Alternative To State Income Tax
A trend in tax filing is already taking place in some Republican led Southern and Midwest states. Other states are considering a similar plan to eliminate their state income taxes and replace it with a higher sales tax to make up for loss of revenue. Legislative watchdogs and tax reform experts can only speculate to the success of these new tax reform campaigns.
The Push for State Tax Reform
English: Map of US states by state tax as a percentage of average income per capita, 2007. Legend: 5%-5.5% 5.5%-6% 6%-6.5% 6.5%-7% 7%-7.5% 7.5%-8% 8%-8.5% >8.5% (Photo credit: Wikipedia)
Since there is little hope for any more changes with the federal tax system, many states are making plans to spur economic growth within their own region from changes in tax law. Reform activist agree that any major tax changes for this year will have to take place at the state level. However, they do not agree that states will be successful, or that this strategy is the answer to the reform problem. The states of Texas and Florida have no individual income tax which makes them attractive to residents and businesses.
States Considering Lower state income Taxes
Louisiana and North Carolina are two states who have made recent announcements with similar plans. Kansas cut those taxes last year and are talking of more reductions for the coming year. Oklahoma wasn’t successful in their attempts last year and may push another attempt through this year. Alaska eliminated their state income tax but were able to replace the lost revenue with income from the oil industry.
An Example of Republican Economics
This type of reform is an example of “trick-down” economics that was adopted by many in the Republican party 30 years ago. Eliminating the state individual tax filing would give citizens more money in their pocket and initiate consumer spending. Taxing consumers products and services would replace the lost revenue.
The Effect on Socioeconomic Class
The lower and middle socioeconomic classes would be hit the hardest with the change. Many consumers who didn’t pay the state any taxes on their income previously, would now be paying more for necessary items. Additionally, people who would normally receive a refund would no longer qualify for that income assistance.
Many states are making plans to reform their tax laws and alter their state income taxes. As the year progresses, it will be interesting to see other creative economic plans take shape.
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