Tax Reform Without Spending Restraint Is a Mirage
Zero and flat income taxes are winning ideas—but without sustainable budgeting, they’re built on sand.
Hello Friends!
Across America, a quiet revolution is reshaping state tax codes. From Texas to North Carolina, from Arizona to Iowa, lawmakers are replacing complicated, graduated income tax systems with flat rates—or eliminating them. According to Americans for Tax Reform, by January 1, 2026, about half of all states will either have no personal income tax, be on a path to no personal income tax, or have a flat income tax.
That’s worth celebrating! Lower, simpler taxes make states more competitive, attract new residents, and give workers and entrepreneurs more freedom to thrive. But here’s the catch: without meaningful spending restraint, those tax cuts are temporary sugar highs. The bill will come due—and when it does, it will be taxpayers who will foot the bill through higher property taxes, sales taxes, or hidden fees.
The Zero & Flat Tax Revolution
The ATR Zero & Flat Income Tax States Map shows the momentum:
Eight states currently do not have a state personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Washington has an income tax on capital gains.
Sixteen states have adopted flat income taxes, with rates as low as 2.5% in Arizona and 3.99% in North Carolina.
Several others, including Iowa and West Virginia, are phasing in lower rates tied to economic triggers.
This trend is no accident. People are voting with their feet, leaving high-tax states like California (13.3% top rate) and New York (10.75%) for low-tax environments. The Census Bureau confirms: migration is flowing toward states with friendlier tax codes, as noted in the chart below by the Tax Foundation.
The Missing Ingredient: Sustainable Budgeting
Tax reform works best when paired with sustainable budgeting—a simple, rules-based approach that limits annual spending growth to the rate of population growth plus inflation. This metric, recommended by ATR’s Sustainable Budget Project, keeps government growth in line with taxpayers’ ability to pay.
Without it, tax-cutting states risk falling into the same trap as Kansas did a decade ago—cutting rates without restraining spending, leading to budget shortfalls and political backlash. That’s a recipe for reversing reforms.
Who’s Getting It Right
Iowa: Cutting to a 3.8% flat tax, with further reductions triggered by revenue performance.
Arizona: Locked in a 2.5% flat tax while keeping spending under control.
North Carolina: On track to lower its flat rate to 3.99% by 2027 while maintaining a decade of disciplined budgeting.
These states are combining competitive tax policy with responsible fiscal management, ensuring that reforms are permanent.
Who’s at Risk
Texas: No income tax, but seventh-highest property tax burden in the U.S. thanks to local overspending.
Louisiana: Cutting rates without consistent spending restraint.
Kansas: Moving toward a flat tax, but history shows that without discipline, gains can vanish quickly.
Let-People-Prosper Path Forward
If states want to lock in prosperity, they must:
Adopt zero or flat income taxes for simplicity and growth.
Tie spending growth to a maximum of population growth + inflation to prevent runaway budgets.
Use surpluses to buy down rates (“surplus buydown) or pay off debt—not more spending.
My Take:
Tax competition is healthy—and it’s working. But it’s not enough to cut rates and call it a day. Without strict budget rules, today’s tax relief becomes tomorrow’s tax hike. True reform requires both sides of the ledger: competitive taxes and disciplined spending.
Conclusion:
States that get this right will be magnets for opportunity and investment. Those that don’t will find themselves back where they started—wondering why the tax cuts they passed just a few years earlier didn’t stick.
For more information on my work on this issue and potential topics I could present at your next event, please visit my website, check out my Policy Guide, and watch this video: