Long-Term Trends in State Personal Income Tax

Entering the COVID-19 pandemic, one aspect of U.S. state government finances that nobody predicted was that once the pandemic emergency was officially over,¹ state government revenues and reserves would be so abundant that states would be falling over each other cutting state taxes. According to The Wall Street Journal, by the end of fiscal 2023, “nearly half of all states will have cut their income-tax rates within a three-year period.”² Moreover, according to the Tax Foundation, “more than 40 states adopted tax relief in 2021-2023 and of those, 25 cut state income tax rates.”³ While the state income tax cut movement accelerated during the pandemic, the consistent trend since 2010, according to Tax Foundation data, is the lowering of state individual income tax rates. However, the trend may go back even further.

In this article, we analyze the overall trends in state personal income tax (PIT) rates going back to 2002.⁴ Our analysis of the 23-year trend from 2002-2024 focuses on changes in the top PIT rate in each state that levies an individual income tax. Our analysis reveals a striking trend in those rates. We find a persistent lowering of the top PIT rate across states. While the trend accelerated from 2019-2024, it has been consistent since 2003.

Furthermore, we document some heterogeneity in the way states have conducted tax policy. While some states have consistently decreased their PIT rate, a few have observed consistent increases, and several others have taken a mixed approach of both raising and lowering their top rate, resulting in states with net increases and decreases over this 23-year period. The main contribution of this article is that it provides a characterization of state tax policy according to the observed long-term trends in PIT rate changes from 2002-2024. We analyze the structure of tax changes across states and ask the research question: Can we accurately categorize a state as a tax decreaser, tax increaser, or tax switcher?

Table 1. Average Top PIT Rate by Year: 2002-2024

Year	Average PIT Rate	Number of Tax Increases	Average Tax Increase (bps)	Number of Tax Decreases	Average Tax Decrease (bps)
2002	6.59	NA	NA	NA	NA
2003	6.6	2	17	1	-3.33
2004	6.66	4	70.33	2	-29.17
2005	6.54	1	20	4	-112.3
2006	6.52	0	0	3	-37.17
2007	6.45	0	0	6	-42.33
2008	6.44	2	32.5	4	-44.83
2009	6.69	7	114	3	-11.8
2010	6.66	1	33.33	2	-74.33
2011	6.58	1	40	4	-104.5
2012	6.51	2	5	7	-33.56
2013	6.53	1	75	3	-55
2014	6.49	1	25	7	-45.66
2015	6.45	0	0	6	-28.48
2016	6.35	1	3.62	7	-57.57
2017	6.37	2	30.12	2	-8.03
2018	6.46	3	96.13	1	-2.5
2019	6.42	1	13.69	12	-27.65
2020	6.41	1	1.67	2	-11.67
2021	6.44	2	51.33	4	-33.03
2022	6.28	0	0	11	-56.64
2023	6.2	1	25	15	-45.62
2024	6.11	1	1.54	12	-31.27
2002-2024	6.47	34	29.79	118	-40.75
Note: Calculations exclude states without a PIT rate. Tax changes for 2002 are not included since our analysis starts on this date. Average PIT rate shows the average of the income tax rate at the top bracket of each state’s tax schedule, across years. Number of tax increases and number of tax decreases show the raw count of tax policy changes (of each nature) observed by all states during that year. Average tax increase and average tax decrease show the average magnitude (in basis points (bps)) of the policy changes observed during that year.

Descriptive Analysis of State PIT Rate Changes, 2002-2024

PIT Rate Trends in the State Sector

In 2023 there was an unprecedented number of changes in states' PIT rates with a total of 15 states changing their top PIT rates that year.⁵ While this number of changes in a one-year period marks the peak in annual changes since 2002, overall, states made significant PIT rate changes in this 23-year period, especially between 2022-2024 with a total of 40 tax changes (38 decreases and 2 increases). The number of annual changes is shown in Table 1.⁶

Of the 41 states that levy a PIT,⁷ 39 states (95.1 percent) made changes to their top PIT rate in 2002-2024. In total, states changed their top PIT rate 152 times. Of the 152 changes, 118 — or 77 percent —were tax decreases and 34 were tax increases. In terms of the magnitudes of changes, in basis points (bps) the average decrease was greater than the average increase, approximately -41 bps compared with approximately +30 bps.

