The States That Have Cut Income Taxes So Far This Year

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Connecting state and local government leaders

Lawmakers have lowered taxes for residents and businesses alike.

With revenues stacking up better than expected, nearly a dozen state legislatures around the country have moved this year to slash income taxes for residents and businesses.

Eleven states have cut individual or corporate income taxes—or both—so far in 2021, with 10 reducing individual income tax rates and five lowering corporate rates, according to a report by the conservative-leaning Tax Foundation. 

Other states will make similar changes to their tax codes later this year or in the next two years, the report also notes.

Many states ended fiscal 2021 with more revenue than they predicted in the early days of the Covid-19 pandemic. The report says this is true even when budgets exclude federal funds from the CARES Act, the American Rescue Plan Act and other aid programs. 

“Many policymakers saw [tax cuts] ... as a necessity, a way of demonstrating their state’s commitment to tax and overall economic competitiveness in an increasingly mobile world,” the report states.

The report points out a number of state tax trends:

  • The income tax reforms have various effective dates. Some are retroactive to the beginning of 2021 while others take effect in January. Meanwhile, others start in 2023 or are phased in over time.
  • Five states—Arizona, Idaho, Iowa, Montana and Ohio—enacted laws to reduce the number of income tax brackets.
  • Five states—Arizona, Idaho, Louisiana, Ohio and Oklahoma—enacted laws to reduce each marginal individual income tax rate.
  • Of the 10 states that reduced individual income tax rates, all but Wisconsin included reductions to the top marginal rate.
  • Montana consolidated seven brackets into two, reducing the top rate and adopting a higher standard deduction to provide relief to lower-income residents.
  • In many states, tax rate reductions are being paired with other policy changes.

Finally, in addition to tax cuts, lawmakers are responding to rising revenues with a combination of increased saving and spending.

For more information from the report click here.

Jean Dimeo is the managing editor for Route Fifty.

NEXT STORY: Legislators and Governors Battle Over Who Spends the Rescue Act Money

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