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POLITICS

Get rid of state income tax? Maybe, maybe not

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Photo - File Folders of Taxes
File Folders of Taxes
Politics,Beltway Confidential,Michael Barone,Taxes

One interesting trend this year in the laboratories of the states has been the call for zeroing out state income taxes and replacing some of the revenues by extending sales taxes to currently untaxed services. It was first broached, I believe by Kansas Governor Sam Brownback and by Republicans in the North Carolina legislature. But now, as this blogpost notes, http://dailycaller.com/2013/04/26/and-then-there-were-two/ the idea has been dropped by Louisiana Governor Bobby Jindal and Nebraska Governor Dave Heineman. Brownback has met with some opposition in the legislature and it’s not clear whether the proposal will be advanced in North Carolina.

One argument for repealing a state income tax is that states without income taxes–Texas, Florida, Tennessee, New Hampshire–have tended to have stronger economies than their neighbors, and in the case of Texas have been real national economic leaders. But there was bound to be opposition from service providers who don’t want to be subject to sales tax and from those who believe that sales taxes hit those with low and moderate incomes harder than income taxes. And income taxes in most cases provide a lot of revenue and so if they are zeroed out another revenue source must be provided.

I have thought that abolition of income taxes in a large number of states would tend to make it harder for the federal government to institute a value added tax, since state governments would feel it is poaching on their chief source of revenue. But such musing seem academic at this point.

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