No U.S. states have ended personal income tax since 1980, but Mississippi and Kentucky may change that tax.
The push to push zero income tax is probably the most radical example of a tax cut trend that swept states as they rebounded from the common 19th pandemic, with revenue and historic surplus surges.
But this is a time of more uncertainty among states, as they wait for President Donald Trump to see whether the cost cuts and tariffs lead to a federal government’s reduction in states’ funding and a downturn in the overall economy.
Some fiscal analysts also warn that the abolition of income tax could make states rely on other taxes, such as sales tax, and have a disproportionate impact on the poor.
Which governments charge income tax? The 16th Amendment to the U.S. Constitution grants Congress the power to collect income taxes. It was approved by the states in 1913. Since then, most states have adopted their own income taxes.
Currently, eight states do not charge personal income taxes: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming. Washington’s ninth state does not charge personal income tax on wages and salaries, but taxes certain capital incomes over $270,000. When Alaska abolished its personal income tax in 1980, the reason for this was that the national treasury overflowed billions of dollars in oil funds. Although the elimination of income taxes has been proposed elsewhere, they have not succeeded.
“If you never levied personal income tax, it’s much easier to not pay personal income tax,” said Katherine Loughhead, senior analyst and research manager at the nonprofit tax foundation. “But once you rely on that income, it’s hard to phase out or eliminate that tax.”
What is Mississippi doing? Republican Mississippi Governor Tate Reeves recently signed a law that gradually lowers the state’s income tax rate from 4% to 2030 and sets a state income growth benchmark that could trigger additional incremental cuts until taxes are eliminated. The law also reduces sales tax on groceries and raises gasoline tax.
If cash reserves are fully funded and the income triggers are met each year, then Mississippi’s income tax could disappear in 2040.
Supporters of the income tax abolition hope it will attract businesses and residents, elevating the state’s economy to Florida, Tennessee and Texas. Their theory is that when people pay income taxes decrease, they will have more money to spend, thus increasing sales tax.
Reeves said in a statement that the abolition of taxes “has put us into a rare elite, competitive state.” He added: “Mississippi has the potential to be opportunities, investments, talent – and families looking to build a better life.”
Mississippi is one of the poorest states and relies heavily on federal funds. Democratic lawmakers warn that the state could face a financial crisis if federal funds are reduced along with state income taxes.
Neva Butkus, senior analyst at the Institute for Nonprofit Taxation and Economic Policy, said income tax provides “a big part of what the state brings.”
What has Kentucky done? The Kentucky law in 2022 lowers the state’s income tax rate and sets a series of income-based triggers that could gradually lower the tax rate to zero. But unlike Mississippi, triggers are not automatic. Instead, the Kentucky General Assembly must approve every increase in tax rates.
This has led to a series of tax cuts, including two new laws this year. A person will reduce the next tax rate from 4% to 3.5% from 2026. Second, if revenue growth is not enough to trigger a 0.5 percentage point reduction, tax rates can be continued by allowing smaller incremental reductions.
Democratic Gov. Andy Beshear signed legislation for tax breaks next year, but another measure to make the Republican-led legislature law without his signature. Beshear called it the “bait and switch” bill, and he believes lawmakers promise that guardrails that reduced income taxes will remain in place while pushing for tax cuts in 2026, then later changed the triggers for the coming years at the meeting.
What actions should be taken? New Hampshire and Tennessee are no longer taxed from wages and wages, but both countries tax certain types of income.
In 2021, Tennessee terminated interest income tax on bonds and stock dividends that have been levied since 1929.
New Hampshire stopped interest and dividend taxes early this year.
Some other states are pushing for abolishing income tax legislation passed by the Oklahoma House of Representatives in March that would gradually lower the personal income tax rate to zero if the income growth benchmark is met. The bill is now in the Senate.
Republican New Missouri Governor Mike Kehoe also wants to conquer the income tax. The House and Senate have enacted high-level legislation that will step up from taxes by exempting capital income.
