The Wave of States Passing Income Tax Reductions is Good for Small Business

Date: April 06, 2022

The status of income tax reductions in state governments nationwide

Over the past two years, Congress has allocated billions in funding to states to aid the response to the COVID-19 pandemic, contributing to revenue surpluses in many states. These surpluses led to over a dozen states introducing legislation that would either phase out or reduce taxes in the states. Here are some states that have passed or may pass income tax reductions soon, with NFIB’s full support. 

In addition to the states discussed below, Alabama, Arkansas, Idaho, and Indiana all have recently passed laws reducing their income tax rates. Eight more states – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – already do not collect personal income tax. 


In March, Iowa Governor Kim Reynolds signed into law a bill that would replace Iowa’s progressive tax system with a 3.9 percent flat tax. Governor Reynolds has said the bill would save Iowa taxpayers $500 million in the first year alone.  

NFIB state director Matt Everson cheered the efforts by Governor Reynolds and the Iowa legislature to reduce the income tax for most Iowans. “Income tax reform is the best way to get money back into the hands of our small business owners and their employees,” he said in a statement when the bill passed the legislature. “Iowa small business owners have voiced and continue to voice one of their top concerns: our burdensome tax code, and specifically the income tax rates, which are still one of the highest in the country.”  


As of Tuesday, both houses of the Georgia state legislature have signed a bill that would create a 4.99% flat tax in Georgia by 2029. Governor Brian Kemp previously indicated that he would sign the bill into law.  

When the bill was introduced as a joint resolution, NFIB state director Nathan Humphrey issued a statement in support of the tax cut. “Our members are grateful to legislative leaders for seizing this opportunity to relieve some of the financial pressures on Georgia families and small businesses,” Humphrey said. “Most small businesses in the state are organized as pass-through entities, meaning owners pay taxes at the individual rate.” 

South Carolina  

In February, South Carolina state House lawmakers advanced a bill that would cut income tax from 7% to 6.5% and gradually decrease the top income tax rate by 0.1 percentage point annually until it reaches 6%. The bill passed the state House of Representatives in February 2022 and is under consideration by the state Senate. 

After the bill was introduced, NFIB state director Ben Homeyer issued a statement supporting the legislation. “It’s been a tumultuous couple of years for South Carolina’s small businesses, beginning with the COVID-19 shutdowns that began two years ago this month and continuing today with labor and supply chain issues, rising fuel prices, and soaring inflation,” Homeyer said. “… We hope House and Senate leaders can come together and pass state income tax reforms that would have a lasting impact on South Carolina’s future.” 


In March, Michigan House lawmakers advanced a bill that would reduce the state’s income tax from 4.25% to 3.9%. The bill, SB 768, is expected to cost $2.5 billion per year and includes a $500 child tax credit per child as well as tax breaks for senior citizens. The state legislators are also considering SB 392, a bill that would reduce the corporate income tax from 6% to 3.9%.  

NFIB State Director Amanda Fisher praised SB 768’s passage, as it was one of the top items for NFIB’s Michigan Main Street Agenda for 2022. “SB 768 is a win for many small businesses in Michigan who have been struggling over the past two years,” said Fisher. “NFIB can’t think of a better way to use ongoing budget surpluses than to return it to the hardworking taxpayers who provided it in the first place.” 


Both houses of the Mississippi legislature advanced their own versions of an income tax reduction. While the Senate version would have ultimately eliminated the state’s income tax, it was the House version, HB531 (also known as the Mississippi Freedom Act of 2022), that passed both houses. Now it will go to the desk of Mississippi Governor Tate Reeves.  

“This is a big victory for Mississippi’s small businesses, which are struggling with a spike in fuel prices and soaring inflation,” said NFIB State Director Dawn McVea in a statement. “Our members had hoped the legislature would eliminate the state income tax altogether, but HB351 will eliminate the 4 percent tax bracket altogether and reduce the 5 percent tax bracket to 4 percent by 2026. That helps our members because most small businesses in the state are organized as pass-through entities, meaning owners pay taxes at the individual rather than the corporate rate.” 

The act will also grant exemptions on the first $18,300 earned for single filers and $36,600 earned for married filers. 

At NFIB we’re always looking to help legislators understand how tax relief supports small businesses’ ability to recover, operate, hire, and support their communities. If you’ve leveraged tax relief savings in a way that you’d like your lawmakers to understand, please submit your story here.

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