While the prospects for tax reform in Washington are dim, as many as 20 Republican governors are moving forward with their own pro-growth tax-relief initiatives. This is on top of the 14 states, including Florida, Michigan, Ohio and Wisconsin, whose 2014 tax cuts will take effect this year.
Arizona’s new Gov. Doug Ducey says his goal is to eventually eliminate the state income tax—joining the nine states that already don’t tax their residents’ wages and salaries. Mr. Ducey has promised income-tax cuts “every year I’m in office.” He announced his first cuts, indexing tax brackets for inflation and expensing for business capital spending, this month. To offset phasing out the income tax, he wants to close some of the state’s hundreds of sales-tax exemptions.
In Arkansas, Republicans now control both houses of the state legislature and the governorship for the first time in more than 100 years. This will allow Asa Hutchinson, the state’s new governor, to push what he calls a “very ambitious” tax-reform agenda. Last week the state senate in Little Rock passed a one-percentage-point cut in the income-tax rate applying to middle-income earners ($21,000-$75,000).
In Illinois, Maryland and Massachusetts—three blue states that elected Republican governors in November—tax rates are likely to fall to provide juice and jobs for local economies. In Illinois, Gov. Bruce Rauner vowed in his inaugural address to erase the income-tax-rate hikes of his Democratic predecessor, Pat Quinn. In Maryland, Larry Hogan won the governor’s race by pledging to overturn “as many as possible” of the 19 taxes and fees that were raised by his predecessor, Democrat Martin O’Malley. And in Massachusetts, Charlie Baker plans to eliminate the state tax on business inventory and cut the corporate income tax.