No state has axed its income tax on wages in 45 years. Now 2 Southern
states are on a path to do so
[April 07, 2025] By
DAVID A. LIEB
About 45 years have passed since a U.S. state last eliminated its income
tax on wages and salaries. But with recent actions in Mississippi and
Kentucky, two states now are on a path to do so, if their economies keep
growing.
The push to zero out the income tax is perhaps the most aggressive
example of a tax-cutting trend that swept across states as they
rebounded from the COVID-19 pandemic with surging revenues and historic
surpluses.
But it comes during a time of greater uncertainty for states, as they
wait to see whether President Donald Trump's cost cutting and tariffs
lead to a reduction in federal funding for states and a downturn in the
overall economy.
Some fiscal analysts also warn the repeal of income taxes could leave
states reliant on other levies, such as sales taxes, that
disproportionately affect the poor.
Which governments charge income tax?
The 16th Amendment to the U.S. Constitution grants Congress the power to
levy income taxes. It was ratified by states in 1913. Since then, most
states have adopted their own income taxes.
Eight states currently charge no personal income tax: Alaska, Florida,
New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming. A
ninth state, Washington, charges no personal income tax on wages and
salaries but does tax certain capital gains income over $270,000.
When Alaska repealed its personal income tax in 1980, it did so because
state coffers were overflowing with billions of dollars in oil money.
Though income tax eliminations have been proposed elsewhere, they have
not been successful.
“It’s a lot easier to go without an individual income tax if you’ve
never levied one," said Katherine Loughead, a senior analyst and
research manager at the nonprofit Tax Foundation. "But once you become
dependent on that revenue, it is a lot more difficult to phase out or
eliminate that tax.”
What is Mississippi doing?
Republican Mississippi Gov. Tate Reeves recently signed a law gradually
reducing the state's income tax rate from 4% to 3% by 2030 and setting
state revenue growth benchmarks that could trigger additional
incremental cuts until the tax is eliminated. The law also reduces the
sales tax on groceries and raises the gasoline tax.
If cash reserves are fully funded and revenue triggers are met each
year, Mississippi's income tax could be gone by 2040.
Supporters of an income tax repeal hope it will attract both businesses
and residents, elevating the state’s economy to the likes of Florida,
Tennessee and Texas. Their theory is that when people pay less in income
taxes, they will have more money to spend, thus boosting sales tax
collections.
The tax repeal “puts us in a rare class of elite, competitive states,”
Reeves said in a statement. He added, “Mississippi has the potential to
be a magnet for opportunity, for investment, for talent –- and for
families looking to build a better life.”
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The Kentucky state Capitol in Frankfort, Ky., is pictured on April
7, 2021. (AP Photo/Timothy D. Easley, File)
 Mississippi is among the most
impoverished states and relies heavily on federal funding.
Democratic lawmakers warned the state could face a financial crises
if cuts in federal funding come at the same time as state income tax
reductions.
The income tax provides “a huge percentage of what the state brings
in to fund things like schools and health care and services that
everybody relies on,” said Neva Butkus, senior analyst at the
nonprofit Institute on Taxation and Economic Policy.
What has Kentucky done?
A 2022 Kentucky law reduced the state's income tax rate and set a
series of revenue-based triggers that could gradually lower the tax
to zero. But unlike in Mississippi, the triggers aren't automatic.
Rather, the Kentucky General Assembly must approve each additional
decrease in the tax rate.
That has led to a series of tax-cutting measures, including two new
laws this year. One implements the next tax rate reduction from 4%
to 3.5% starting in 2026. The second makes it easier to continue
cutting the tax rate in the future by allowing smaller incremental
reductions if revenue growth isn't sufficient to trigger a 0.5
percentage point reduction.
Democratic Gov. Andy Beshear signed the legislation for next year's
tax cut but let the other measure passed by the Republican-led
legislature become law without his signature. Beshear called it a
“bait-and-switch” bill, contending lawmakers had assured the
guardrails for income tax reductions would remain in place while
pushing for the 2026 tax cut, then later in the session altered the
triggers for future years.
What actions have other states taken?
New Hampshire and Tennessee already did not tax income from wages
and salaries, but both states had taxed certain types of income.
In 2021, Tennessee ended an income tax on interest from bonds and
stock dividends that had been levied since 1929.
New Hampshire halted its tax on interest and dividends at the start
of this year.
Some other states also are pushing to repeal income taxes. The
Oklahoma House passed legislation in March that would gradually cut
the personal income tax rate to zero if revenue growth benchmarks
are met. That bill now is in the Senate.
New Missouri Gov. Mike Kehoe, a Republican, also wants to phase out
the income tax. The House and Senate have advanced legislation that
would take an incremental step by exempting capital gains income
from taxes.
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