Red and blue states are growing further apart on income tax
Image: Douglas Rissing
As America has grown more polarized along political lines, so too have the tax codes in both red- and blue-leaning states, especially when it comes to high earners.
Dozens of states have rewritten their income-tax systems in opposite directions over the past several years, with Republicans prioritizing lower rates for high-earners and all residents, while Democrats seek to raise taxes on the highest income brackets.
Let’s break it down
On the blue side of the map, the strategy has been clear: raise taxes on the highest earners to fund services and close budget gaps, especially following recent federal funding cuts.
- Washington’s governor is poised to sign a legislature-approved bill imposing a new 9.9% tax on income over $1 million.
- New York lawmakers, including NYC Mayor Zohran Mamdani, are pushing for increased taxes on incomes above $1 million, though Gov. Kathy Hochul opposes the move.
- Rhode Island and Colorado are considering new or expanded taxes on top earners.
On the flip side: Among Republican-led states, the focus is different: cut, flatten, or eliminate state income taxes, especially for high earners.
- Mississippi and Oklahoma are on paths to eliminate income taxes entirely.
- South Carolina is aiming to drop its top rate to 1.99%.
- Missouri voters may soon decide whether to phase out income taxes altogether, potentially replacing them with expanded sales taxes.
Overall, 23 mostly GOP-led states have lowered their top income-tax rates since 2021.
The arguments
Republicans are betting that lower taxes will make their state more attractive to prospective newcomers—including high-earning individuals and businesses—in an increasingly mobile economy. They also caution that higher rates carry the risk of losing wealthier, job-creating residents to more attractive states, citing the recent exodus of billionaires and corporations from California and Delaware to tax-friendly states like Texas and Florida.
Meanwhile…Democrats argue that higher taxes don’t need to come at the expense of growth, and can help bolster state economies by paying for strong schools, roads, healthcare, and other essentials. They also point to places like Kansas, where deep tax cuts in the early 2010s led to budget shortfalls and a credit downgrade, as a warning against lower rates.
Big picture: On a federal level, the tax rate for America’s top income bracket stood at 60%+ from the early 1930s through 1981, when it was cut to 50% (and lowered to 38.5% a few years later). Today, the top federal tax rate stands at 37%.
📊 Flash poll: If you were in charge of your state’s tax policy, which of the following would you choose for high-income earners and big corporations?
See a 360° view of what pundits are saying →
Sprinkles from the Left
- Some commentators argue that rich New Yorkers can afford to pay more, especially when the city needs money for basics like housing, transit, schools, and child care, and see taxing the rich as the fairest way to raise revenue, since it asks more from people who’ve gained the most.
- Others contend that the rich are not actually getting squeezed as hard as people claim, especially once you look at the full tax picture instead of just the numbers that make them look overburdened, and that the ultra-wealthy have so many loopholes and advantages that asking them to pay more is simply a fairer deal, not some wild anti-rich idea.
- “Hike NYC taxes or leave them? City shouldn’t need Albany’s permission to tax the rich”- Tiffany Caban & Phara Souffrant Forrest, New York Daily News
- “The Undertaxed Rich” –John Miller, Dollars and Sense
- “The danger of penny-wise, pound-foolish tax hikes" –Baltimore Sun Editorial Board
Sprinkles from the Right
- Some commentators argue that New York politicians are acting as if richer residents haven’t already been getting taxed hard for years, and say cranking taxes even higher would just push more wealthy people and investment out the door, which leaves the state with a shakier tax base and an even bigger mess down the line.
- Others contend that Washington state Democrats are selling their income tax as only for millionaires—but that’s not how these things usually stay, and once the state cracks open the door to an income tax, politicians will keep tweaking the rules until more regular people get pulled in too.
- “The big lie behind Mamdani’s ‘tax the rich’ demands”- E.J. McMahon, NY Post
- “Washington State’s Income Tax Con”- WSJ Editorial Board
- “The good, bad and ugly of new Democratic tax plans”- Washington Post Editorial Board
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