26 States Have Cut Income Taxes Since 2021
Something unprecedented is happening in American state tax policy. Since 2021, 26 states have enacted reductions to their personal income tax rates. Many have moved to flat tax structures. Several are actively pursuing total elimination of their income tax.
At the same time, a handful of states have moved in the opposite direction — adding surcharges on high earners, expanding tax bases, or introducing entirely new income taxes. The result is a widening gap between two very different tax philosophies, with real consequences for where people and businesses choose to locate.
The Rate-Cutting Wave
The pace of state income tax cuts since 2021 has been historic. Here's a snapshot of some of the most significant changes:
| State | 2021 Top Rate | 2026 Top Rate | Structure Change |
|---|
| Iowa | 8.53% | 3.90% | Moved to flat tax |
| Mississippi | 5.00% | 4.00% | Moved to flat tax |
| Georgia | 5.75% | 4.99% | Moved to flat tax; targeting 0% by 2032 |
| Kentucky | 5.00% | 3.50% | Moved to flat tax; auto-reduction triggers |
| Arizona | 4.50% | 2.50% | Flat tax |
| North Carolina | 5.25% | 3.99% | Flat tax; targeting further cuts |
| Idaho | 6.93% | 5.80% | Flat tax |
| Indiana | 3.23% | 2.90% | Flat tax; gradual reductions |
| South Carolina | 7.00% | 5.70% | Reducing; targeting further cuts |
| Arkansas | 5.90% | 3.90% | Flat tax |
| Oklahoma | 4.75% | 4.50% | Targeting eventual elimination |
| Missouri | 5.40% | 4.70% | Reducing; targeting further cuts |
| Montana | 6.75% | 5.90% | Rate reduction |
| West Virginia | 6.50% | 5.12% | Reducing with triggers |
| Louisiana | 6.00% | 3.00% | Flat tax (2025 overhaul) |
The common threads: flat tax adoption, automatic reduction triggers tied to revenue growth, and explicit language about eventual elimination.
The States Moving the Other Direction
While the majority trend is downward, a few states have increased their tax burden on high earners:
- Washington: Enacted a 7% capital gains tax (2022) and a millionaire income tax (2026) — the first income taxes in state history
- Massachusetts: Passed the "Fair Share Amendment" in 2022, adding a 4% surtax on income above $1 million on top of the existing 5% flat rate, creating an effective 9% top rate
- Minnesota: Increased the top rate and expanded brackets in 2023
- New York: Maintained temporary high-earner surcharges that were originally "pandemic-era" measures
The contrast is stark. A high earner choosing between Georgia (heading to 0%) and Massachusetts (now at 9% above $1M) faces a potential nine-percentage-point swing in state income tax alone.
The Flat Tax Revolution
One of the most notable sub-trends is the wholesale shift from graduated brackets to flat tax structures. Before 2021, only a handful of states used flat income taxes (Illinois, Michigan, Indiana, among others). Since then, at least eight states have converted to flat rates.
Why flat taxes? Three practical reasons:
- Simplicity: One rate means simpler administration and compliance
- Political pathway to zero: It's easier to gradually lower one rate to zero than to restructure an entire bracket system with each reduction
- Competitive signaling: A flat rate — especially a low one — is easy to communicate to businesses and workers considering relocation
Critics point out that flat taxes are less progressive than graduated systems. A 4% flat tax takes a proportionally larger bite from a $40,000 earner than a $400,000 earner in terms of impact on disposable income. States making this shift typically argue that the growth effects and standard deduction protections offset the regressivity concern.
The Migration Story
The tax-cutting trend isn't just theoretical — it correlates with real population movement. IRS migration data (based on tax return address changes) consistently shows net domestic migration flowing from higher-tax to lower-tax states.
Between 2020 and 2024, the states gaining the most domestic migrants were overwhelmingly low- or no-income-tax states:
- Florida: Gained ~800,000 net domestic migrants
- Texas: Gained ~600,000 net domestic migrants
- Tennessee: Gained ~175,000 net domestic migrants
- North Carolina: Gained ~200,000 net domestic migrants
- Arizona: Gained ~175,000 net domestic migrants
States losing the most domestic population:
- California: Lost ~700,000 net domestic migrants
- New York: Lost ~600,000 net domestic migrants
- Illinois: Lost ~300,000 net domestic migrants
- New Jersey: Lost ~100,000 net domestic migrants
Correlation isn't causation, and taxes aren't the only factor — housing costs, remote work flexibility, climate preferences, and job availability all play roles. But when high-income taxpayers leave, they take disproportionate tax revenue with them. California's top 1% of earners pay roughly 50% of the state's income tax revenue. Every departure of a high earner is felt acutely.
The Total Burden Counter-Argument
Here's the nuance that gets lost in "no income tax" headlines: total state and local tax burden matters more than any single tax.
States without income taxes typically compensate with higher sales taxes, property taxes, or other levies. The actual total burden for a given household depends heavily on income level, homeownership, and spending patterns.
| State | Income Tax | Sales Tax (Avg) | Property Tax (Eff.) | Total Rank (Tax Foundation) |
|---|
| Texas | 0% | 8.2% | 1.60% | 36th (mid-pack) |
| Florida | 0% | 7.0% | 0.86% | 43rd (low) |
| Washington | 0%* | 9.2% | 1.00% | 28th (mid) |
| Tennessee | 0% | 9.6% | 0.62% | 44th (low) |
| New Hampshire | 0%** | 0% | 1.86% | 6th (high!) |
| California | 13.3% | 8.7% | 0.71% | 2nd (high) |
| New York | 10.9% | 8.5% | 1.62% | 1st (highest) |
* Washington now has capital gains and millionaire taxes
** New Hampshire has no sales tax but very high property taxes
New Hampshire is the most instructive example. It has no income tax and no sales tax — but makes up for it with property taxes nearly double the national average. A homeowner there may pay more in total state and local taxes than someone in a state with a moderate income tax and low property taxes.
What This Means for Your Tax Planning
The state tax map is more dynamic than it's been in decades. If you're considering a move — or evaluating where to grow a business — keep these principles in mind:
Don't fixate on income tax alone
A state with 0% income tax and 10% sales tax may cost you more than a state with 4% income tax and 5% sales tax, depending on your spending patterns. Model your complete tax burden: income, sales, property, and any applicable business taxes.
Consider the trajectory
A state like Georgia, heading toward 0% by 2032, may be a better long-term bet than a state that's already at 0% but under fiscal pressure. Conversely, states adding new taxes (like Washington's millionaire tax) may not be done yet.
Watch the SALT deduction
The $10,000 SALT deduction cap makes state and local taxes more painful for high earners because you can't fully offset them against federal taxes. This amplifies the benefit of being in a low-tax state and magnifies the cost of being in a high-tax one.
Run the actual numbers
Headlines about tax rates are directional at best. Your actual tax situation depends on your specific income, deductions, family size, homeownership status, and spending patterns. Use a tool like the TaxMath calculator to model real comparisons between states rather than relying on top-rate comparisons.
The Bigger Picture
The 26-state rate-cutting trend reflects a genuine philosophical divergence about how state government should be funded. One camp believes low income taxes attract growth that ultimately generates more revenue. The other believes adequate public services require stable, progressive revenue sources.
Both camps can point to evidence supporting their position. What's undeniable is that the gap between the highest-tax and lowest-tax states is wider than it's been in modern history — and getting wider. For mobile workers and businesses, this divergence creates real financial incentives that the TaxMath calculator can help you quantify.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.