Republican-run states provide tax relief while Biden and congressional Democrats try to impose enormous tax increases
June 24, 2021 was a significant date in state tax reform history. On that day Arizona, New Hampshire, and North Carolina took monumental steps towards the enactment of pro-growth income tax cuts.
ARIZONA ENACTS 2.5% FLAT TAX
Arizona lawmakers, in a party line vote, gave final passage to a sweeping tax relief package that will make the state’s tax code among the nation’s most competitive. Once fully implemented, this package, which Gov. Doug Ducey (R) is eager to sign into law, will leave an additional $1.9 billion a year in the pockets of individual taxpayers, families, and small businesses across the Grand Canyon State.
Under the Republican tax package, Arizona’s four income tax brackets, which range from 2.59% to 4.5%, (and effective fifth bracket with a rate of 8% when accounting for Proposition 208’s 3.5% surcharge on certain income) will be streamlined down to a flat rate of 2.5% (with an aggregate cap of 4.5% to mitigate some to harm inflicted by the Prop. 208 “surcharge”). Arizona’s new flat rate will be lower than Arizona’s current bottom rate of 2.59% and the lowest flat rate in the nation.
“Arizona passed a historic and game changing budget that reduces taxes for all taxpayers and moves Arizona to a flat tax on the road to phasing out the entire state income tax,” said Grover Norquist, president of Americans for Tax Reform. “Already there are eight states with no state income tax. Governor Doug Ducey, bill sponsors Senator J.D. Mesnard and Majority Leader Ben Toma, Senate President Pro Tempore Vince Leach, House Appropriations Chair Regina Cobb, House Ways & Means Chair Shawnna Bolick, and many others worked together to create a brighter future for Arizona.”
NEW HAMPSHIRE VOTES TO BECOME A TRUE NO-INCOME-TAX STATE
Also on June 24, legislators passed and sent a budget to the desk of Gov. Chris Sununu (R) that will finally make New Hampshire a true no-income-tax state. While New Hampshire has long avoided taxing wage income, its 5% tax on interest & dividend income has required it to appear with an asterisk by its name when listed as a no-income-tax state.
This provision of the Republican budget will provide much-needed relief to senior living off of investment income and allow New Hampshire to better compete with the other eight no income tax states.
“New Hampshire becomes the nation’s ninth true no-income-tax state fewer than six months after Tennessee became the eighth. States led by smart governors and legislators are now competing to see who will become no-income-tax state number ten,” said Norquist.
NORTH CAROLINA PHASES OUT CORPORATE TAX AND CUTS FLAT INCOME TAX RATE FROM 5.25% to 3.99%
The same day that New Hampshire and Arizona Republicans passed the aforementioned tax reform packages, North Carolina state senators approved their new budget, which includes a new round of income tax relief, with a bipartisan, veto-proof majority. The North Carolina Senate budget cuts the state’s flat income tax rate from 5.25% to 3.99%.
At 2.5%, North Carolina’s corporate income tax, which used to be the highest in the southeastern U.S., is now the lowest among states that impose the tax thanks to tax reform enacted in 2013. The North Carolina Senate budget phases out the corporate income tax entirely by 2028.
“By passing these historic tax relief packages Republican legislators are taking the tax codes of these politically and economically crucial purple states in the opposite direction from Biden and congressional Democrats are seeking to take the federal tax climate,” said Norquist. “While Democrats seek to push the U.S. corporate rate beyond that of China and European competitors, confiscate more household savings and investment income through ending stepped up basis, and impose massive income tax hikes that will crush small businesses, Republicans are using their control of state governments to demonstrate that there is another, better way.”