State Tax Cuts: Cheers and Jeers

Chris Edwards

State legislative sessions have wrapped up for the year, and taxpayers have once again gained ground. Budget surpluses are prompting many states to cut taxes. Unfortunately, the quality of tax cuts has varied — from broad pro-growth rate cuts in some states to narrow special interest breaks in others.

Republican-led states have focused on cutting individual- and corporate-income tax rates, which is the best way to spur investment and job creation. Between 2021 and 2024, 14 states cut their corporate tax rates and 21 states cut their top individual income tax rates.

Unfortunately, rate cuts are not the only tax change sweeping the country. State tax systems are increasingly infested with narrow breaks, or subsidies, as politicians intervene to aid trendy industries, such as green energy, semiconductors, film production, and data centers.

New York has a tax credit for digital-gaming businesses, Virginia has a tax credit for vineyards, California has a tax credit for cannabis businesses, and Georgia hands out $1 billion a year in tax credits for the film industry. These breaks — often called “incentives” — complicate tax codes, distort the economy, and are unfair to businesses that pay the full tax load.

In legislatures, there is always a battle between the general interest and special interests. In state tax policy, we’ve been getting a lot of both in recent years.

Read more in my new op-ed at National Review.

And look for a full analysis in my upcoming Fiscal Report Card on the Governors.