On Tax Day, ATR Vice President of State Affairs Patrick Gleason outlined the progress made at the state level in recent years. Tax competition is heating up as more states move to a flat rate income tax on the way to a full phaseout. Video of Gleason’s remarks can be found here.
Speaking at the House Triangle, Gleason said:
“I get to end with some good news for everybody. We’ve heard a lot today about all the tax hikes and anti-growth policies coming out of the Biden administration or have already been enacted and are being supported by congressional Democrats. And while those are certainly worthy of denunciation for many of the reasons you’ve heard about today, the good news is in state capitals across the country, taxpayers have reason for celebration.
Many who work in this building behind me might not know it and many in the national media might not know it, but we’re currently in the midst of what is considered a golden era of state tax relief. In fact, the last decade of it has been what many have dubbed the Flat Tax revolution.
If you look at just the last three years alone, since 2020 — we’ve seen more than 40 states enact some form of state tax relief. Of those states more than 20 have enacted some form of significant state top marginal income tax rate reduction.
If you look at just the last five years, we’ve seen the club of no income tax states grow considerably by about 15%. As recently as five years ago, we had seven no income tax states. Tennessee phased out their investment income tax in 2021 bringing us to eight no income tax states.
And then New Hampshire enacted legislation phasing out their investment income tax which will bring us to nine no income tax states when that phase out is completed in a few years. In fact, there’s legislation pending now in New Hampshire that may speed up that phase out getting us to nine new income tax states even sooner.
So we’ve gone from seven to nine no income tax states in just a few years. We have a collection of states where governors and state legislators are jockeying to become no income tax state number 10.
Many of those states jockeying to become no income tax states have first taken the step to become a flat tax state. In fact, in the last half decade, we’ve seen more states enact flat taxes than all of preceding history prior to that point.
We’ve gone from nine to 14 states with flat taxes. When you look at the states with a flat tax of zero — no income tax — or a flat tax above zero, we’re now at almost half the country that either has a zero income tax or a flat tax rate. This is really significant progress in just a few years.
This is really good news. You look at the numbers as recently as 13 years ago, in 2010. the year that Republicans swept control in many state capitals, the median top state income tax rate was 6%. Because of the success we’ve had in bringing down state tax rates that I mentioned over the past decade, that median top state income tax rate has come down from 6% to 5% today and it’s scheduled to go down further to 4.9% thanks to already-scheduled, already-codified state income tax rate reductions, that’s going to take effect in the coming years.
And with all that progress, we have more pending state income tax rate reduction pending in state capitals right now. So we may see further progress before we even get to the summer.
So the good news is while we’ve got a lot of challenges and threats we’re dealing with at the federal level, with anti-growth policies coming out of this administration and expiring provisions of the Tax Cuts and Jobs Act that need to be continued and made permanent, the good news is at the state level, we’re making a lot of progress.
Pro-growth, rate-reducing tax reform is advancing. In fact, the interest in it is not waning, it’s growing. And so this golden age of state tax reform shows no signs of ending anytime soon.”