Richard Rubin & Jeanne Whalen:
Republican-led states are racing each other to flatten, cut and eliminate individual income taxes, with 23 states lowering their top income-tax rates since 2021. Mississippi and Oklahoma, among others, put themselves on paths to eliminate personal income taxes. South Carolina is setting a course this year to drop its top income-tax rate to 1.99%, and Missouri residents may vote this November on a plan to phase out income taxes and allow lawmakers to expand sales taxes.
Democratic-controlled states are moving the opposite way, pushing to increase taxes on top earners to combat inequality and plug budget holes expected from Republicans’ cuts to federal health and nutrition assistance programs. Washington state’s legislature last week sent Gov. Bob Ferguson a bill that would create a 9.9% income tax on earnings over $1 million. New York City Mayor Zohran Mamdani is pushing state lawmakers to raise income taxes on high-income households. Hikes on top earners are a priority for some Democrats and progressive groups as they head to elections this fall in Rhode Island and Colorado.
The middle ground is quickly disappearing. In 2006, 15 states had top income-tax rates on wage income below 5% and just one exceeded 10%, according to the Tax Foundation, a group that favors lower rates and fewer breaks. Now, more than half of the states have gone below 5% and five others plus the District of Columbia are in double digits.