Do States Need an Income Tax? | Eastern North Carolina Now

The above question was posed recently by Cato Institute fiscal policy expert Chris Edwards.

    Publisher's Note: This post appears here courtesy of the John Locke Foundation. The author of this post is Brian Balfour.

    The above question was posed recently by Cato Institute fiscal policy expert Chris Edwards.

    State and local governments raised $1.9 trillion in taxes in 2020. ... But nine states do not impose an individual income tax. How do they run their governments without it?

    Pretty well, apparently. The nine - Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming - "run leaner and more efficient governments than most other states," according to Edwards.

    Alaska and Wyoming, due to their energy-rich economies, fund relatively larger governments courtesy of significant tax and fee revenues from their oil and gas industries.

    The other seven states, however, run their state governments with a notably lower tax burden on their citizens. For instance, "Total taxes in the seven states average 8.1 percent of income. The average in the 40 other states is 9.6 percent," wrote Edwards.

    "Repealing state individual income taxes is a good goal," Edwards continues. "If policymakers deliver needed services in a lean and efficient manner, they can free their residents and businesses of complex and damaging state income taxes." For instance, Edwards notes high tax "New York's bureaucracy is 34 percent larger than Florida's, even though Florida has more residents."

    What about North Carolina?

    Our state is already scheduled to phase out its corporate income tax by 2030. Do any of the nine states with no personal income tax also have no corporate income tax?

    Nevada, Texas, and Washington impose a gross receipts tax on businesses rather than a corporate tax. The other four states impose a corporate tax.

    Both South Dakota and Wyoming, however, do without both personal and corporate income taxes, so it is possible.
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