2 The southern states aim to end the income taxes of individuals

About 45 years have passed since an American state has eliminated its income tax on wages and wages the last time. But with recent actions in Mississippi and Kentucky, two states are now on the way to do so, if their savings continue to grow.

The zero-income tax exhaust is perhaps the most aggressive example of a tax cutting trend who swept the states as they bounced from the cocovide-19 pandemic with Growing income And Historical surpluses.

But it comes for a period of greater uncertainty for the States, because they wait to see if Cost reduction of President Donald Trump And price cause a reduction in federal funding for states and a slowdown in the overall economy.

Some tax analysts also warn the abrogation of income taxes so that states depend on other levies, such as sales taxes, which disproportionately affect the poor.

What governments charge income tax?

The 16th amendment to the American Constitution gives the congress the power to collect income taxes. It was ratified by the States in 1913. Since then, most of the States have adopted their own income taxes.

Eight states currently do not charge any income tax of individuals: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming. A ninth state, Washington, does not charge any income tax of people on wages and wages, but requires certain capital income of more than $ 270,000.

When Alaska repealed its income tax of individuals in 1980, it did it because the states of the states were overflowing billions of dollars in oil.

Although eliminations of income tax have been proposed elsewhere, they did not succeed.

“It is much easier to do without an individual income tax if you have never received it,” said Katherine Loughad, principal analyst and responsible for non -profit tax foundation. “But once you become dependent on this income, it is much more difficult to eliminate or eliminate this tax.”

What is Mississippi doing?

The Mississippi Tate Reeves republican governor recently signed a law gradually reducing the state tax rate by 4% to 3% by 2030 and establishing state income growth references which could trigger additional additional reductions until the tax is eliminated. The law also reduces the sales tax on the grocery store and increases the tax on gasoline.

If the cash reserves are fully funded and revenue triggers are completed each year, the Mississippi income tax may disappear by 2040.

Supporters of an income tax repeat the hope of attracting businesses and residents, raising the state economy to people like Florida, Tennessee and Texas. Their theory is that when people pay less taxes on income, they will have more money to spend, thus increasing the sales tax collections.

The abrogation of the tax “puts us in a rare class of elite and competitive states,” said Reeves in a press release. He added: “Mississippi has the potential to be a magnet for the opportunity, for investment, for talents – and for families seeking to build a better life.”

Mississippi is among the poorest states and Based strongly on federal funding. Democratic legislators have warned that the state could face a financial crisis if federal funding reductions come at the same time as state income tax reductions.

Income tax provides “a huge percentage of what the State brings to finance things like schools and health care and the services on which everyone is based,” said Neva Butkus, principal analyst of the non -profit institute on taxation and economic policy.

What did Kentucky do?

A law of Kentucky in 2022 reduced the tax rate of the State and has established a series of triggers based on income which could gradually reduce the tax to zero. But unlike Mississippi, triggers are not automatic. The general assembly of Kentucky must rather approve each additional reduction in the tax rate.

This has led to a series of tax measures, including two new laws this year. We implement the next tax reduction rate of 4% to 3.5% from 2026. The second facilitates the continuation of the tax reduction in the future by allowing lower gradual reductions if income growth is not sufficient to trigger a reduction of 0.5 percentage of points.

Democratic Governor Andy Beshear signed The legislation for the tax reduction of next year But that the other measure is adopted by the legislature led by the Republicans to become the law without its signature. Beshear described it as a “bait and switching” bill, the legislators argued that the railing for income tax reductions would remain in place while putting pressure for the tax reduction in 2026, then later in the session, he modified the triggers for future years.

What actions have other states took?

New Hampshire and Tennessee were not already imposed on the income of wages and wages, but the two states had imposed certain types of income.

In 2021, Tennessee ended an income tax on interest from obligations and equity dividends which had been deducted since 1929.

The New Hampshire interrupted its tax on interest and dividends at the start of this year.

Some other states also push to repeal income taxes that Oklahoma House has adopted legislation in March which would gradually reduce the tax rate of individuals to zero if income growth references are respected. This bill is now in the Senate.

The new governor of Missouri, Mike Kehoe, a Republican, also wants to eliminate income tax. The Chamber and the Senate have advanced legislation that would take an additional step by exalting the income of capital gains in taxes.