The Tax Foundation’s State Tax Competitiveness Index is more than a list of which states collect the most taxes; it’s a critical evaluation of how well states structure their tax systems. It provides a blueprint for policymakers, taxpayers, and business leaders to assess and improve their state’s fiscal environment.
In the spirit of change and competition, we’re looking at which states have made the most progress in their tax systems since 2020, and which states have fallen behind.
The Biggest Winners: Top 5 States for Tax Improvement
Over the last six years, these five states have dramatically improved their tax codes, resulting in the largest leaps in the Index rankings.
| State | 2020 Rank | 2026 Rank | Change | Key Reforms |
| Tennessee | 38th | 8th | +30 | Fully eliminated the tax on individual interest and dividends, joining the eight states with no individual income tax. Also reduced corporate gross receipts tax. |
| Iowa | 43rd | 17th | +26 | Converted a nine-bracket individual income tax to a flat tax with a competitive 3.8% rate. Reduced the top corporate rate from 12% to 7.1%. |
| Georgia | 28th | 18th | +10 | Replaced its graduated individual income tax with a flat 5.19% rate, and tied its corporate tax rate to the same level. |
| Louisiana | 40th | 31st | +9 | Cut the individual income tax rate from 6% to 3% and consolidated corporate brackets. Adopted permanent full expensing. |
| Arkansas | 41st | 34th | +7 | Reduced both corporate (to 4.3%) and individual (to 3.9%) income tax rates and drastically consolidated tax brackets. |
The states seeing the greatest improvement generally followed a clear path: the flat tax revolution. They made their tax codes more attractive to businesses and individuals by consolidating individual income tax brackets, reducing rates across major taxes, and adopting pro-growth policies like full expensing.
The Biggest Losers: Top 5 States for Tax Decline
While other states actively pursued reforms, these five states saw their rankings drop the furthest, often due to increasing complexity and higher tax burdens.
| State | 2020 Rank | 2026 Rank | Change | Reason for Decline |
| Oregon | 8th | 35th | -27 | Instituted a modified gross receipts tax in addition to its standard corporate income tax, leading to high rates and tax pyramiding. |
| Washington | 33rd | 45th | -12 | Instituted a new 9.9% tax on individual capital gains income over a high threshold (now $1 million), undermining its historical advantage of having no income tax. |
| Colorado | 22nd | 33rd | -11 | Failed to address tax code inefficiencies (like the throwback rule and NCTI taxation) while competitors reformed, demonstrating the danger of “resting on its laurels.” |
| Massachusetts | 36th | 43rd | -7 | Switched from a flat income tax to a progressive income tax via a ballot measure, adding a 9% top rate for income over $1,000,000, and enacted a new payroll tax. |
| New Mexico | 20th | 28th | -8 | Increased tax code complexity by adding more individual income tax brackets (from four to six) and raising the top rate from 4.9% to 5.9%. |
The Big Picture: Why Tax Structure Matters
A state’s rank is not a fixed fate; it’s a reflection of legislative choices. The progress of states like Tennessee and Iowa proves that pro-growth reforms—focusing on a simple, neutral, and transparent tax structure—can quickly lead to significant competitive advantages.
Conversely, states that stood still (Colorado) or increased taxes and complexity (Oregon and Massachusetts) saw their rankings plummet as other states actively competed for residents and businesses. Every state has an opportunity to benefit from a simpler, pro-growth tax code.