The cost of living is rising, and states are looking for ways to make their states more affordable for residents. One way is to completely phase out the state income tax. States that want to give their residents relief must do so responsibly by replacing revenue in a sustainable way. Moreover, given the tax landscape that is changing federally, states can exponentially benefit residents by lowering and eliminating the income tax quickly and responsibly. How much do you know about state income tax? Play “Two Truths and a Lie” to find out!
A. Only nine states do not levy state income taxes.
B. Economists find that income taxes are the most pro-growth.
C. Three out of the top four in-migration states do not have state income tax.
A. TRUTH! 41 states and Washington, D.C., tax individual income, and nine states do not: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. States with no income tax provide the environment necessary for strong economic growth. Seven of these states accounted for 17% of U.S. GDP in 2010 and 19% of U.S. GDP in 2019. Eliminating income tax allows residents to keep more of their income, save as needed for rising costs, and invest in their own future through starting businesses more easily.
B. LIE! Economists actually find that sales taxes can be more pro-growth, stable, and efficient than income taxes. Income taxes can distort economic decision-making, such as reducing investment levels and labor force participation. States can use sales taxes to shift the tax burden to non-residents, such as tourists, to provide residents with other tax relief. Six of the nine states that do not levy income tax rely on sales taxes for 60-84% of their state revenue in order to replace the revenue that would typically come from income tax. The remaining three states levy industry taxes: Alaska and Wyoming tax oil and gas, while New Hampshire taxes businesses. Energy has been the top source of general-purpose dollars in Alaska since 2018.
C. TRUTH! The transportation company U-Haul tracks how many of its one-way moving trucks migrate from state to state. In 2025, the top five destination states for movers were Texas, Florida, North Carolina, Tennessee, and South Carolina. Texas, Florida, and Tennessee are income-tax-free and have made the top five state list since at least 2023. These states are highly competitive, with no income tax discouraging workers and strong economic environments encouraging business. Meanwhile, eight of the bottom 10 states were northern states: five in the Northeast, and three in the Midwest. This is both a high-tax, low-tax issue and a political issue. As U-Haul noted, “Blue-to-red state migration, … continues to be a discernible trend.”
Bottom Line:
States that release their citizens from income tax burdens are magnets for people seeking economic prosperity and tax freedom. Income tax-free states grow faster than their tax-heavy counterparts and create competitive regional environments that leave taxpayers better off.
To learn more, read thePolicy Focus: State Income Tax Elimination.