Eighteen states approved measures last year to cut taxes in efforts to improve their economic competitiveness and spark new growth, according to a report by the American Legislative Exchange Council.
More than a dozen of the tax-cutting states are still suffering from the effects of the recession, with estimated annual real state growth rates under 1 percent in 2013.
ALEC is a right-leaning think tank that provides research and model legislative proposals for state legislators.
North Carolina officials approved the most comprehensive slate of tax cuts and reforms among the 18, including:
• Replacing the state’s multitiered personal income tax system with a modified flat rate of 5.8 percent this year and 5.75 percent beginning in 2015. Previously, the state’s top personal income tax rate was 7.75 percent.
• Lowering the corporate income tax rate in annual changes from 6.9 percent to 3 percent by 2017.
• Killing the state’s death tax on estates, as well as business levies like the multiple gross receipts franchise tax, privilege taxes and preferential sales tax rates.
Other significant states include Ohio, which “has room to claim the largest year-to-year tax cut of the 2013 legislative session with a cut of $2.7 billion over three years,” the report said.
Ohio provides a 10 percent, across-the-board reduction in personal income tax rates phased in over three years.
ALEC was less enthusiastic about other parts of Ohio’s tax reforms.
“On the other hand, businesses with more than $1 million taxable gross receipts will bear more of the state’s commercial activities tax burden,” the report said. “The sales tax rate was also raised to 5.75 percent, and expanded to additional services.”
In New Mexico, officials lowered the state’s corporate income tax rate from 7.6 percent to 5.9 percent.
“For years, New Mexico levied the highest corporate income tax rate in the Southwest region (except for California) and struggled to remain economically competitive with its neighbors,” the report said.
Todd Haggerty, a policy analyst with the National Conference of State Legislatures, said his organization estimated the net value of all 2013 state tax cuts at $1 billion.
That figure, however, should be viewed in the context of state tax collections totaling about $750 billion, he said.
Most of the tax-cutting states are in the middle quintiles of states in ALEC’s “Rich States, Poor States” 2013 economic outlook ranking that measures prospects for growth based on 15 factors.
Eight of the factors are tax-related, but the other seven are not. An ALEC official cautioned that tax measures adopted in 2013 won’t be reflected until the 2014 edition is published.
Two big exceptions to that pattern, however, are North Dakota and Texas, which ranked first and second in the growth of their state gross domestic product, according to the U.S. Bureau of Economic Analysis.
North Dakota, which is in the midst of an energy-fueled economic boom with an 8.2 percent estimated annual real state growth rate, according to usgovernmentspending.com, slashed property taxes by $850 million as part of a $1.1 billion tax reduction package.
Texas is second with a 2.3 percent estimated annual real state growth rate. Officials there approved a package of business tax cuts worth an estimated $1 billion.
Fifteen of the 18 states have Republican legislatures, New Mexico has a Democratic legislature and Iowa’s legislature is split between the two major parties. Nebraska has a unicameral, nonpartisan legislature.
While seven states cut taxes by 1 percent or more, the same number raised their levies by that amount, the NCSL’s Haggerty said. The tax increases came in Georgia, Massachusetts, Minnesota, Oregon, Vermont, Virginia and Wyoming.
Mark Tapscott is executive editor of the Washington Examiner.