The overarching trend over this 23-year period is characterized by a reduction of the top PIT rate across the states. Notably, Ohio stands out with 12 tax rate changes, all decreases. Every year from 2002-2024, at least one state decreased its PIT. The most PIT rate decreases, 15, occurred in 2023, followed by 12 decreases in 2019 and 2024, and 11 decreases in 2022. There were 56 tax rate decreases from 2019-2024, by far the largest number of decreases and overall number of changes during any six-year period.

There were 34 tax increases from 2002-2024. The highest number of tax rate increases, seven, occurred in 2009 during the Great Recession. The seven tax rate increases stand out as an outlier. There were four increases in 2004, but otherwise, the highest number of tax increases was three in 2018, and other years, it was either two, one, or zero. There are four years when no state made a tax rate increase: 2006, 2007, 2015, and 2022.

State PIT Rates

For states that levy a PIT on wage income, the average tax rate from 2002-2024 was 6.47 percent, with a high of 11.76 percent in California and a low of 3.05 percent in Pennsylvania (Table 2).⁸ Despite the large number of tax rate changes, average rates fluctuated only between 6.11 percent (2024) and 6.69 percent (2009). In 2002 the average rate was 6.59 percent. It increased slightly in 2004 to 6.66 percent and went down to 6.54 percent in 2005. It continued to decline, until it jumped from 6.44 percent in 2008 to its peak of 6.69 percent toward the end of the Great Recession. The rate increases in 2009 are indicative of the states’ responses to the fiscal challenges of the Great Recession.

Tax rates were lowered from 2010-2012 after the Great Recession. After that, there was a slight increase in 2013, and then the overall trend in the sector has been downward but for a few exceptions.⁹ Rates in the state sector reached their lowest level at 6.11 percent in 2024, 58 bps lower than the high of 2009. During the pandemic, rates fell from 6.44 percent in 2021 to 6.28 percent in 2022, then to 6.2 percent in 2023, and 6.11 percent in 2024. This shows that during the COVID-19 pandemic, state government tax policy was the opposite of tax policy during the Great Recession and has resulted in the lowest average state top PIT rate since at least 2002.

Table 2. Average Top PIT Rate by State: 2002-2024

State	Average PIT Rate	Number of Tax Increases	Average Tax Increase (bps)	Number of Tax Decreases	Average Tax Decrease (bps)
Alabama	5	0	0	0	0
Arizona	4.4	0	0	4	-63.5
Arkansas	6.61	0	0	6	-43.33
California	11.76	3	106.25	1	-6.25
Colorado	4.59	1	1.25	3	-7
Connecticut	6.23	4	62.25	0	0
Delaware	6.42	1	33.33	2	-11.67
Georgia	5.92	0	0	2	-25.5
Hawaii	9.92	2	183.33	1	-91.67
Idaho	7.29	0	0	5	-40
Illinois	4.07	3	80	1	-31.25
Indiana	3.32	0	0	4	-8.75
Iowa	8.63	0	0	3	-109.33
Kansas	5.87	2	22	3	-37
Kentucky	5.67	0	0	3	-66.67
Louisiana	5.77	0	0	2	-87.75
Maine	7.9	0	0	2	-67.5
Maryland	5.54	2	58.33	1	-25
Massachusetts	5.53	1	57.14	6	-4.29
Michigan	4.19	2	10.83	4	-8.33
Minnesota	8.81	1	200	0	0
Mississippi	4.99	0	0	1	-30
Missouri	5.79	0	0	5	-24
Montana	7.38	0	0	3	-170
Nebraska	6.78	1	5.33	2	-33.33
New Jersey	9.29	3	154	1	-44.5
New Mexico	5.53	1	20	4	-66
New York	8.71	3	101	2	-20
North Carolina	6.7	0	0	9	-41.67
North Dakota	4.05	0	0	5	-60.8
Ohio	5.66	0	0	12	-33.33
Oklahoma	5.48	1	4.37	7	-28.12
Oregon	9.77	1	100	1	-55
Pennsylvania	3.05	1	27	0	0
Rhode Island	7.52	0	0	1	-391
South Carolina	6.93	0	0	2	-30
Utah	5.48	0	0	5	-47
Vermont	9.08	0	0	3	-25
Virginia	5.75	0	0	0	0
West Virginia	6.38	0	0	1	-138
Wisconsin	7.4	1	50	1	-5
2002-2024	6.47	34	29.79	118	-40.75
Note: Calculations exclude states without a PIT rate. Tax changes for 2002 are not included since our analysis starts on this date. Average PIT rate shows the average of the income tax rate at the top bracket across years. Number of tax increases and number of tax decreases show the raw count of tax policy changes (of each nature) observed across years for each state. Average tax increase and average tax decrease show the average magnitude (in bps) of the policy changes observed across years for each state.

