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States Considering Tax Cuts to Attract People Moving Out of High-Tax States


State legislative sessions are gearing up, with governors unveiling their Fiscal Year 2022 tax and spending plans. Interestingly, some states are proposing tax cuts to take advantage of the inbound migration they’re seeing of businesses and individuals coming from certain high-tax states (such as California, Illinois, New Jersey, and New York).

  • Arizona Governor Doug Ducey called for “big” tax reform to increase the state’s contrast with California in his legislative opening address: “[A]s other states chase away opportunity with their new taxes, why on earth would we ever want to follow their failed and depressing example? So I propose, in this session, we work together to reform and lower taxes and preserve Arizona’s good name as a responsible, competitive state. On tax reform, let’s think big.”

  • Arkansas Governor Asa Hutchinson in his State of the State Address recommended a special, lower income tax rate on new residents of 4.9 percent for five years that he hopes will attract new Arkansans and create jobs. Current top income tax rates are 5.9 percent on income over $37,200 and 6.6 percent on income over $79,300.

  • Idaho Governor Brad Little in his State of the State speech outlined $160 million in permanent tax cuts and $295 million in one-time tax cuts, but without specifics.

  • Iowa Governor Kim Reynolds in her Condition of the State Address urged moving up planned tax reductions that would consolidate nine income tax brackets to four and reduce the top rate from 8.53 percent to 6.5 percent. Reynolds wants the reductions to take effect automatically in 2023 instead of being phased in over time, saying the state has a good financial position and the tax cuts would increase competitiveness.

  • Montana Governor Greg Gianforte in his budget proposes cutting the income tax rate from 6.9 percent to 6.75 percent, doubling the deduction from the tax on business equipment, and waiving capital gains tax on employee-owned stock for new businesses that bring long-term jobs to Montana.

California, for its part, is proposing a 12 percent spending increase along with legislative proposals for higher business taxes and making it easier to pass local tax increases, even after Oracle, Hewlett-Packard Enterprise, and Tesla announced decisions to leave California, and countless small businesses have been forced to close. A new poll found 26 percent of Californians are thinking about moving out of the state. Massachusetts and Washington are also considering major income tax increases.

As states pursue tax and spending reforms in upcoming sessions, NTUF will be following closely efforts to reduce burdens to attract residents from high-tax neighbors.