States address economic uncertainty on own terms, slashing, scrapping taxes to draw residents, biz

In an era of economic uncertainty, a quiet rebellion has been brewing across the country: states are slashing or even scrapping their income taxes, promising bigger paychecks, booming businesses, and a magnet for population growth. 

Arizona reports remarkable results since changing its taxing strategy. Arizona once had a progressive tax system like the federal income tax: the more you made, the greater percentage of your income you had to pay. But now, the state has a flat tax where everybody now pays the same low rate.

Republican state Senator J.D. Mesnard was a key architect of the state’s flat tax, and Full Measure spoke with him on a recent reporting trip to Arizona.

“When I got into office 15 years ago, one of my goals was to try to collapse [Arizona’s tax brackets], simplify that, and then one day, maybe start ratcheting it down closer to zero,” Mesnard said.

“And a few years ago we had the ability to in fact achieve that. We collapsed all five brackets – first into four and then into one, which was actually below the lowest rate that we had. 

"Two-and-a-half percent was phased in over a couple of years. Huge tax cut. But also this major tax reform that I and others have been fighting for a very long time. So now we have the lowest flat tax of any state in the country.”

Lowering state income taxes – or eliminating them altogether – has become a popular trend.

Jared Walczak is with the Tax Foundation, a nonprofit backing simple, transparent tax codes. 

“The highest top rate of estate income tax is 13.3% in California for high earners. And then there's a general payroll tax, that makes it 14.4% on wage income. So that's the highest you can get at the state level,” Walczak tells Full Measure. “If you want to combine state and local, then New York City is going to get you the highest, you're going to get about 14.77%.”

Today there are nine states with no regular income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Walczak says 28 states have reduced income tax rates since 2021.

States implementing fresh cuts this year include: Alabama (to 4.75%), Georgia (to 5.39%), Hawaii (multiple bracket reductions), North Carolina (to 4.5%), and South Carolina (to 6.3%). Arkansas, Iowa, and Montana are phasing in lower rates. Mississippi and Oklahoma are phasing out individual income taxes entirely over time.

Cutting the federal income tax is also popular. 

President Trump’s "One Big Beautiful Bill” delivers on average $3,752 in cuts per taxpayer by extending tax cuts from Trump’s first term, adding no-tax-on-tips (up to $25,000), and more – totaling $4.5 trillion in relief over a decade. The law also lowers the tax brackets and doubles the standard deductions.

Walczak was asked: “Do you see any serious possibility that the federal income tax would be reformed, changed, drastically reduced or done away with?”

He replied: “Not done away with. Usually even when simplification is the goal, policymakers end up making it more complicated. But certainly we've seen changes. 

"When you look at what the rates used to be in the World War II era, there was a top rate of around 90%. Until the Reagan administration there were, you know, top rates well over 50%. So we've seen a lot of relief. But the individual income tax for federal purposes is likely with us for a long time.”

For more on this story, watch "Full Measure with Sharyl Attkisson” Sunday. Attkisson's most recent bestseller is "Follow the $cience: How Big Pharma Misleads, Obscures, and Prevails.”