As many voters clamor for higher taxes on the ultrawealthy and corporations, many states have moved in the opposite direction: lowering taxes on high earners and raising them on everyday goods.
A new analysis from the Institute on Taxation and Economic Policy shows how tax rates have changed since 1990. Top income tax rates have generally fallen, while sales and consumption taxes have increased. That’s meant taxes shifting from higher earners and corporations to what residents are buying.
This reflects a shift in how lawmakers think about tax policy. Some states have pushed to flatten or eliminate income taxes, while sales taxes have become the largest portion of state tax revenue, according to a Census Bureau analysis. That analysis notes that shifts in tax rates are common during periods of “economic shock.” Personal income taxes across states began diving post-Great Recession, said Sarah Austin, a senior analyst who authored the ITEP report; Austin said that some of those 2010 tax cuts can likely be attributed to anti-tax sentiments from the Tea Party.
That’s fueled competition to woo workers from high-income tax states like California and New York, according to Abir Mandal, a senior policy analyst at the Tax Foundation.
“States like North Carolina, they saw a chance to improve their own attractiveness for people, as well as for companies,” Mandal said. After states like North Carolina and South Carolina succeeded in attracting workers and firms, states like Mississippi and Oklahoma “also wanted to join the party,” Mandal said.
There are arguments for raising sales taxes rather than income taxes, Mandal said. Income tax increases can create an incentive to reduce income, and incomes can be volatile, leading to less certainty in revenue. Taxing items that people always need to buy can be more stable.
But the strategy has its risks. In 2025, Louisiana reversed a previous tax cut, raising its sales tax back from 4.45% to 5%, while cutting income tax to a flat 3%. The state is now contending with budget shortfalls tied to lower income and corporate income tax collections.
“The falling top rates for income taxes have also created these budget conditions where legislators are more willing to change the sales tax rate than they are to do comparable increases on income taxes to help fill in budget gaps,” Austin said.
Sales taxes are widely considered regressive, meaning they hit low earners harder. That makes the shift to sales taxes politically awkward at a time when voters increasingly say they want higher taxes on the wealthy.
“Recently, people are favoring increasing taxes on the well off,” Austin said. “Whereas in the last decade or so, we’ve seen the opposite at the legislative level.”
