Growth-friendly tax reform is underway in several states. This year, 14 states passed tax reforms, which would have been unheard of just a year ago. However, the good news about tax reform doesn’t end in 2021. It looks like many states, including Iowa, are on the cusp of continuing to reduce the tax burden on their citizens.
Voters in Louisiana approved Amendment 2, an income tax reform measure that will lower the personal income tax rate from 6% to 4.75%. Corporate tax will be consolidated in three installments, the maximum rate going from 8% to 7.5%. With the approval of Amendment 2, the tax reform legislation passed by the Louisiana legislature will now be implemented accordingly.
“For too long, Louisiana has lagged behind our neighbors, but the people of Louisiana voted to start our story back by passing Amendment 2 to simplify our tax code and lower our tax rates on the income at the lowest in the Southeast of the tax-collecting states. . This is just the beginning. It is a stepping stone to bigger and more substantial reforms in the years to come, âsaid Daniel Erspamer, CEO of the Pelican Institute for Public Policy.
In North Carolina, the legislature approved a budget that includes new tax reform. North Carolina is considered the gold standard for state tax reform policy. For several years, Tarheel State has lowered personal and corporate tax rates, while creating a simpler, growth-friendly tax code.
Under the agreement, the personal income tax will be reduced from 5.25% to 3.99% over a period of six years. Starting in 2025, North Carolina’s 2.5% corporate tax rate will be phased out with a full repeal by 2031. North Carolina tax reform is an example for other states because they have shown that tax reform can be successful if you keep spending growth low. .
In Mississippi, Governor Tate Reeves recently announcement in his budget proposal that he will push further income tax reforms with the ultimate goal of eliminating income tax. This is in addition to the progress Mississippi has already made. The Taxpayer Pay Raise Act phased out the 3% income tax bracket, eliminating it completely in 2022. Mississippi, like Iowa, has a billion dollar surplus, and the Governor Reeves proposes to channel “excess income toward the elimination of the personal income tax.”
Governor Reeves’ latest proposal would eliminate the 4% income tax bracket in fiscal year 2023 and a “significant portion of the 5% bracket” would also be eliminated. The goal is to completely eliminate income tax within five years. In order to protect the state’s budget and tax bases, Reeves calls for budget caps and growth limited to 1.5% per fiscal year. In addition, “50% of the excess revenue will go towards the elimination of the Mississippi personal income tax …” Gov. Reeves also said it would be “unnecessary to increase other taxes” in order to eliminate income tax.
The stories of Louisiana, North Carolina and Mississippi are just the beginning of states that will work to reduce income tax rates in 2022. Next year should be a year. gold standard year for tax reform across the country.
Gov. Kim Reynolds and Republican lawmakers are already making income tax reform a priority. The Iowa budget is in great shape with a budget surplus of $ 1.24 billion. This will provide a historic opportunity for significant tax reform for growth. Reflecting on a recent court ruling that favors the taxpayer over the federal government, Governor Reynolds noted, âThe Biden administration cannot stop us from lowering taxes and I look forward to doing so.
Governor Reynolds understands that the key to strengthening Iowa’s economy and making the state more competitive is through a tax code that enables economic growth that will create opportunities for Iowans. Iowa competes with other states for business, and census results show the tax climate matters. In fact, some economists have described this current era as âincreased competitionâ between states. Businesses and individuals are looking for better fiscal climates and offshoring is becoming easier, especially as more and more people are working remotely.
Policymakers have an opportunity in 2022 to build on past tax reforms and lower rates to make Iowa an economic leader that enables hard-working Iowa families and businesses to retain greater part of their hard-earned income.
John Hendrickson is the Iowans Policy Director for the Tax Relief Foundation