Tax Tracker | State Migration, Tariffs, Energy Credit Expansion

Links for the 2025 tax debate.

Welcome to 2025!

The year of Taxmageddon is here, and you’re not alone if your head is already spinning trying to keep up with the one-bill, two-bill debate, the machinations of the SALT fight, current policy vs. current law, or the latest on the “external revenue service.” And don’t forget, tax filing season officially kicks off on January 27.

Some other quick items we’ve been following:

• House Ways and Means Committee held their first hearing of the 119^th Congress on “The Need to Make Permanent the Trump Tax Cuts for Working Families,” and Scott Bessent’s hearing to consider his nomination for Treasury Secretary started today at 10:30 a.m.

• President Trump announced that Ken Kies, former Chief of Staff at the Joint Committee on Taxation, will be his assistant secretary for tax policy.

• According to new analysis by EY for the National Association of Manufacturers, letting the 2017 tax cuts expire at the end of this year would put “5.9 million US jobs, $540 billion of US employee compensation, and $1.1 trillion of US GDP at risk.”

• Jason Smith is calling the new tax package the “America First Tax Cuts Act,” according to Punchbowl News.

Next week, on January 23, Cato will host an event for Hill staff covering the “Principles for Tax Reform in the 119th Congress.” You can sign up here.

The remainder of this week’s Tax Tracker covers the state-level flat tax revolution, tariffs, and the flood of Inflation Reduction Act (IRA) energy credit regulations.

Here are the rest of this week’s tax highlights:

Americans are moving to states with low, flat taxes. New data from U-Haul one-way trips highlights a decade-long trend—Americans prefer low-tax states. Nine out of the 10 states with the highest in-migration either have no state income tax or a flat income tax. According to Americans for Tax Reform, the average top marginal tax rate in these states is just 2.6 percent, compared to 7.3 percent in the bottom 10. Low-tax states are economically competitive and popular places to live, prompting others to follow suit. Louisiana joined the flat tax club in 2025, Missouri lawmakers are pushing to join next, and Mississippi is considering phasing out the income tax entirely.

Related Links:

• More Americans Voting with their Feet for Lower Taxes

  Dan Mitchell, International Liberty

• The State Flat Tax Revolution: Where Things Stand Today

  Jared Walczak and Katherine Loughead, Tax Foundation

• Tax Competitiveness and Interstate Migration

  Andrey Yushkov, Tax Foundation

Tariffs may not make it into reconciliation, but they will still undercut the benefits of Trump’s tax cuts. The Washington Post reported last week that Trump’s incoming economic team is working on the details of his tariff plans, possibly narrowing their scope to critical imports and gradually ramping up the rate. Trump disputed the reporting. While Trump frames broad, high tariffs as a strategy to bolster domestic industry, Bryan Riley of the National Taxpayers Union pointed out last week that “59% of U.S. imports are either raw materials, intermediate goods, or capital goods used by American businesses to support jobs and supply their U.S. and international customers. Taxing these goods would increase costs for American firms.” Tariffs are an import and export tax on Americans that undermine the goals of a pro-growth tax package.

Related Links:

• Trump Team Studies Gradual Tariff Hikes Under Emergency Powers

  Jenny Leonard and Saleha Mohsin, Bloomberg

• Econ 101 is Wrong about Tariffs

  Brian Albrecht, Economic Forces

• Paying for Trump Tax Cuts with Trump Tariffs Doesn’t Make Sense

  Scott Lincicome and Adam N. Michel, National Review

Biden Administration keeps expanding the IRA. In the last few months of the Biden administration, regulators have rapidly expanded eligibility for Inflation Reduction Act (IRA) tax credits. Last week, the government issued four final regulations that expand access to tax credits for clean electricity in low-income communities, expand technologies qualifying for clean energy credits, and extend deadlines for hydrogen credits, among other changes. At least ten recent IRA-related regulations and guidance will be subject to the Congressional Review Act, making them eligible for fast-track repeal.

Related Links:

• On Inflation Reduction Act Reform, Anything Short of Full Repeal Is Failure

  Travis Fisher, Adam N. Michel and Joshua Loucks, Cato Institute

• Treasury finalizes guidance for IRA’s tech-neutral, clean electricity tax credits

  Diana DiGangi, Utility Dive

Last but not least, remember to check out the National Taxpayer Advocate’s Annual Report to Congress. This year, the report discusses how the lopsided IRA funding is overallocated to enforcement, tax return processing delays, and why “significant weaknesses remain” in the IRS’s ability to provide timely taxpayer service (only 31 percent of taxpayers who attempted to reach an IRS assistor were successful).