The most tax rate increases (seven) occurred in 2009, in the middle of the Great Recession. The next highest amount (four) was in 2004, a few years after the 2001 recession. In 2020 only Colorado increased the top income tax rate — by 5 bps (from 4.5 percent to 4.55 percent). This is the increase with the lowest magnitude recorded in our analysis. This reflects that states did not resort to tax hikes during the February-April 2020 recession (peak-to-trough),¹⁰ which coincides with the beginning of the COVID-19 pandemic.

State PIT Rate Reform Trends

Figure 1 shows suggestive evidence of the differential trends across the state sector. The number of tax changes observed each year is illustrated in Panel A, which shows that between 2011-2024 (with the exception of 2018), there were consistently more tax decreases than tax increases. The graph shows an upward trend for tax decreases and a downward trend for tax increases. The trend line for tax decreases has a much higher slope than the tax increases trend line, indicating that the change in the number of tax decreases was much greater than for tax increases. This reflects a pattern of states substantially increasing the frequency of PIT rate decreases over this period. The pace of PIT rate decreases increased substantially, while the pace of PIT rate increases decreased modestly.

Panel B in Figure 1 reinforces this point, which shows the cumulative sum of the number of tax changes observed each year. The annual number of changes increased over time and was greater during recession periods and the COVID-19 pandemic. Panel B exhibits a steep slope reflecting an upturn in the trend of cumulative count of tax rate decreases. This trend of decreasing PIT rates is characterized not only by more policy changes but also by adjustments of a larger magnitude. A jump in tax increases occurred in 2009, during the Great Recession, but after that the number of increases is modest.

As shown in Panel A of Figure 1, the number of PIT rate reductions has increased over time. The most tax rate decreases occurred in 2023 (15), at the end of the pandemic emergency. The next highest amount, 12, occurred in both 2019, before the beginning of the pandemic, and 2024. The next highest amount, 11, happened in 2022, at the heart of the pandemic. At least one state lowered its PIT rate each year from 2003-2024. In the average year of this period, one state increased its PIT rate, while five states lowered their top rate.

Trends in Individual State PIT Rates

The trends shown in Figure 1 and Table 1 capture aggregated tax policy changes across all state governments. A closer examination reveals the heterogeneity across state governments. Table 3 ranks the states by the number of PIT rate changes implemented between 2002-2024. Ohio stands out as the most active state with 12 changes, followed by North Carolina (nine), Oklahoma (eight), and Massachusetts (seven). However, not all states were characterized by constant PIT rate changes. The bottom rows of Table 3 show that 28 states observed between one and four tax rate changes in this period, and Alabama and Virginia made no change.¹¹

Twenty-five states had a lower rate in 2024 than 2002, but 14 states had a higher rate.¹² While Montana, North Carolina, Ohio, and Rhode Island decreased their top rate by over 350 bps, Massachusetts increased its top rate by 370 bps, California by 400 bps, and New York and New Jersey above that.

