And the catalyst for ongoing reform might be the utter fiscal mismanagement of America’s largest, most progressive states. State lawmakers have been driving down income-tax rates across the map for two consecutive fiscal years, and they show no sign of relenting in 2023. The extraordinary wave of state income-tax cuts that began in 2021 is set to continue as states such as West Virginia, North Dakota, and Kentucky are moving quickly to cut rates this year.

Strong state revenue made the recent wave of tax cuts possible. Changes in federal tax law enacted in 2017, and the rise of remote work following the pandemic – that allows workers to move to better-managed, lower-tax states – gave lawmakers the further incentive to act, resulting in unprecedented interstate tax competition.

In just the last week, West Virginia lawmakers sent Governor Jim Justice a bill to cut the top income-tax rate from 6.5 percent to 5.12 percent. North Dakota's house passed a series of bills that would scrap the state's progressive tax structure, with its 2.9 percent top rate, and replace it with a flat income tax of 1.5 percent.

Kentucky already enacted an income-tax-rate cut from 4.5 percent to 4.0 percent in February, effective next year. Still more states such as Ohio, Wisconsin, Nebraska, and Kansas are teeing up major income-tax overhauls, each targeting a low, flat (or near-flat) income-tax structure.

Strong state revenue combined with extraordinary federal pandemic aid created the opportunity for a wave of state tax reforms. The National Association of State Budget Officers estimates that state general revenue grew by 16.6 percent in fiscal 2021 and 14.5 percent in fiscal 2022, which explains why so many states have been able to cut rates in concert.

In addition, two structural changes have enhanced state tax competition. First, the 2017 Tax Cuts and Jobs Act capped the federal deduction for state and local taxes paid at $10,000, thus increasing the felt cost of state taxation, particularly for higher earners. A high-paid Silicon Valley engineer who could previously deduct $70,000 in California income taxes on his federal tax return can now only deduct $10,000. In short, the burden of his state-government tax policy went up, incentivizing him to find a better-managed state.

Second, the pandemic untethered a multitude of high-paid workers from a geographic location, creating the opportunity for taxpayers to move, and giving states an incentive to compete for their relocations. A 2022 McKinsey report found that 35 percent of workers were eligible for full-time remote work, including 46 percent of workers earning over $150,000. The Silicon Valley engineer who lost federal deductibility for his California income taxes in 2018 became eligible for remote work in 2021. His move to Austin, Texas, eliminated his entire state income-tax liability.

According to a Tax Foundation tally, West Virginia and North Dakota would be the 23rd and 24th states to cut income taxes after the pandemic, and, if Kansas acts, that will make 25. Only 43 states had an income tax before the wave of tax cuts began. In other words, a near supermajority of eligible states are cutting income-tax rates.

But the story doesn't end there. While most states are heartily engaged in tax competition, a few large states are headed in the opposite direction. California, New York, New Jersey, and Illinois have each proposed some form of state wealth tax to expropriate their highest earners. These states are already highly taxed, heavily indebted, poorly managed, and experiencing out-migration. Their legislatures have alerted these high earners about what to expect in coming years.

The catalyst for the ongoing state tax revolution might, therefore, end up being the utter fiscal mismanagement of America's largest, most progressive states. A stream of high-earning out-migrants from California and New York drive up revenues in places such as Texas, Florida, Arizona, and Tennessee, enhancing the virtuous tax-cutting cycle in those states. Indeed, Texas and Florida alone accounted for 70 percent of America's population gains over the past year despite constituting only 15 percent of the U.S. population base.

Fiscal federalism provides partial fiscal sovereignty to the states. The resulting interstate tax competition will both compel poorly managed states to reform and provide alternatives for footloose residents.

While voters make binary electoral choices every other November, we can learn much more about which fiscal models work and fail by looking at how they choose between 50 different states every day.

Michael Lucci is a visiting economic fellow at the State Policy Network and the former vice president of state projects for the Tax Foundation.