States Eye Income Tax Phaseouts to Draw, Keep Residents

While several states are again cutting personal income taxes this year, two—Mississippi and Kentucky—are on paths to entirely phase out their individual income taxes, joining a small but growing trend.

The two states are taking different approaches to reducing their income taxes to zero, but both efforts could have wide-ranging effects on their budgets and taxpayers alike, practitioners and analysts said.

In Kentucky, there’s hope that zeroing out the income tax will cause a bump in consumer spending, offsetting the drop in revenue, and keep the state competitive with neighboring Tennessee, which doesn’t levy an income tax.

“One of ...