States Increasing Reliance on Sales Taxes While Cutting Income Taxes
A new report from the Institute on Taxation and Economic Policy (ITEP) reveals a growing trend among U.S. states to increase sales taxes while reducing income tax rates, particularly for corporations and high earners. Since 1990, state lawmakers have raised sales taxes more frequently than they've lowered them—68 times versus 29—and cut top personal and corporate income tax rates far more often (210 and 168 times respectively). This shift reflects a broader policy change favoring regressive taxation over progressive models. Critics argue this trend exacerbates inequality by placing greater financial pressure on lower-income households, while benefiting corporations and the wealthy. The report highlights that in 11 states—including Arizona, Arkansas, Idaho, Indiana, Iowa, Kansas, Mississippi, Nebraska, New Mexico, North Carolina, and Ohio—both income taxes have been cut and sales taxes raised. Twenty-six additional states have increased their sales tax rates since 1990, while only four have reduced them. The shift is polarizing the country along political lines: some blue states are implementing higher progressive taxes on top earners (e.g., California’s billionaire tax), whereas red states continue to lower income and corporate taxes. Experts warn that this divergence could deepen economic inequality by reducing public funding for essential services like education, infrastructure, and childcare. Meanwhile, the Tax Foundation notes a rapid rise in flat-income-tax policies since 2020, with eight states adopting them as part of broader tax reforms.
Topics: Income Tax Progressive vs. Regressive Taxes Sales Tax State Budgets