The Proof Is in the Pudding: Low-Tax States Do Better

The year 2025 will be remembered as another chapter in America’s long running argument over the economy, one in which the evidence continues to point in a familiar direction. In short, freedom works. At the federal level, lawmakers made permanent the lower tax rates first signed into law by President Donald Trump in 2017, which had been scheduled to expire at the end of 2025. The new 2025 Trump tax cuts retained provisions designed to reduce the tax penalty on work, savings and investment. The result is not mysterious: hard working Americans will now keep more of what they earn, and fewer economic decisions will be distorted by the tax code.

More success continues to occur at the state level. This year, 11 states—Georgia, Idaho, Indiana, Kansas, Kentucky, Mississippi, Missouri, Montana, Ohio, Oklahoma and Utah—cut personal income tax rates. These were broad based reductions that applied to any hard-working individual earning a living or investing in those states, as well as nearly all small businesses on Main Street. Such policies leave individuals with more disposable income, which can be spent, saved or invested without government officials needing to decide in advance who deserves relief. States that reduce taxes on work also make themselves more attractive places to live and do business.

Americans are not a captive tax base. Over the past 15 years, for instance, more than 4 million people on net have moved to Florida and Texas alone. These are two of the states in a country, of course, with no personal income tax at all. Over the same period of time, New York and California, which imposed some of the nation’s highest marginal tax rates, lost roughly 4.7 million residents to the other states. These outcomes are not surprising. They reflect predictable responses to incentives.

It is therefore unsurprising that states such as Oklahoma, Mississippi and Kentucky are charting paths toward eliminating their income taxes altogether. Missouri took a partial step this year by eliminating taxes on capital gains and plans to fully eliminate the state’s personal income tax are underway in Jefferson City as we speak. Nearly two decades of evidence from our ALEC Rich States, Poor States report point to the same conclusion: states that want growth and competitiveness would do well to resemble Texas and Florida and avoid the mistakes of New York and California.

Kansas offers a useful reminder of how past political narratives can sometimes obscure economic reality. More than a decade ago, tax cuts there were blamed for subsequent budget deficits, even though those deficits were stemming from spending rather than the tax relief itself. That version of events, though hardened into conventional wisdom, discouraging reform elsewhere. Yet over the years, many states have cut taxes while balancing their budget successfully, and in 2025 Kansas embraced a flat income tax while cutting tax rates in the process. Lawmakers there rewrote the story that once incorrectly defined their state for years, Kansas was not alone.

In 2025, Ohio policymakers enacted legislation to implement a 2.75% flat tax beginning on January 1, with these additions. Now, eight states have shifted from progressive income taxes to flat taxes in the past five years. The appeal is not simply ideological, but practical. Flat taxes reduce penalties on additional work, simplify compliance and make budgeting more practical.

While some states enacted policies that will increase tax burdens and, inevitably, the cost of living, resistance is emerging. In Oregon, a newly appointed tax increase had been put on hold pending a voter referendum next year. If voters reject it, the tax will be eliminated entirely in the backyard of modern-day progressive ideology.

The broader pattern is clear: tax relief continues to be a winning issue. Congress and President Trump wisely made the 2017 federal tax relief permanent. 11 states cut personal income tax rates, and others continued reductions already in law, and even more advanced flat taxes or planned for the elimination of income taxes altogether. Iowa and Louisiana completed their first full year under flat tax systems, while Kansas and Ohio followed their lead.

This year was a banner year for our congressional leaders like Speaker of the House Mike Johnson and Senate Majority Leader John Thune and their members collaborating with President Trump to make historic tax cuts permanent at the federal level. Free market leaders in the States did incredible work to provide historic taxpayer wins as well. When you combine the historic efforts at the state and federal levels, an overwhelming majority of Americans will now see greater affordability directly due to these lower tax burdens and that is something which we can all be thankful for this year.

Jonathan Williams is President and Chief Economist of the American Legislative Exchange Council (ALEC), where he works with state policymakers, congressional leaders and members of the private sector to develop fiscal policy solutions for the states. Williams founded the ALEC Center for State Fiscal Reform in 2011 and co-authors Rich States, Poor States: ALEC-Laffer Economic State Competitiveness Index with Reagan economist Dr. Arthur Laffer and Stephen Moore. Prior to joining ALEC, Williams served as staff economist at the nonpartisan Tax Foundation, authoring numerous tax policy studies.

Republished from ALEC.