Adding to what I wrote in April, let’s look at dramatic changes in state taxation.

And we’ll start with this video about the foolishness of class-warfare policy.

I’m sharing that video because politicians in some states have decided that punishing successful taxpayers is good politics while others are slashing tax rates and enacting flat taxes.

Some states are even pushing to eliminate their income taxes as a recipe for greater prosperity.

These divergent approaches are captured in this visual from the Tax Foundation.

There’s a lot of information to process, but the two key things to notice are:

• There are a lot more states with low-rate tax systems (medium-light blue), particularly starting about four years ago.
• States with punitive tax rates (brown) basically disappeared between 1977-2006, but are now returning with a vengeance.

Here’s some of what Jared Walczak wrote about these developments.

There was a time not too long ago when it was possible to speak of a “typical” state income tax with a top rate of about 6 percent. That is no longer the case. Today, far more states prioritize low, competitive rates, whereas a smaller number have abandoned the middle for much higher rates. Two decades ago, 21 states had top rates between 5 and 7 percent. Today, there are 12. In 2006, 15 states had rates below 5 percent (including those with no tax on wage income); now it’s 26. In 2006, only one state had a double-digit top rate, whereas six do today—a count that could increase under pending legislation. …Essentially, then, we are witnessing two opposite movements: in some states, concerted efforts to raise taxes on high earners, and in many others, a strong focus on cutting rates and prioritizing greater tax competitiveness.

The good news is that the states reducing tax rates have done a better job than the states raising tax rates.

As such, the average top income tax rate has been declining (confirming the benefit of jurisdictional tax competition).

In an article for the Hoover Institution, David Henderson also wrote about the divergence of tax policy at the state level.

Here are some excerpts.

Legislatures and governors in many states, typically red states, have been cutting income tax rates while their counterparts in most blue states are keeping income tax rates the same while a few have increased them. The contrast is so systematic that, from a fiscal point of view, we seem to have, within the United States, two countries. …Since 2021, twenty-one state governments have cut income tax rates, including the top-bracket rates. They are: Arizona, Arkansas, Colorado, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, and Utah. …three state governments have raised income tax rates: Maryland, Massachusetts, and Washington. …There is strong evidence that people have moved from high-tax states to low-tax states… The fact that people can move from high-tax to low-tax states is good on principle. People living in America legally should be allowed to move wherever they want. But it’s also good on practical grounds. This mobility gives low-tax states an incentive to keep their taxes low. And it may give, although we don’t seem to have seen it yet, an incentive to high-tax states to cut their tax rates somewhat.

I’ll close by noting that this divergence is still happening.

Here’s a quick blurb about an unfortunate development in Hawaii.

Hawaii Gov. Josh Green (D) signed a tax package (SB 3125) creating a new 13% income tax bracket for people making more than $1 million annually… The package, passed this month by the Democrat-controlled legislature after months of debate… Green added he’s working on additional investments to support renewable energy in the “very near future.”

But here’s some offsetting good news from South Carolina.

South Carolina is set to join the Flat Tax Revolution. …with H.4216 in place, South Carolina’s three-bracket income tax system will be simplified to a two-rate structure. Taxpayers will be subject to a 1.99% rate on taxable income up to $30,000 and a 5.21% rate on taxable income above $30,000, down from 6.0%. …Beginning in 2027, if personal income tax revenues increase by at least 5%, tax rates will be further reduced until the top rate reaches 1.99%. At this point, South Carolina will officially become part of the Flat Tax Revolution.

If you’re curious about whether the Hawaii approach or South Carolina approach is better, feel free to peruse my series on blue-to-red migration (here, here, here, here, here, and here).

My final comment is that good tax policy ultimately requires spending restraint, which is why we need more states to copy Colorado‘s spending cap.

P.S. I hope blue-state escapees don’t bring bad voting habits with them.