At least a dozen proposals for income tax cuts that would primarily benefit wealthy residents and big companies are already on the table for state legislatures to consider in 2024 — and more are likely to come.
This follows on the heels of 26 states cutting their personal income tax rates, corporate income tax rates or both between 2021 and 2023, according to the Center on Budget and Policy Priorities, a think tank that focuses on policies’ effect on lower-income people.
Thirteen of those states cut those taxes multiple times.
Like the proposals, the tax cuts already in place disproportionately benefit wealthy households and large corporations. The lost revenue in 2022 and 2023: $13 billion, the Center on Budget and Policy Priorities estimated. The group says the total loss will balloon to roughly $124 billion by 2028, which doesn’t include the impact of any new tax-cutting proposals.
“What we know is that tax cutting always requires trade-offs,” said Aidan Davis, state policy director at the Institute on Taxation and Economic Policy, which calculates the impact of tax policy on different income groups. “If you choose to collect less in taxes, then you’re choosing to do less of something else. It might be smaller investments in our schools. It might be less frequent road maintenance. It might be a weaker safety net for those facing hard times.”
A Center for Public Integrity investigation found last year that conservative groups funded by rich political donors pushed these tax cuts in most states, and that temporary federal pandemic aid gave legislators cover to argue that there was plenty of revenue.
In Oklahoma, Republican Gov. Kevin Stitt proposed an across-the-board cut of 0.25% to the state’s personal income tax. Annual savings would amount to $19 for the lowest-income earners and $2,634 for the highest, according to an analysis by the Institute on Taxation and Economic Policy.
“When we use tax cuts to say ‘we are putting money in people’s pockets,’ yes we are, but it’s usually the wealthy,” said Shiloh Kantz, executive director of the Oklahoma Policy Institute, which advocates for equitable policies.
In a special session called for the tax cuts last week, Oklahoma’s House passed the bill. The Senate convened and voted to adjourn without further action the same day. Senate Pro Tem Greg Treat, a Republican, said in a press conference that he’s concerned about how to pay for those cuts and considers the special session “a waste of taxpayer dollars.”
When adjusted for inflation and population growth, the current state budget is 12% smaller than it was two decades ago, according to the Oklahoma Policy Institute.
But several bills for further tax cuts remain on the table for consideration in the state’s regular session, which started Monday. The governor has indicated he wants the state to move toward eliminating the income tax entirely. “This will keep us in line with surrounding Republican-led states,” the governor’s office said in a press release.
“Oklahoma ranks among the worst states in nearly every quality-of-life report from health, poverty, child hunger, education, a list of needs that we do not have enough time for on this call,” said Kantz, with the Oklahoma Policy Institute. “Decades of tax cuts have kept the state from investing billions of dollars annually into the shared services that could help improve these outcomes.”
State lawmakers have cut the state’s personal income tax nine times in the last 20 years, bringing it down from 7% in 2002 to 4.75% today, according to the Oklahoma Policy Institute. This includes a tax cut in 2021.
A recent report from the Center on Budget and Policy Priorities lays out the damage that can be expected from recent tax cuts around the country.
In Arizona, North Carolina and West Virginia, the cuts could shrink general funds by about 11% over the next five years, according to the Center on Budget and Policy Priorities report. Cuts could also reduce general fund revenues by at least 6% over that period in Arkansas, Idaho, Iowa, Kentucky, Nebraska and North Dakota.
Republican legislative leaders in Kansas have pushed for income tax cuts in this recent wave as well. Both last year and already this year, Democratic Gov. Laura Kelly has vetoed those bills, calling them “reckless” and “irresponsible” in January, the Kansas Reflector reported.
Kansas is a frequently-cited example of why income tax cuts can be harmful. After reducing rates in 2012 and 2013, the state lost hundreds of millions of dollars in revenue, slashed public spending, hurt its credit rating and eventually repealed the tax cuts.
Backtracking after cuts isn’t always possible. It’s often far more difficult to increase tax rates or find new sources of revenue because many states require a supermajority legislative vote to enact new taxes, in comparison with a majority vote to reduce them.
Oklahoma has the nation’s highest threshold for raising new revenue, requiring more than 75% of its legislature to approve new taxes. As a result, Oklahoma lawmakers have voted to raise new revenue only once since 1992, according to the Oklahoma Policy Institute.
“What oftentimes happens in the shorter term in many states is revenue begins to decline due to sharp cuts in income taxes,” said Wesley Tharpe, senior advisor on state tax policies for the Center on Budget and Policy Priorities and author of its tax report. “Lawmakers will begin to turn to more regressive forms of revenue that fall on lower income individuals — increasing sales taxes or excise taxes on gas or tobacco or increasing fines and fees.”
The reliance on taxes like sales and excise taxes is why most states make poor residents contribute a greater share of their income to taxes than wealthy people do, Public Integrity reported in a 2022 investigation.
Arkansas enacted four rounds of personal and corporate income tax cuts in 2021, 2022 and 2023. For the annual cost of just the 2023 cuts, the state could have created an eight-week paid parental leave program for all parents in the state, according to Tharpe’s report.
Nebraska enacted three rounds of income tax cuts over the past three years, which will cost an estimated $1 billion annually by 2028. This revenue loss equals roughly what Nebraska spends on its Medicaid program that serves nearly 400,000 low-income residents.
“What is really important is the choice that is being made to forgo the investment that could be made with those dollars,” Tharpe said. “Voters don’t often know what they’re missing out on. Had they not cut the taxes, they could’ve put more teachers in the classroom, childcare. It’s really about the tradeoff.”
The tax cuts also largely help the wealthiest individuals, who are disproportionately white.
In Arizona, for example, households of color account for more than 33% of taxpayers, but they would receive only 21% of the benefits from the tax plan enacted in 2021, the Arizona Center for Economic Progress estimated in an analysis that year.
“The true damage doesn’t show up until a few years out,” Tharpe said. “You can mask the harm with one-time funds, but eventually the bill comes due.”
A few states have gone the other direction the last few years, a path that Tharpe hopes more will follow.
Massachusetts voters in 2022 amended their constitution to tax millionaires at a higher rate. The measure is expected to eventually raise at least $2 billion annually, with new revenue dedicated to public education and transportation. In 2021, Washington established a tax on capital gains that the state’s Supreme Court upheld in 2023. The tax is expected to generate over $500 million a year that will go toward public schools and childcare.
“What we’ve been programmed to believe is … ‘taxes’ equals ‘bad,’” said Kantz of the Oklahoma Policy Institute. “When really we should talk about taxes as state revenue or government revenue or country revenue. It’s the mutual agreement of all of us to come together and put a collective investment into an opportunity for everybody, not just ourselves.”
Correction, Feb. 9, 4:37 p.m: Several of the references to the Oklahoma Policy Institute in an earlier version of this story used the wrong name and have been updated.