Nine states across the country have lowered their income tax rate as of January 1, in a move that, at least on paper, should allow residents to have more money to spend on goods and services.
Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, and West Virginia all implemented income tax cuts as of the new year, two states embracing flat rates, according to the Washington-based think tank Tax Foundation. Another state, South Carolina, has made a temporary income tax reduction permanent as of the same date.
Newsweek contacted the Tax Foundation for comment by email on Friday.
Why It Matters
Income tax cuts are expected to be popular among benefiting residents and could potentially make the states which have implemented them more appealing to Americans looking to move to cheaper places—a strategy that has served Texas and Florida (which have no state individual income tax) well for decades.
Many of the states that have implemented cuts on January 1 have done so as part of long-term plans to reduce the tax burden on their residents, backed by sufficient revenues in the past few years. But Democrats in some of these states—many of which are controlled by the GOP—have expressed concerns over the impact these cuts could have on publicly-funded services.
What To Know
Indiana, which already had a flat individual income tax rate, lowered from 3.05 percent in 2024 to 3 percent as of January 1 under its biennial budget bill. The cut is part of the state’s goal to lower its flat individual income tax rate to 2.9 percent by January 1, 2027.
In Iowa, the individual income tax rate has gone from a graduated-rate tax of 5.7 percent last year to a flat 3.8 percent as of the beginning of the year. As in Indiana’s case, the change is also part of a multiyear plan to curb fiscal expenses for its residents.
Louisiana has lowered its income tax rate from 4.25 percent to 3 percent under HB2; Mississippi has reduced its flat individual income tax from 4.7 percent in 2024 to 4.4 percent in 2025 as part of a phased plan to achieve a flat 4 percent rate by 2026.
In Missouri, the income tax rate was lowered to 4.7 percent from the previous 4.8 percent, as part of a series of multiyear tax cuts initiated in 2022 under SB3 and SB5, which allowed for a 0.1 percentage-point decrease each year that revenue goals are met until reaching 4.5 percent.
In Nebraska, the top individual income tax rate dropped to 5.2 percent from 5.84 percent last year. The move was part of the state’s plan to reduce the top rate to 3.99 percent by 2027.
North Carolina has lowered its rate to 4.24 percent from 4.5 percent, also as part of its plan to reduce the rate to 3.99 percent in the coming years. West Virginia has lowered its individual income tax rate to 4.82 percent from 5.12 percent.
Seven of the nine states which have lowered their income tax rate as of January 1, unsurprisingly, have Republican-led legislatures and Republican governors—showing that tax cuts remain a fundamentally partisan issue. It’s more common for Democrats to oppose tax cuts, raising concerns over their potential negative impact on public services.
What People Are Saying
The Tax Foundation commented on the changes, saying: “Recent years have seen a wave of significant tax reforms, and the changes scheduled for 2025 show that these efforts have not let up. The evidence of the past four years indicates that many states understand and value the importance of creating and maintaining a stable, pro-growth, and competitive tax code.”
Governor Kim Reynolds of Iowa, a Republican, said in December: “There’s no more complexity, and there’s no more gimmicks. What you see is what you get. Low taxes, low spending and more money in the pockets of citizens and businesses who truly create prosperity.”
Iowa State Rep. Timi Brown-Powers, a Democrat representing Waterloo, said last month, as reported by the Des Moines Register: “Every week, Iowans are experiencing more layoffs and rising costs while corporations make more money and get endless tax breaks. Our work in the next session must be focused on lowering costs and helping people make ends meet, not more giveaways to the special interests [of the] wealthy.”
Louisiana State Rep. Julie Emerson, a Republican representing Carencro, said in November:“We’re more competitive now. We’ve lowered our rates to stay in line with our Southeastern neighboring states, and we’re just excited to hopefully bringing our people home and bring more business to this state.”
Senator Lincoln Hough of Missouri, a Republican, said in July 2024, when the cut was announced by the state Governor Mike Parson: “This is good news for hardworking Missouri families, and proves our historic tax cut legislation is working exactly as we knew it would. More money in Missourians’ pockets means more money in the economy and in turn more state revenue, and thanks to our efforts, that revenue is leading to more tax cuts. Every day, I’ll fight for Missourians to keep more of their hard-earned money.”
Mississippi Governor Tate Reeves, a Republican, said in November, as reported by The Associated Press: “We are in a competition for new business and new industry, and it is a competition that we’ve got to be aware of. And if we want to continue to see the kind of economic development successes that we’ve had, we’ve got to be competitive from a tax standpoint.”
What’s Next
The number of U.S. states which have introduced a flat individual income tax rate has grown significantly in recent years. In 2013, only 9 states had a flat rate; in 2024, they had grown to 14; now they’re a total of 16. It’s likely that this trend will continue in the future.
A map showing the nine states which lowered their individual income tax rate as of January 1, 2025. Data from the Tax Foundation.
A map showing the nine states which lowered their individual income tax rate as of January 1, 2025. Data from the Tax Foundation.
Flourish
Map Shows 9 States Where Income Tax Is Cut For 2025
