States have been on a tax-cutting spree, but revenues are now weakening

Fueled by surging revenues, states have been slashing taxes for individuals and businesses for the past three years.

But the party is expected to come to an end in the coming fiscal year, which started on Saturday in 46 states. Revenue is projected to decline by 0.7% in fiscal 2024, based on forecasts used in governors’ budgets, after an estimated 0.3% dip this fiscal year, according to a recently released National Association of State Budget Officers survey.

This reversal comes after double-digit percentage increases for the prior two fiscal years. It reflects the impact of slower economic growth, a weaker stock market and a slew of recent tax cuts.

Some 25 states have cut individual income tax rates since 2021, according to the right-leaning Tax Foundation. This includes 22 states that reduced their top marginal rates.

“Most states are viewing tax reform and relief as a chance to, first and foremost, return some of their excess revenue to taxpayers, but to also do that in a way that is simultaneously improving the structure of their tax cuts and make it more conducive to long-term economic growth,” said Katherine Loughead, senior policy analyst at the foundation.

States are also seeking to make themselves more attractive to business investment, as well as to remote and traditional workers, she continued.

In 2023 alone, at least eight states approved rate reductions, according to the Tax Foundation. Arkansas, for instance, is trimming its top individual income tax rate to 4.7%, retroactive to January 1, after reducing it from 5.5% to 4.9% last year.

Likewise, Montana lawmakers approved deepening cuts enacted in 2021. Starting in 2024, the top marginal income tax rate will be 5.9%, instead of 6.5% as originally planned. It was 6.9% in 2021.

In addition, previously scheduled or triggered income tax rate…