Four of the five states with the lowest living costs in America are now enacting income tax cuts tied to spending caps, with Mississippi, West Virginia, and Oklahoma legislating pathways to eliminate individual income taxes entirely. According to a new report from Americans for Tax Reform published in 2025, Oklahoma, Mississippi, West Virginia, Alabama, and Kansas hold the nation's five lowest cost-of-living rankings, scoring between 86.0 and 88.8 compared to the national average of 100. All but Alabama have passed laws limiting government spending growth in order to deliver permanent tax reductions as revenues exceed those caps.
Mississippi has moved most aggressively, with Governor Tate Reeves signing House Bill 1 in 2025 to gradually lower the state's individual income tax rate to 3% by 2030, then trigger further cuts when revenue and reserve thresholds are met, eventually reaching zero. The same legislation drops Mississippi's grocery sales tax from 7% to 5%. Oklahoma Governor Kevin Stitt signed House Bill 4072 this year, establishing the Oklahoma Taxpayer Endowment Trust Fund with $200 million from state savings, designed to grow and generate investment returns that can replace income tax revenue over time. West Virginia's Governor Patrick Morrisey signed another 5% across-the-board cut in March, bringing the top individual income tax rate to 4.58% for 2026, building on 2023 legislation that made West Virginia the first state to adopt a revenue-triggered path to zero income tax. Kansas passed Senate Bill 269, which lowers income tax rates when state revenues surpass an inflation-adjusted baseline and the Budget Stabilization Fund holds at least 15% of general fund revenues, first reducing the individual rate to a flat 4%, then dropping the corporate rate to match.
The report contrasts these affordable states with the nation's most expensive jurisdictions, where high income tax rates compound already steep living costs. Hawaii leads the cost-of-living index at 185.0, followed by California at 142.3, Massachusetts at 141.2, Washington, D.C. at 138.8, and New York at 125.1. Those same places impose the nation's steepest marginal individual income tax rates: California at 13.3%, Hawaii at 11%, New York at 10.9%, Washington, D.C. at 10.75%, and Massachusetts at 9%. While the cost-of-living index measures housing, groceries, utilities, transportation, and healthcare without directly including state taxes, the report notes that taxpayers don't experience these expenses in isolation—housing, groceries, transportation, utilities, and taxes all come from the same paycheck, and higher taxes add another burden for families already facing elevated living costs.
The report argues that states are constantly competing for workers, families, businesses, and investment, and while lawmakers can't directly control every factor driving the cost of living, they can control how much government takes from a taxpayer's income. Lowering that burden lets workers keep more of what they earn while making states more attractive places to live, work, and do business. The authors write that states cutting taxes and keeping them low are bound to see an influx of people, businesses, and capital fleeing the high costs and similarly high taxes of places like California and New York. Kentucky has cut its flat income tax from 5% in 2022 to 3.5% in 2026, with additional reductions requiring certain revenue and reserve conditions until the rate reaches zero, while South Carolina's newly signed House Bill 4216 immediately dropped the top rate from 6% to 5.21% and will continue cutting when individual income tax revenue grows by at least 5%, eventually eliminating the tax entirely.
The report concludes that growing government revenues should create opportunities for tax relief rather than excuses for higher spending. Mississippi, Oklahoma, West Virginia, Kansas, Kentucky, and South Carolina all recognize this principle, even though their specific approaches differ—each limits state spending growth and returns extra money to taxpayers through permanent income tax reductions. Other states should follow by controlling spending, reducing reliance on individual income taxes, and letting taxpayers keep more of their hard-earned money. Rather than treat their affordability advantage as permission to stand still, these low-cost states are continuing to reduce the burden on taxpayers, positioning themselves to attract the people and businesses looking to escape the nation's most expensive places.