Elizabeth
Why do only certain states charge income tax?
I have lived in multiple states in the United States, one of which did not charge state income tax. I was simply wondering why some US states choose to charge state income taxes while others do not. #income-taxes #taxes
4 answers
Keith Martin
Keith’s Answer
As you pointed out, each state government can enact substantially different tax policies. Note that those are taxes collected in addition to Federal taxes. Federal taxes are typically the majority of what you pay, and those are the same between states.
Since states have wide discretion on state taxes, they often reflect the political goals of those governments. Taxes can be structured to be progressive, or regressive, or to encourage or discourage certain behaviors. Progressive taxation results in wealthier people paying higher rates. Flat taxes and sales taxes tend to be regressive, since for poorer people, these consume a larger fraction of their income. There are also "sin taxes" on things like cigarettes and alcohol, to discourage their use. Similarly, there are often exemptions for things like saving for higher education.
Finally, in addition to Federal and State taxes, many localities, e.g., cities, counties, towns, have their own taxes as well. These are often property taxes on real estate, and are used to pay for local services, like schools, police, and fire departments.
Keith
Eric Pinto
Eric’s Answer
Each state has the right to decide how they want to collect the revenue needed to run their local government. Since they have so many options as summarized by Keith, each state and local Congress and/or city/county board works on identifing the best approach for taxation for their local situation. The states that do not have income tax have decided that transactional taxes (i.e. sales tax, tourium tax, gas tax, etc.), property taxes, and maybe corporate taxes are the best way to find their government without putting that burden directly on the individual income.
Mina Henawi
Mina’s Answer
Frank L
Frank’s Answer
-Requirement for Funds: Each state has its own unique methods of generating revenue, such as through sales or property taxes. If these other forms of taxation sufficiently cover the state's expenses, it may not see the need to impose an income tax.
-Attracting Economic Activity: Some states choose not to impose an income tax as a strategy to lure businesses and individuals who are seeking a lower tax burden.
-Substitute Taxes: States that do not levy an income tax usually have higher rates for other forms of taxation, like sales or property taxes, to make up for the absence of income tax.
-Political Landscape: The decision to impose or not impose an income tax can also be a reflection of the state's political stance on issues of taxation and government expenditure.
In summary, the decision of a state to levy an income tax is largely dependent on how it chooses to balance its financial plan and economic objectives.