State tax policy is splitting along two competing tracks. Along one, lawmakers are enacting or considering new taxes on high earners, arguing that they should contribute more to fund public services. Along the other, lawmakers are implementing or pursuing tax rate cuts and flatter income tax structures in a bid to attract more businesses and residents. 

One place this split is especially apparent is in changes to top personal income tax rates. Between 2020 and 2025, 21 states cut income tax rates for top earners, 15 made no changes, and 5 increased rates. These totals mask important nuances: New York, for example, raised taxes on top earners but cut rates for low- and middle-income taxpayers. 

In several other states, additional tax rate cuts took effect in January 2026, widening the gap between the two approaches.

Track One: Targeted taxes at the top

This track includes states pursuing income surtaxes on high-income taxpayers or a wealth tax. 

Take Washington. It is one of nine states without a broad-based personal income tax and, of those, the only consistently Democratic-led state. Last month, its Senate passed a bill to impose a 9.9 percent tax on individual income above $1 million beginning in 2028. The measure is now advancing through the state House. This closely watched tax proposal would mark the most consequential shift in Washington’s tax structure in decades. 

The idea is not new. Efforts to tax income in Washington stretch back nearly a century. Voters have overwhelmingly rejected state income tax proposals 10 times over the past 90 years. But today’s political dynamics may be different. The proposal narrowly targets the roughly top 1 percent of earners—a distinction that could reshape the debate and the coalition around it.

Supporters argue Washington’s heavy reliance on sales and business taxes produces a regressive and volatile revenue mix. Opponents counter that the new levy would undermine the state’s long-standing tax structure and likely face immediate legal challenges. 

Meanwhile, in California, a citizen-led initiative on the November 2026 ballot would impose a one-time 5 percent tax on the net worth of billionaires who were residents of the state as of January 1, 2026. The proposal reflects public concern about the growing concentration of wealth at the very top. But a one-time tax would provide only temporary relief from the state’s growing fiscal challenges. 

And, like four other states, California already has a higher marginal rate on incomes above $1 million. This group of states share two features: persistent spending pressures, especially in education and health care, and concentrations of high-income earners.

• California’s top rate reaches 13.3 percent on income above $1 million once its mental health surcharge is included, the highest in the country.
• New York’s top bracket of 10.9 percent applies only to income above $25 million, giving it one of the most sharply tiered systems at the very top.
• New Jersey taxes income over $1 million at 10.75 percent.
• Massachusetts—which has a 5 percent flat income tax—has a 4 percent surtax on income above $1 million that took effect in 2023.
• Maryland raised taxes on high earners as part of a deficit-closing plan; income over $1 million is now subject to the state’s 6.5 percent top rate.

More states, including Washington, could join them soon. 

The political calculus in these states is the same: Narrowly targeted tax increases on the rich can help shore up budgets while limiting exposure for most voters. Whether these changes expose states to broader economic risk from taxpayer migration is an ongoing question. 

Track Two: Flat taxes and rate cuts

At the same time, a very different group of states is moving toward flatter tax structures and lower marginal rates.

Since 2020, several states—including Arizona, Georgia, Idaho, Iowa, Louisiana, Mississippi, and Ohio—have moved from graduated brackets to a single income tax rate. But the tax structures in these states started with different levels of progressivity.

• Iowa and Ohio previously had more progressive systems with multiple brackets and comparatively higher top marginal rates. That represents a structural shift and meaningful reduction in top rates.
• Mississippi and Idaho had smaller differences between rates and brackets, making their transition to a flat tax less dramatic. 

These changes are often part of multi-year plans designed to simplify rate structures and phase down the number of brackets over time. 

Beyond movement toward a flat tax, several other states have reduced income tax rates without abandoning graduated systems. In many cases, the cuts focused on lowering top marginal rates, delivering the largest benefits to higher-income taxpayers. Only a small number of states have targeted relief specifically at lower- and middle-income brackets.

Many of these reforms were adopted when post-pandemic revenue growth was strong. Whether they’ll be sustainable during slower growth or a recession is uncertain.

Risk remains as states pursue opposing tax strategies

Some states are looking to million-dollar earners to rebalance their systems, while others are cutting and flattening rates to boost competitiveness. The opposing strategies reflect different fiscal and economic realities—and political choices. And both come with tradeoffs. 

The next slowdown may offer the real test. Will high-earner taxes prove too volatile, and will flat-tax cuts leave states without enough revenue flexibility when budgets tighten? Either way, states that match their tax choices with realistic revenue forecasts, manageable spending commitments, and strong budget reserves will fare best.