Recs

11

8 States That Cut Income Taxes in 2013

At the beginning of 2013, several big federal tax increases hit American taxpayers, including payroll tax climbing back to normal levels and the return of the 39.6% tax bracket, along with surcharges for high-income taxpayers. But several states decided to make tax cuts in 2013, giving their residents a reprieve from higher taxation. Let's find out which ones made the biggest cuts over the past year.


Images courtesy U.S. Mint.

Arkansas
Arkansas' new laws gave residents approximately $160 million in tax relief. Under the new provisions, the lowest bracket will go from 1% to 0.9% at the beginning of 2014, while all other brackets will see drops of a tenth of a percentage point that will take effect for the 2015 tax year. Arkansans will also benefit from a reduction in state sales taxes on groceries, but the state still suffers from the fact that neighboring Tennessee and Texas have no state income tax on wages and salaries at all. Some business advocates have argued that eliminating the income tax entirely would make Arkansas more competitive.

Indiana
Indiana passed a comprehensive tax package addressing inheritance taxes as well as personal and corporate income tax. For personal tax rates, a gradual reduction will happen from current 3.4% levels to 3.3% in 2015 and 3.23% in 2017. The state's governor had initially asked for reductions that were twice as large, but legislators agreed to the small reduction in conjunction with the repeal of inheritance taxes for those dying in 2013 or after, accelerating an phase-out of the tax that had been passed earlier.

Iowa
Iowa's $4.4 billion tax-cut package included both property tax and personal income tax relief. Property tax increases on homes and farm property will be capped at 3% annually, and a doubling of the earned-income tax credit from 7% to 14% in 2013 and then 15% in 2014 will help low-income taxpayers. Also, additional tax credits will be available to certain state income tax filers starting in 2014, providing about $90 million in annual income tax reductions in total.

Kansas
Kansas gave residents about $3.8 billion in tax relief through a combination of sales tax and income tax reductions. Income tax rates for top-bracket taxpayers will fall from 4.9% to 3.9% by 2018, while the lowest bracket will drop from 3% to 2.3% by 2017. The plan does come with some costs, though, slashing itemized deductions in half by 30% this year and in half by 2018, and also cutting standard deductions for joint filers and head-of-household taxpayers. Still, the law comes with provisions for more cuts if state tax revenue growth rises above 2% beginning in 2019.

North Carolina
North Carolina passed measures reducing several different taxes by about $500 million. For its income tax, the state established a flat-tax system, eliminating the current 6%, 7%, and 7.75% rates and putting in their place a single rate of 5.8% for 2014 and 5.75% for 2015. North Carolina boosted its standard deductions by 150%, from $6,000 to $15,000 for joint filers and from $3,000 to $7,500 for single filers.

Ohio
Ohio's tax measures reduced small business and personal income taxes, providing about $2.7 billion in savings to residents. For income taxes, a phased-in 10% cut in all tax rates will take place between now and 2015, with 8.5% reductions in rates for 2013 and 9% drops for 2014. In addition, a new earned-income tax credit will provide help to nearly half a million low-income households in Ohio. The state did suspend inflation indexing of tax brackets and exemption amounts from 2013 to 2015, which will offset some of the tax breaks, and personal exemptions of $20 from tax will only be available to lower-income households earning less than $30,000.

Oklahoma
Earlier this year, Oklahoma passed personal income tax relief that would have saved residents about $237 million. The measure would have reduced the top income tax rate in the state from 5.25% to 5% beginning in 2015, and also would have created future reductions if revenue growth exceeded certain guidelines. But just days ago, the Oklahoma Supreme Court ruled the measure unconstitutional because the law that enacted the cuts also tried to create a fund for building repairs to the state's Capitol, and judges ruled that those two provisions should have been put in separate laws. It's unclear whether the state will try to re-establish the tax break as a separate measure now.

Wisconsin
Wisconsin spent $650 million reducing personal income taxes within the state. The cuts compressed five previous brackets into four and made cuts at all levels, with the bottom 4.6% rate going to 4.4%, 6.15% falling to 5.84%, 6.50% and 6.75% rates dropping to 6.27%, and the top 7.75% rate declining to 7.65%. More recently, the state's governor has called for all-out repeal of the state income tax, potentially at the expense of raising sales taxes or eliminating tax exemptions.

More to come?
Oklahoma residents will have to wait to see if the legislature restores their tax cuts in the near future. But it's entirely possible that more states will jump on the bandwagon and reduce state income taxes in 2014. For now, though, residents in the seven states whose cuts haven't been overturned will enjoy getting a break on their tax burdens, even if many of them won't take effect until future tax years.

Get tax-smart for 2014
Federal taxes might have risen more than state taxes in these states, but your overall goal is to cut your total tax liability as much as you can. In our brand-new special report "How You Can Fight Back Against Higher Taxes," The Motley Fool's tax experts run through what to watch out for in doing your tax planning this year. With its concrete advice on how to cut taxes for decades to come, you won't want to miss out. Click here to get your copy today -- it's absolutely free.


