(September 2021) Arkansas policymakers have taken action to boost Arkansas’ economic competitiveness by cutting the top income tax rate from 7.0% to 5.9%. Gov. Hutchinson and state legislators are poised to take the next step by reducing the rate again in a special legislative session this Fall.
Tax cut opponents maintain there is no economic advantage to reducing rates. Yet U.S. Bureau of Labor Statistics jobs data show states without an income tax enjoy an economic advantage over those with the highest tax rates.States without income taxes have emerged as regional jobs magnets.
The following chart shows the top third of states with the highest income tax rates (Source: Federation of Tax Administrators, www.taxadmin.org).
State Top Individual Income Tax Rate
| California | 12.3% | (13.3% over $1 million taxable income) |
| Hawaii | 11.0% | |
| New Jersey | 10.75% | |
| Oregon | 9.9% | |
| Minnesota | 9.85% | |
| New York | 8.82% | |
| Vermont | 8.75% | |
| Iowa | 8.53% | |
| Arizona | 8.0% | |
| Wisconsin | 7.65% | |
| Maine | 7.15% | |
| South Carolina | 7.0% | |
| Connecticut | 6.99% | |
| Idaho | 6.925% | |
| Montana | 6.9% | |
| Nebraska | 6.84% | |
| Delaware | 6.6% |
Payroll employment is the broadest state level economic indicator. Tax cut opponents often make annualcomparisons between states; a broader analysis examines performance across the entire business cycle. Thelongest
U.S. economic expansion (128 months) began in June 2009 and ended in February 2020 (Source: National Bureau of Economic Research, www.nber.org). The following chart shows job creation rates in high income tax states in the last cycle (Source: Bureau of Labor Statistics, www.bls.gov).
| State
Idaho |
Growth Rate
26.9% |
| Arizona | 23.3% |
| Oregon | 22.5% |
| California | 22.4% |
| South Carolina | 21.4% |
| United States | 16.4% |
| New York | 15.4% |
| Montana | 13.7% |
| Minnesota | 13.3% |
| Delaware | 12.6% |
| Hawaii | 11.4% |
| Wisconsin | 9.6% |
| Nebraska | 8.9% |
| New Jersey | 8.8% |
| Iowa | 7.8% |
| Maine | 7.5% |
| Vermont | 6.0% |
| Connecticut | 3.9% |
Employment growth in only five of 17 states with the highest income tax rates exceeded the U.S. average.
The next chart lists the nine states without an income tax (Source: Federation of Tax Administrators, www.taxadmin.org).
| State | Individual Income Tax Rate |
| Alaska | 0.0% |
| Florida | 0.0% |
| Nevada | 0.0% |
| New Hampshire | 0.0% (Dividends and Interest are taxed) |
| South Dakota | 0.0% |
| Tennessee | 0.0% |
| Texas | 0.0% |
| Washington | 0.0% |
| Wyoming | 0.0% |
The following chart shows job creation rates in these states in the last cycle.
State Growth Rate
Nevada 26.2%
Texas 25.7%
| Florida | 25.6% |
| Washington | 22.9% |
| Tennessee | 21.0% |
| United States | 16.4% |
| New Hampshire | 10.3% |
| South Dakota | 10.0% |
| Alaska | 3.0% |
| Wyoming | 0.7% |
Jobs creation in no income tax states exceeded growth in high tax states.
No Income Tax States 23.7% High Tax States 16.6%
Regional Jobs Magnets
States without income taxes have emerged as regional jobs magnets.
Southeast Region
Florida was the only Southeast state without an income tax during the expansion. Arkansas is in the Southeast. Florida led the region in growth.
| State | Growth Rate |
| Florida | 25.6% |
| South Carolina | 21.4% |
| Tennessee | 21.0% |
| Georgia | 19.7% |
| North Carolina | 18.9% |
| Virginia | 12.0% |
| Kentucky | 11.6% |
| Arkansas | 11.3% |
| Alabama | 9.8% |
| Mississippi | 6.1% |
| Louisiana | 4.9% |
| West Virginia | 0.2% |
| Plains Region |
Texas borders Arkansas. Texas led Plains states in jobs creation.
Texas 25.7%
North Dakota 19.9%
| South Dakota | 10.0% |
| Nebraska | 8.9% |
| Oklahoma | 8.7% |
| Kansas
Conclusion |
6.5% |
Tax rates are a factor of economic development.
Payroll employment is the broadest state level economic indicator. States without income taxes, as a group, create jobs at higher percentage rates than those with the highest rates, according to U.S. Bureau of Labor Statistics data.
This analysis examined the record U.S. economic expansion from June 2009 to February 2020 (National Bureau of Economic Research).
States without income taxes have emerged as regional jobs magnets. These states are Florida in the Southeast and Texas in the Plains.
— Greg Kaza
