Current:Home > Scams14 states are cutting individual income taxes in 2024. Here are where taxpayers are getting a break.-LoTradeCoin
14 states are cutting individual income taxes in 2024. Here are where taxpayers are getting a break.
View Date:2024-12-23 19:43:48
Taxpayers in 14 states could get some financial relief this year thanks to lower individual tax rates enacted in 2024, according to an analysis from the Tax Foundation, a think tank that focuses on taxes.
The reductions represent a continuation of "tax cut fever," as termed by the left-leaning Institute on Taxation and Economic Policy (ITEP). The drive to cut state taxes began during the pandemic when many states found themselves flush with tax revenue. With coffers fat, lawmakers sought to provide some relief to their constituents, typically through tax rebates or rate reductions.
The states that are reducing taxes in 2024 tend to be controlled by Republican lawmakers, although there are some Democratic-controlled states that are also jumping on the tax cut bandwagon. Connecticut, for one, is reducing its tax rates for low- and middle-income residents, while keeping its highest marginal rate unchanged.
Lowering tax rates can help make a state more competitive, potentially drawing remote workers and businesses within their borders, noted Manish Bhatt, senior policy analyst with the Center for State Tax Policy at the Tax Foundation.
"The last few years have been incredibly fast-paced in the world of tax rate cuts, and they are to find a competitive edge over either neighboring states or around the country," Bhatt told CBS MoneyWatch.
That logic begs the question of whether people and businesses are incentivized to move in pursuit of lower tax rates. The evidence is mixed: While some researchers have found that Americans shifted to low-tax states in recent years, it could be that some of those taxpayers moved because they were in search of a new job, better weather or lower housing costs.
Other research has found little evidence that lower tax rates drive migration. For instance, even if people move to lower-tax states, they are often replaced in their higher-tax states by new people moving in, noted the Center on Budget and Policy Priorities in a 2023 research paper.
Red state tax cuts
Many of the tax cuts will benefit the states' richest residents, with 12 of the 14 states reducing their top marginal rate, or the tax rate that impacts their highest earners.
Take Arkansas, which is reducing its top marginal rate to 4.4% in 2024, from 4.7% last year. To be sure, the top marginal rate applies to any taxpayer earning more than $24,300, or about 1.1 million residents — a broad base of low-, middle- and high-income earners, according to the Arkansas Advocate.
But about 70% of the tax cut's benefit will be enjoyed by the 20% richest households in the state, or those earning more than $264,000 annually, the newspaper noted, citing data from ITEP.
In the eyes of Arkansas Governor Sarah Huckabee Sanders, the cut will help draw people to the state. If you are "a young family looking for a new place to settle down, moving to Arkansas has never been better," Sanders said when signing the bill to lower tax rates last year, the Arkansas Advocate reported.
There are also longer-term issues that could tarnish the allure of tax cuts. For instance, these tax-cutting states could face a financial pinch when a recession hits — which could lead to hits to essential services, from education to road maintenance.
One such example of a tax cut that backfired occurred in Kansas over a decade ago. In 2012, state lawmakers cut income tax rates for top earners by almost one-third and reduced some business taxes to zero. The idea was that lower taxes would kickstart economic growth.
Instead, the state was forced to slash spending on services, including education, and the state actually underperformed neighboring states economically. Eventually, the tax cuts were reversed.
- In:
- New Hampshire
- Missouri
- South Carolina
- Georgia
- Iowa
- Montana
- North Carolina
- Mississippi
- Indiana
- Taxes
- Nebraska
- Connecticut
- Kentucky
- Ohio
- Arkansas
Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
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