Prospects of tax reform: Reasons to be both optimistic and glum

Writing in Investors Business Daily, John Hood of the John Locke Foundation points to several successful attempts at state-level tax reform, including in North Carolina, even as attempts at the federal level remain challenging:

Domestically, there is also good news about tax reform from the states.

Legislators in my home state of North Carolina have just voted to junk the state’s multi-rate personal income tax, which topped out at 7.75%, with a flat tax of 5.75%. They also slashed North Carolina’s corporate tax from 6.9% down to as low as 3% (if revenue growth targets are met) and abolished the state’s tax on estates.

Indiana also abolished its death tax and cut its marginal tax rates on personal and corporate income. Wisconsin collapsed tax brackets and sunset its death tax. Kansas trimmed its top income tax rate by a quarter, while New Mexico cut its corporate rate by a fifth.

Not every state has been moving in the right direction. Both Minnesota and California, for example, have jacked up their top income-tax rates. On balance, however, state tax codes have become friendlier to economic growth over time.

From 1993 to 2013, average top marginal rates on personal income have declined, and 17 states now impose a flat tax, a tax tied to federal tax liability, or no income tax at all — all models that reduce compliance cost and its drag on the economy.