Thirteen States Cut Income Taxes on January 1
Georgia dropped below 5% three years ahead of schedule, Nebraska's top rate fell to 4.55% and Kentucky's to 3.5%, as trigger mechanisms adopted years ago kept firing.
Thirteen states began the year with lower income tax rates: Arkansas, Georgia, Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, Utah and West Virginia.
Most of these reductions were not decided this year. They are the product of trigger mechanisms adopted during the revenue surge of the early 2020s, which tied automatic rate cuts to revenue benchmarks.
The mechanics of a trigger
A revenue trigger works like this: if collections exceed a specified threshold, the rate falls by a set increment the following year, and the process repeats until reaching a floor.
Georgia's rate fell from 5.19% to 4.99%, crossing below 5% three years ahead of the original schedule, with the statute permitting further annual reductions of 0.125 percentage points toward a 3.99% floor if conditions allow.
Nebraska's top rate dropped from 5.2% to 4.55%, part of a phase-down toward 3.99% by 2027. Kentucky's rate fell from 4% to 3.5% under triggers adopted in 2022.
The design argument
Supporters describe triggers as fiscal discipline: rates fall only when revenue can support it, which protects against the pattern of cutting taxes in a boom and facing a shortfall in the following downturn.
Critics point to the asymmetry. Triggers cut in good years and do nothing in bad ones, so the ratchet runs in one direction. And the benchmarks were calibrated against revenue expectations formed in an era of unusual federal transfers and unusual inflation, both of which inflated nominal collections.
The test ahead
The national economy has slowed. Payrolls fell in July, growth in the second quarter ran at 1.5%, and consumer spending is weakening. State revenue tends to follow with a lag.
If collections disappoint, the states that cut this year will face the same choice their predecessors always face: reduce spending, raise a different tax, or suspend the schedule. All three are politically expensive, which is why the next two budget cycles will reveal more about these laws than the past five have.
