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Today’s Top Headlines




US States Cut Taxes This Year

by Leroy Baker, Tax-News.com, New York

28 November 2013

Eighteen US states have cut taxes in the 2013 legislative year, reflecting an emphasis, following the recession, on pro-growth reforms that encourage economic expansion and competition, according to a new report by the Center for State Fiscal Reform of the American Legislative Exchange Council (ALEC).

It was pointed out by ALEC that, of the 18 states that have cut taxes during the year, some states have enacted fundamental tax reform, while others have only slightly modified their tax code. There were 25 cuts in specific tax categories, with nearly one quarter being to personal income tax, followed by reductions to various state specific taxes and to the corporate income tax. Sales tax reductions were, however, found to be the least enacted form of tax cuts this year.

ALEC lists the states that cut taxes significantly during the 2013 legislative year as Alaska, Arkansas, Florida, Idaho, Indiana, Iowa, Kansas, Mississippi, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Tennessee, Texas and Wisconsin.

"There is growing consensus that taxes discourage competitiveness and economic growth, with taxes on income being among the worst," said Jonathan Williams, co-author of the report and director of the Center. "To enhance competitiveness, policymakers across America are looking for ways to reduce the cost of living, working and doing business within their states."

"Over the past ten years, the nine states with no personal income tax grew their population by 150 percent and saw their gross state product grow by 40 percent more than their high-tax counterparts," added Ben Wilterdink, co-author of the report and a research analyst at the Center. "The data shows states that do not levy a personal income tax are outperforming their high-tax counterparts in just about every way."

In a newspaper article for Forbes, Wilterdink also pointed out that, "according to the latest IRS data, Texas, which does not levy a personal income tax, gained almost 1m new taxpayers over the past ten years. Florida, another no-income-tax state, gained well over 1m taxpayers during that same time period. California by contrast, which has the highest personal income tax rate, lost more than 1.5m taxpayers over that same period."

"With the federal government locked in seemingly endless gridlock," the Center noted, "it is up to the states to jumpstart their own economies. … It is encouraging to see so many pro-growth proposals from just the last legislative session."

However, it concluded, "it is also important to remember that states do not decide (fiscal) policies in a vacuum. The decisions that one state makes will affect other states whether they like it or not. When states make pro-growth policy decisions, other states are challenged to become more competitive. … As this reality sinks in, the expectation for pro-growth tax reform in the states during the 2014 legislative session will be even higher."

TAGS: individuals | tax | business | sales tax | corporation tax | United States | tax reform | individual income tax

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