by Raymond J. Keating-
Eight states – Arkansas, Florida, Indiana, Massachusetts, Missouri, New Jersey, Tennessee and Utah – are scheduled to make positive changes on the income tax front in 2020. In each case, this will be good news for entrepreneurs and small businesses.
SBE Council’s “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth” ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures. The following states will experience improved attractiveness and competitiveness with these tax changes:
Arkansas. The state will see its top individual income tax rate reduced from 6.9 percent to 6.6 percent at the start of 2020. The rate will be further reduced in 2021 to 5.9 percent.
Florida. In September, Florida announced that a revenue trigger was achieved, and therefore, the state’s corporate income tax rate was reduced from 5.5 percent to 4.458 percent retroactive to the start of 2019, and that lower rates would be in effect for 2020 and 2021.
Indiana. The Hoosier State is in the midst of a phased reduction in its corporate income tax rate, which dropped from 5.75 percent to 5.5 percent in July 2019, and will decline to 5.25 percent in July 2020 and to 4.9 percent in July 2021.
Massachusetts. The top individual income tax rate will decline from 5.05 percent to 5 percent in 2020.
Missouri. The top corporate income tax rate will be reduced from an effective 5.594 percent to 4 percent in 2020.
New Jersey. The Garden State’s 11.5 percent corporate income tax rate – the highest rate among the states in 2019 – will decline to 10.5 percent in 2020.
Tennessee. The phaseout of Tennessee’s “Hall Tax,” i.e., an income tax on dividends and earned interest, will continue in 2020, with the rate declining from 2 percent to 1 percent.
Utah. The flat income tax rate applied to both individuals and corporations in Utah will be reduced in 2020 from 4.95 percent to 4.66 percent.
Why are these changes positives for the entrepreneurial sector of our economy? Quite simply, lower income tax rates boost incentives and resources available for starting up, expanding and investing in businesses.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.