Cut Income Taxes Responsibly to Provide Relief and Protect Critical Services 

  • Housing, health care, grocery, and childcare costs have risen rapidly over the past five years. A solution to affordability is raising workers’ take-home pay by cutting state income taxes, but doing so responsibly to ensure critical government services are not disrupted. 
  • State income taxes pay for maintaining roads, highways, and bridges, and funding public libraries, parks, and education. Income taxes account for about 37% of state tax collections in fiscal year 2022. 
  • 41 states and Washington, D.C., tax individual income, with nearly all of those states taxing wage and salary income. The remaining nine states levy no individual income tax on their residents at all. 

Abolishing the Income Taxes Boosts State Economies

  • State policymakers are recognizing they must lower or eliminate income taxes to be more competitive. Since 2015, 22 states have lowered their income tax while only nine states have raised it. 
  • States that have never taxed income have grown faster than those that do. An analysis found that the same seven states with no state income tax accounted for 17% of U.S. GDP in 2010 and 19% of U.S. GDP in 2019.
  • On average, the economies of income-tax-free states grew faster than those of states with an income tax. Economists also found that states that adopted an income tax in the last six decades experienced slower growth than the rest of the country.

States Have Found Bountiful Revenue Replacements

  • Most states without an income tax rely on sales tax and excise taxes for revenue, such as taxes on motor fuel, alcoholic beverages, and tobacco. Six states with no income tax derive 60 to 84% of their state revenue from sales taxes.
  • States can also levy taxes on industry. Alaska generated over $1 billion last year from taxes on oil and gas. Energy has been the top source of general purpose dollars for services in Alaska since 2018. 
  • Georgia has launched efforts to eliminate income tax and has identified special tax credits and exemptions totaling approximately $30 billion in estimated forgone revenue that could be used to replace the eliminated income tax. 

Click HERE to read the policy focus and learn more about eliminating state income taxes.