How extreme wealth is shaping US democracy
Wealth gaps have widened since the 1980s, but the US stands out. Experts say weaker tax and social policies make mobility harder than ever.
Sales taxes are creeping up. Income taxes are inching down.
That’s the takeaway from a new report from the Institute on Taxation and Economic Policy, which portrays a shifting tax landscape in the states.
Since 1990, ITEP reports, states have raised sales taxes 68 times but lowered them only 29 times.
During the same period, state lawmakers have cut top personal income tax rates 210 times and slashed corporate tax rates 168 times. But states have raised income taxes just 73 times, and corporate taxes only 42 times.
To some policy experts, the trend signals the victory of one philosophy of taxation over another. Many states are cutting “progressive” taxes, which tax larger incomes at higher rates. And they’re relying more on “regressive” taxes, such as sales tax, which put a larger burden on lower-income taxpayers.
The policy shift favors wealthy Americans and corporations, according to the report from ITEP, a left-leaning think tank. And it tends to hurt lower-income Americans.
“People should be concerned about this,” said David Cooper, director of state policy and research at the Economic Policy Institute, a progressive think tank. “It has certainly contributed to the skyrocketing inequality in our country.”
But states are not moving in lockstep. While many states roll back income taxes for corporations and top earners, other states are pushing hard in the opposite direction.
California’s controversial “Billionaire Tax” would impose a one-time 5% “wealth” tax on the state’s billionaires. Massachusetts and Washington state have approved similar measures.
“We are seeing this stark divergence, where high-tax states are getting higher and low-tax states are getting lower,” said Katherine Loughead, vice president of state tax policy at the nonpartisan Tax Foundation.
Competing tax philosophies polarize states
Competing tax philosophies have increasingly polarized the states, largely along political lines, policy experts say. While some blue states push progressive taxation to the limit, many red states are moving just as swiftly to lower and flatten their tax rates.
Over time, some states have slashed corporate and personal income taxes while also raising the sales tax rate. In 11 states, “all three of those things have happened,” said Sarah Austin, a senior analyst at ITEP and author of the report.
Those states are Arizona, Arkansas, Idaho, Indiana, Iowa, Kansas, Mississippi, Nebraska, New Mexico, North Carolina and Ohio.
Twenty-six states spanning the political spectrum have increased sales taxes since 1990, ITEP reports, while only four states have cut them. In addition to the 11 above, the states with higher sales taxes include California, Indiana, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, South Carolina, South Dakota, Tennessee, Vermont, Virginia and Wyoming.
In Kansas, ITEP reports, the sales tax has risen from 4.25% to 6.5%; in Iowa, Michigan and Vermont, from 4% to 6%; in Indiana, from 5% to 7%; and in Arkansas, from 4% to 6.5%.
Sales taxes have drifted gradually higher over multiple decades, said Loughead of the Tax Foundation. By contrast, the “flat tax revolution” in state income taxes has unfolded quickly. Since 2020, eight states have passed laws to move from progressive to flat income taxes, lowering the overall tax rate in the process, the Tax Foundation reports.
Winners and losers in the shifting tax landscape
Critics say the trend toward lower income taxes favors wealthy individuals and corporations and imperils public investments in infrastructure, housing, education and childcare.
Rising sales tax rates, by contrast, tend to hurt low-income households, because they spend a larger share of their income on consumer goods.
Supporters of the tax shift, including the Trump White House, say states that cut income taxes do a better job at attracting and retaining citizens and corporations.
Politics aside, a credible academic argument supports cutting income taxes and raising sales taxes, said Adam Michel, director of tax policy studies at the libertarian Cato Institute.
Pro-business and anti-tax groups say high income taxes on corporations and wealthy individuals are “destructive,” because many would-be taxpayers find ways to evade them, whether by reducing their taxable income or moving away.
Sales and property taxes, by contrast, are considered less destructive, Michel said. It’s harder to avoid them, and the tax streams are more stable.
Anti-tax movement began after 2010 midterms
Cooper, of EPI, traces the anti-tax movement to the 2010 elections, which saw 20 state legislative chambers flip from Democratic to Republican control in a backlash against then-President Barack Obama.
Since then, in those states, “a centerpiece of Republican policy priorities has been cutting taxes, or shifting taxes to be more regressive,” Cooper said.
Forty-one states tax wage and salary income in 2026, according to the Tax Foundation. Of those, 15 charge a single rate, while 26 have progressive tax rates.
North Carolina offers a striking example of regressive taxation, ITEP reports. Since 2000, the top income tax rate in North Carolina has slipped from 7.75% to 3.99%, and the corporate tax rate has dwindled from 6.9% to 2%. Meanwhile, the state sales tax rate has risen from 4% to 4.75%.
As a result, sales tax now makes up 29% of North Carolina state and local revenues, up from 21% in 2000.
“This tax swap has quietly left working-class households carrying more of the responsibility for funding schools, health care, and infrastructure,” Austin writes.
The campaign to lower state income taxes has unfolded in an era when states “have been doing very well”: States have run surpluses in the post-COVID years, Loughead said.
But the flat tax revolution could come back to haunt some states, Austin said, as the Trump administration cuts funding for anti-poverty programs in housing, health care and education.
“A lot of states started these conversations about tax changes when they had robust revenues,” she said. As Trump’s program cuts kick in, she said, some states may start to miss their lost tax dollars.