Individual income tax rates are becoming more extreme throughout the country, with Democratic-led states looking to raise tax rates on wealthier individuals while Republican-led states seek to lower or wholly eliminate income tax.
Over the last five years, 23 states with Republican governors have lowered their top income tax rates as they try to compete with neighboring states that have attracted wealthy people by lowering, or even eliminating, top income tax rates, the Wall Street Journal reported.
Lower income tax rates are attractive and can incentivize people to invest more in the state. But it also means average residents can face higher sales tax or fees to make up for the gap in revenue.
Democratic-led states have done the opposite, maintaining their top income tax rate, with some considering increasing it to make up for the loss of revenue needed to combat the Trump administration’s welfare cuts.
As a result, the middle ground is disappearing, leaving residents to decide whether they want to pay a state income tax to contribute to state programs or keep their earned income while facing taxes in other ways.
This year alone, seven Republican-led states reduced their top income tax rates.
Some states, such as Mississippi, South Carolina and Oklahoma, are on paths to eliminate the top income tax rate, joining Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
Mississippi Governor Tate Reeves championed the legislation that moves the state in that direction, saying it allows people to “feed your family and invest in your home and your community.”
“I believe in a simple idea: that government should take less so that you can keep more. That our people should be rewarded for hard work, not punished. And that Mississippi has the potential to be a magnet for opportunity, for investment, for talent – and for families looking to build a better life,” Reeves said in a press release.
But some experts say eliminating income tax means lower and middle-income families will have to pay more.
“Public services would be cut, other taxes and levies that fall more heavily on low- and middle-income families (including sales taxes, excise taxes, fees and fines) would be increased, or — most likely — both those things would happen,” Aidan Davis from the Institute on Taxation and Economic Policy wrote.
Missouri lawmakers are contemplating eliminating the state income tax and instead allowing legislators to raise sales tax and apply it to various services such as TV streaming, auto repairs, salon visits and plumbing services – making some everyday expenses cost more.
Additionally, states with limited or no income tax rates may also have fewer social services available due to a revenue drop.
Meanwhile, prominent Democratic states, such as California, Hawaii, New Jersey, New York and D.C. have top income tax rates of 10 percent or more, which means residents take home less of their earned income, impacting the cost of living.
New York City Mayor Zohran Mamdani has advocated for increasing top income tax rates on New Yorkers earning $1 million or more to help add more revenue to fund essential services.
But critics have warned it would cause wealthy residents to leave the state for more favorable taxes – limiting investments in the state.
Andrew Rein, the president of the Citizens Budget Commission, told The City it wasn’t likely that people and businesses “will leave in droves tomorrow if taxes are raised,” but did warn that raising income tax rates “does chop away at our competitive foundation over time.”
Storms cancel more US flights as TSA remains under pressure from partial government shutdown
Burgers, cocktails, sparkly new duds: Oscar winners, losers and guests hit the after-parties
Iran hits Gulf neighbors and keeps stranglehold on oil shipping as concerns rise of energy crisis
People ‘high up’ in the White House are against Trump’s war with Iran, ex-ally claims
Trump warns US allies to ‘get involved and quickly’ with Iran war in rambling remarks
Fox News uses a headline that Hegseth ranted about, demanding more ‘patriotic press’
