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While no comprehensive accounting exists of state income tax rate cuts over time, available evidence indicates that the COVID-era wave of 26 states cutting rates (see Figure 1), while not unprecedented, is historically large and will lead to substantial damage for public services. Rate Cutting Is Historically Large in Size, Scope All told, 48 states and the District of Columbia passed some sort of tax cut from 2021 to 2023, according to the Tax Policy Center. These sums don’t include lost revenues from a wider swath of tax reductions enacted during this time, such as one-time rebates and senior tax breaks. Rate cuts in Arizona, North Carolina, and West Virginia are especially large and could shrink their general funds by about 11 percent over the next five years, losses comparable to the disastrous Brownback tax cuts in Kansas during the 2010s.
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This 3.6 percent share is equivalent to more than a third of states’ general fund spending on higher education and more than half of what goes to state correctional systems. That means, together, rate-cutting states will collect an estimated 3.6 percent less in general revenue over the next five years than if they had not enacted the cuts. Combined, the cuts will cost those 26 states an estimated $124 billion by 2028, including $13 billion that they have already lost (2022-2023) and $111 billion over the next five years (2024-2028).Permanent cuts to tax rates are especially harmful to state balance sheets since they reduce revenues every year going forward absent further legislative action, in contrast to temporary or one-time tax cuts. Twenty-six states cut their personal income tax rates and/or corporate income tax rates, 13 of them multiple times.The tax cuts - most of which are both permanent and tilted toward wealthy households and corporations - will weaken state revenues by large and growing amounts over time, limiting these states’ ability to maintain support for schools and other vital public services or make new investments that can strengthen the economy and promote opportunity. State policymakers nationwide have embarked on a tax-cutting spree over the past three years, using the cover of temporary budget surpluses stemming from robust federal aid in response to COVID-19 and the economic recovery that followed.