Table 3. Number of PIT Rate Changes by States Between 2002-2024

Number of Tax Changes	States
12	Ohio
9	North Carolina
8	Oklahoma
7	Massachusetts
6	Arkansas, Michigan
5	Idaho, Kansas, Missouri, New Mexico, New York, North Dakota, Utah
4	Arizona, California, Colorado, Connecticut, Illinois, Indiana, New Jersey
3	Delaware, Hawaii, Iowa, Kentucky, Maryland, Montana, Nebraska, Vermont
2	Georgia, Louisiana, Maine, Oregon, South Carolina, Wisconsin
1	Minnesota, Mississippi, Pennsylvania, Rhode Island, West Virginia
0	Alabama, Virginia
Note: Calculations exclude states without a PIT rate. Tax changes for 2002 are not included since our analysis starts on this date. This table ranks state governments in terms of the number of tax policy changes (both increases and decreases) on the top PIT rate between 2002-2024.

Overall, states implemented more PIT rate decreases than increases. At some point during this period, 20 states made tax rate changes that increased their top rate, while 37 states made tax rate changes that decreased their top rate. Nineteen states made decreases only, while two states made only increases: Connecticut and Minnesota. Eighteen states made increases and decreases. Cumulatively, however, the number of tax increases grew, but it grew at a much slower rate than tax decreases.

Some states have shown substantial policy stability in their approach to PIT rate changes over the analyzed period. Only two states made no changes to their top PIT rate, five states made only one change, and six states made two changes. Therefore, out of the states that levy an income tax, 13 states showed substantial policy stability in their approach to the PIT.

While the average PIT rate dropped over time, the standard deviation across states increased from 3.07 in 2002 to its peak of 3.29 in 2023, indicating the potential emergence of separating equilibria: states with high PIT rates and states with low PIT rates. The average standard deviation over the 2002-2024 period was 3.14. So there is much more variation across state PIT rates in 2024 than there has been on average over the entire period. Between 2021-2024, the standard deviation continued to reach historical maximums, pointing to substantial recent separation in state PIT rates during the COVID-19 pandemic.

State PIT Rate Changers: Decreasers, Increasers, Switchers

The above discussion of state PIT rate changes from 2002-2024 spotlights that states have taken different PIT policy paths. Clearly, the trends illustrated in Figure 1 show a larger number of states decreasing their PIT rate rather than increasing it. Figure 2 shows the distribution of states by income tax policy type. Including the nine states with no PIT (zero PIT rate), a total of 11 states made no changes in their top PIT rate from 2002-2024 (states we refer to as having no tax rate and no PIT rate in Figure 2).

Most states that made PIT rate changes, 25 of 41 states (61 percent) with a PIT, demonstrated a pattern of tax decreases. These states are Arizona, Arkansas, Colorado, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Utah, Vermont, and West Virginia. Of these states, 19 made monotonic decreases in their PIT rate over 23 years, never increasing their top rate. We refer to these states as tax decreasers. Other states made both increases and decreases in their rate, but their rate in 2024 was lower than their rate in 2002. We refer to these states as tax switchers — net decreasers. Some states, like Ohio, implemented policies that continually decreased their tax rate in small increments. Other states, like Montana, made large decreases in the tax rate through a few policy changes. But in either case, the top PIT rate was much lower in 2024 than 2002.

Fourteen states demonstrated a pattern of tax increases. Two states monotonically increased their tax rate: Connecticut and Minnesota. We refer to these states as tax increasers. Twelve states increased and decreased their top PIT rate at least once with the overall result of a net increase in the tax rate. We categorize these states as tax switchers — net increasers.

From 2002-2024, more states monotonically decreased their PIT rate (19) than monotonically increased it (two). There were 18 states that switched back and forth between increases and decreases. Of those states, six ended up with a net rate decrease, while 12 had a net rate increase.

The Great Recession and the Pandemic Eras

State individual income tax behavior was very different over the Great Recession and the COVID-19 pandemic. Throughout the Great Recession (2007-2009), a mixture of states increased (nine) and lowered (13) rates. During the peak of the Great Recession (2008-2009), there were more states increasing (nine) than decreasing (seven) their PIT rate. Outside the Great Recession, the only other two-year period when tax increases were greater than decreases was 2003-2004, shortly after the 2001 recession, when there were six PIT increases and three decreases.

