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1 Katherine Loughead & Jared Walczak, States Respond to Strong Fiscal Health with Income Tax Reforms 1 (2021)

handle is hein.taxfoundation/serdtsg0001 and id is 1 raw text is: States Respond to Strong Fiscal Health with Income Tax Reforms FISCAL FACT No. 774 July 2021 Katherine Loughead Senior Policy Analyst Jared Walczak Vice President of State Projects The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)3) nonproht organization. ©2021 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 Key Findings As states close their books for fiscal year 2021, many have much more revenue on hand than they anticipated last year. In 2021, 11 states have enacted laws to reduce their income tax rates, with 10 reducing individual income tax rates and five reducing corporate income tax rates. In many states, these rate reductions are paired with other pro-growth reforms. These income tax reforms have various effective dates. Some are retroactive to the beginning of 2021; some take effect in January 2022; and others take effect in 2023 or beyond or phase in over time. Five states-Arizona, Idaho, Iowa, Montana, and Ohio-enacted laws to reduce the number of brackets in their individual income tax, creating a more neutral structure. Five states-Arizona, Idaho, Louisiana, Ohio, and Oklahoma-enacted laws to reduce each of their marginal individual income tax rates. Of the 10 states that reduced their individual income tax rates, all but Wisconsin included reductions to the top marginal rate. Montana consolidated seven brackets into two, reducing the top rate and adopting a significantly higher standard deduction to provide targeted relief to those at the lower end of the income spectrum. 1 The authors would like to thank Jeremiah Nguyen for his valuable research contributions. taxfoundation.org

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