Tax-Cutting States Experience Economic Growth and Population Surge

Several states across the United States are witnessing significant economic and population growth following recent tax reductions. As discussions regarding sweeping federal tax reforms intensify, state-level initiatives have already gained traction, showcasing the potential benefits of cutting income taxes.

In Arizona, Republican state Senator J.D. Mesnard played a pivotal role in enacting a flat tax law in 2021. This reform transformed the state’s progressive income tax structure, which previously imposed higher rates on wealthier individuals. Mesnard explained, “We collapsed our five brackets into four, and then into one, which was actually below our lowest rate.” The newly implemented flat tax rate of 2.5% is now recognized as the lowest in the nation. Since the reform, Arizona has reported an increase in both tax revenue and population.

Mesnard has received inquiries from lawmakers in other states interested in adopting Arizona’s flat tax model. He expressed a blend of pride and caution, humorously noting, “Part of me was thinking, ‘I don’t want you to compete with us too much,’ but I love to see other states be successful.”

Arizona is not alone in this movement. According to the Tax Foundation, a nonprofit organization focused on tax policy, 28 states have reduced income tax rates since 2021. Notably, nine states, including Texas, Florida, and Tennessee, have opted to eliminate state income taxes altogether. Furthermore, states such as Alabama, Georgia, North Carolina, and South Carolina have implemented their own tax cuts this year. Meanwhile, Arkansas, Iowa, and Montana are gradually reducing rates, while Mississippi and Oklahoma aim to phase out income taxes entirely.

Despite the apparent successes, experts caution that cutting taxes without a comprehensive fiscal strategy can lead to adverse consequences. Jared Walczak, vice president of state projects at the Tax Foundation, voiced concerns regarding Mississippi’s aggressive push to repeal its income tax. He stated, “They didn’t have a responsible plan to do this. The alternative revenue streams were inadequate.” In response to these concerns, state leaders adopted a more measured approach, incorporating revenue triggers to assess the feasibility of further tax reductions.

Critics argue that states with no income tax often compensate by imposing higher property or sales taxes, disproportionately impacting lower-income residents. Walczak, however, contends that residents in these states ultimately pay less overall. He noted, “Yes, if you’re in Tennessee, your sales taxes are high. But if you add up all your taxes, you’re still paying way less in those states.”

Data from the Tax Foundation supports this assertion, indicating that states that have implemented tax cuts since 2021 exhibit stronger-than-average economic performance and population growth.

Conversely, some states continue to pursue different tax strategies. For example, Illinois has opted to maintain taxation on tips at the state level, despite federal exemptions introduced under the Trump administration.

As discussions on tax reform continue, Mesnard highlights Arizona’s experience as an example of how lowering tax rates can enhance a state’s attractiveness. He remarked, “Arizona has continued to be a place folks talk about moving to. This just moved us that much further up the ranks.”

For those interested in exploring the nuances of this issue, “Full Measure with Sharyl Attkisson” airs at 10 a.m. on Sundays on WJLA (Channel 7) and WBFF (Channel 45).