In the States: A Handful Make Positive Moves on Taxes for 2022

By SBE Council at 19 January, 2022, 12:36 pm

by Raymond J. Keating -

Taxes have a very real impact on the decisions made by individuals, families, entrepreneurs, businesses and investors. The result is simple: The more you tax something, the less of it you will get. That's not exactly an earth-shattering declaration, that is, unless one swims in the waters of politics.

There are plenty of elected officials across the country who ignore or reject such straightforward truths. Fortunately, though, there are officials who get it, and act accordingly. At the start of 2022, we can see evidence in the states tilting in favor of politicians who recognize the ills of taxation and actually are providing relief.

Lower Individual Income Tax Rates

For example, individual income tax rates were reduced in five states as of January 1, 2022:

Arizona

Arkansas

Louisiana

North Carolina

Oklahoma

Arizona is in the midst of a rather bizarre battle.

In essence, state voters passed a ballot measure in 2020 adding a 3.5 percent surtax on top of the state's 4.5 percent income tax rate, to create a top rate of 8 percent. However, lawmakers then passed legislation lowering the original base tax rate so that the combined rate does not exceed 4.5 percent. Legislation also was passed to shift to a flat tax with an eventual rate of 2.5 percent. But that is pending decisions in the court and a ballot measure in November 2022 to approve the flat tax.

Arkansas' top individual tax rate declined from 5.9 percent to 5.5 percent.

Louisiana saw its individual income tax rate reduced markedly, with the top rate declining from 6 percent to 4.25 percent.

In North Carolina, the state's flat tax rate dropped from 5.25 percent to 4.99 percent, and is scheduled to eventually decline to 3.99 percent in 2027.

As for Oklahoma, the top percent rate decreased from 5 percent to 4.75 percent.

Reductions in Corporate Income Tax Rates

There also was some good news on the corporate income tax front in three of the above states and in Nebraska.

The Arkansas corporate income tax rate declined from 6.2 percent to 5.9 percent.

Louisiana's top corporate rate has declined from 8 percent to 7.5 percent.

And Nebraska's top corporate income tax rate dropped from 7.91 percent to 7.5 percent.

Oklahoma saw its corporate rate decline notably, from 6 percent to 4 percent.

Wrong Direction

However, there were negatives starting off 2022 as well. For example, the District of Columbia imposed increases in its individual income tax rates, with the top rate increasing from 8.95 percent to 10.75 percent.

Also, Florida's corporate income tax rate jump from 3.535 percent to 5.5 percent. A temporary reduction in the rate expired at the close of 2021. It's unclear what state lawmakers plan to do in response.

Of course, Florida benefits from imposing no personal income tax, and reducing the state's corporate income tax rate would expand its competitive advantage, including in terms of attracting entrepreneurs and businesses.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.