, South Carolina, and Utah have also delivered income tax rate cuts over the last two legislative sessions.
Virginia could soon be another state to watch. This year's legislative elections in Virginia will put tax cuts on the ballot. Gov. Glenn Youngkin, Speaker Todd Gilbert, and Senate Republicans are poised to deliver even more tax relief to Virginians if they're able to take control of both chambers this fall.
Blue states are feeling the pressure. Connecticut Gov. Ned Lamont recently enacted legislation that reduces the two bottom income brackets from 3% to 2% and 5% to 4.5%.
This growing movement towards low- and no- state income taxes is a huge win for everyone. Low- and no-income-tax states allow individual taxpayers and families to keep more of their hard-earned money. They also allow small businesses – which pay their taxes on the personal side of the code—to invest more in their employees and operations.
Low- and no-income tax states are much more attractive places to live, do business, and raise a family. This investment generates new jobs, higher wages, and better opportunities for all.
And finally, by putting pressure on all states to reduce their tax burdens, the movement towards low- and no-income taxes will ultimately reduce the average combined state and federal tax burden, making America more competitive internationally.
Grover Norquist is president of Americans for Tax Reform.