State PIT policy over the pandemic breaks the pattern of a similar mixture of increases and decreases over fiscal shocks. From 2022-2023, more states (21 states with 38 tax changes) lowered their PIT rate than during any other time, at least since 2002. Even in 2020 and 2021, amidst the greatest fiscal uncertainty during the COVID-19 pandemic, there were substantially more PIT rate decreases (six) than increases (three). Also, observing the smallest tax increase in more than two decades during 2020 indicates that states did not resort to tax increases during the February-April 2020 recession (peak-to-trough),¹³ which coincides with the beginning of the COVID-19 pandemic.

Discussion

In this article, we analyzed the structure of tax changes across states and asked the research question: Can we accurately categorize a state as either a tax decreaser, tax increaser, or tax switcher? We have demonstrated that except for the two states that made zero changes (Alabama and Virginia), the answer is an emphatic yes. Over our 2002-2024 analysis, states made many changes to their top PIT rate, and most of those changes lowered the rate. Of the 41 states that levy a PIT on wage income, 39 states (95.1 percent) made changes to their top PIT rate, and 77 percent of those changes were decreases. The annual number of changes increased over time and was much greater during the Great Recession and the COVID-19 pandemic.

Every year from 2002-2024, at least one state decreased its PIT. In contrast, there were four years when no state made a tax rate increase. There were record rate increases in 2009, which is indicative of the state sector’s response to the fiscal challenges of the Great Recession. In contrast, there were record tax rate decreases from 2020-2024 — 44 in total, by far the largest number of decreases and overall number of changes during any five-year period. Rates in the state sector reached their lowest level in 2024 at 6.11 percent, 58 bps lower than the high of 2009. This is another indication that state government tax policy during the COVID-19 pandemic was the reverse of tax policy during the Great Recession.

We also found evidence of substantial heterogeneity in state PIT rate policy. Thirteen states showed substantial policy stability in their approach to the PIT. Two states made no changes to their top PIT rate, five states made only one change, and six other states made only two changes.

However, there has been a significant increase in the variation among state PIT rates in 2024 compared with 2002, with substantial recent separation occurring over the COVID-19 pandemic. Overall, we found a larger number of states decreasing their PIT rate rather than increasing it. Most states that made PIT rate changes demonstrated a pattern of tax decreases. Of 41 states with a PIT, 19 (tax decreasers) made monotonic decreases in their PIT rate over 20 years, never increasing their top rate. Six other states (tax switchers — net decreasers) made both increases and decreases in their rate, but their rate in 2024 was lower than their rate in 2002.

Two states monotonically increased their tax rate. We refer to these states as tax increasers. From 2002-2024, there were more states that monotonically decreased their PIT rate (19) than monotonically increased it (two). There are 18 states that switched back and forth between increases and decreases. Of those states, six ended up with a net rate decrease, while 12 ended up with a net increase.

The characterization presented in this article is based on an analysis of state top PIT rates. However, tax policy reforms often involve additional actions, such as changes to tax brackets, adjustments to other tax rates along the tax schedule, updates to the tax base, and other tools. Future research could explore the extent to which this characterization prevails when analyzing other aspects of state income tax policy.

The overarching reduction in PIT rates across states may manifest in structural changes in the composition of tax revenue in the state sector, potentially leading to differences in the provision of goods and services by state governments. States’ decisions regarding the income tax also depend on their ability to raise revenue from other sources, such as sales taxes. To understand the drivers behind this trend, further research could examine the management of other fiscal policy instruments in this environment of declining PIT rates.

Importantly, changes in PIT rates can affect equity by influencing the decisions of individuals at the top of the income distribution across states. This highlights the potential role of state governments in income redistribution. Future research could explore the long-term welfare implications of the trend documented in this article.

Finally, changes in state PIT rates may affect economic efficiency. Several states have lowered their PIT rates with the explicit intention of positively affecting economic activity in their state. It is important to understand through rigorous empirical analysis whether those goals were met and what the interstate and regional impacts might be.