Read/Post Comments (12) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 22, 2013, at 8:51 PM, DaveK wrote:

    I am very glad to see that several states have lowered their tax rates. This is very beneficial considering the rising federal tax rates to pay for things the government should not be involved in. I wish the article would have noted whether or not the states lowering their taxes were headed by a Democrat or Republican administration.

    Also it would be helpful to note what states can get along without a state income tax. Texas and Tennessee were noted, but So Dakota and Wyoming also do not have income taxes.

  • Report this Comment On December 22, 2013, at 9:52 PM, VoteNo4Democrats wrote:

    I can tell you that Ohio is Republican (Governor is) I also believe that the majority states are Republican ran.

  • Report this Comment On December 22, 2013, at 9:56 PM, VoteNo4Democrats wrote:

    I was referring to this article in my comment that is. I also agree that states without taxes like texas ,ten are great examples but looking at how our current government is esp Democrat ran I see this trend being something of the past. Democrats have reversed the way they use to be and are now the ones who are looking out for themselves and their party rather than looking out for the people of this nation. Obama has committed a fraud upon all of us

  • Report this Comment On December 22, 2013, at 11:33 PM, SammyP1 wrote:

    ^ What a great example of psychological projection.

  • Report this Comment On December 22, 2013, at 11:38 PM, Jeremiah5861 wrote:

    I am a Kansas taxpayer and will most like end up paying more taxes. The tax cuts benefit primarily the very wealthy in Kansas. Middle and lower income residents will end up paying more taxes, because to pay for tax cuts for Brownback's wealthy constituents, sales taxes were dramatically INCREASED, not cut as the author claims. Additionally, middle class taxpayers are losing significant deductions, such as the deduction for mortgage interest, among others. Additionally, cuts in state aid is forcing municipalities and counties and cities to increase property taxes, so again, middle class homeowners are going to be paying more. If you follow the news in our state, which is not very likely I'll venture to guess, you will discover that these tax cuts are so extreme and irresponsible that many are predicting a devastating fiscal train wreck.

  • Report this Comment On December 23, 2013, at 7:52 AM, scipiojr wrote:

    Mo tried to lower taxes but the Democratic governor vetoed it and it withstood an override. I agreed since the cut primarily benefitted the wealthy and was perhaps a mistaken attempt to imitate Texas, etc. to attract business it was said. We're already a low tax state and need to attract high tech industries and the like, better done by enhancing Universities and education. Doing away with state income tax is just not desirable in most states unless they have oil revenues or some other source of revenue or they raise sales tax to a high level.

  • Report this Comment On December 23, 2013, at 9:56 AM, whitebear511 wrote:

    I also live in Kansas and we have seen no new jobs from this cut as promised. School budgets have been slashed forcing property taxes up as well as sales taxes. Kansas has local sales tax as well as state so we are ending up paying more just so a few wealthy Kansans can get a break. This has become so unpopular in the state that Brownback will most likely not be re-elected and trails his democratic opponent in every poll.

  • Report this Comment On December 23, 2013, at 12:42 PM, TerrifiedCitizen wrote:

    The source of national overspending, the WH, needs to be restrained. Why should the states compensate for unbridled federal spending?

  • Report this Comment On December 23, 2013, at 7:09 PM, ghawk wrote:

    I also live in Kansas as posted previously its very unpopular with most of the population. It has not created more jobs just more problems. The cuts are now creating havoc with our education funding, transportation, etc; at this point we live in Brownbackistan and if he isn't voted out our economy will be equivalent to a third world country.

  • Report this Comment On December 23, 2013, at 8:02 PM, geezer3333 wrote:

    I wonder, how many of these are 'red states' that take more $$ in from the Fed. Gov. than they pay in taxes > compared to 'blue states' like N.J. that pay more in Fed. tax than they get back. sasy they pay $1.60 for each $ gotten back in transportation projects or whatever....

  • Report this Comment On December 24, 2013, at 5:09 PM, whyaduck1128 wrote:

    In Ohio's case, you failed to mention that part of the income tax cut was paid for by an increase in the state sales tax of 0.25%. Those who have to spend all or almost all of their income on necessities--you know, the POOR--wind up paying more in taxes.

    Nice, really nice, Governor Kasich. I hope the Dems pick someone halfway palatable so I can vote for him/her/it the next time around.

  • Report this Comment On December 24, 2013, at 5:11 PM, whyaduck1128 wrote:

    Another thing--I'd really rather see the states put some money aside in "rainy day" funds for times of real economic problems (worse than today's) than enact tiny tax cuts. We all know these cuts are designed to attract votes, not help people.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2774247, ~/Articles/ArticleHandler.aspx, 10/31/2014 4:27:36 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 7 hours ago Sponsored by:
DOW 17,195.42 221.11 1.30%
S&P 500 1,994.65 12.35 0.62%
NASD 4,566.14 16.91 0.37%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes


Advertisement