Abolish State income taxes - Interesting article

Just saw this from Newsmax. One of the more interesting items was a table showing the percentage of debt as part of states budgets for the no income tax states vs the income tax states.

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There have been a number of both empirical and theoretical studies showing the negative impacts of state income taxes and particularly those with high marginal rates on economic growth within the state.

A recent study published in the Cato Journal by professors Barry W. Poulson and Jules Gordon Kaplan, which was carefully controlled for the effects of regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states concluded: "Jurisdictions that imposed an income tax to generate a given level of revenue experienced lower rates of economic growth relative to jurisdictions that relied on alternative taxes to generate the same revenue."

another snipet:

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On average, schools, health and safety, roads, etc. are no better in states with income taxes than those without income taxes. More importantly, the evidence is very strong that people are moving from high-tax states to lower-tax-rate states — the migration from California to Texas and from New York to Florida being prime examples. (Next year, the combined federal, state, and local income tax rate for a citizen of New York City will be well over 50 percent, as contrasted with approximately 38 percent for citizens of Texas and Florida.)

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And in the last paragraph:

"The states without state income taxes overall have had far better economic performance for most of the past several decades than have the income tax states — particularly those with high marginal taxes.

The Tea Party movement indicates that it might be the right time politically for politicians in the income tax states to call for those taxes to be phased out.

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Thank You Mr Rahn

States	Income Tax	State Debt as % of Income
Without Individual Income Tax
Tennessee	0	2.02
Texas	0	2.70
Nevada	0	4.07
Wyoming	0	4.90
Florida	0	5.20
Washington	0	7.93
South Dakota	0	10.95
New Hampshire	0	14.10
Alaska	0	24.01
Highest Individual Income Tax rates
Iowa	9.28	6.47
Maryland	9.23	7.26
California	10.55	7.55
Oregon	11.36	8.61
Hawaii	11.00	11.89
New Jersey	9.06	12.01
New York	10.67	12.22
Vermont	8.95	13.12
Rhode Island	9.9	20.04

Tags: taxes

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Permalink Reply by Kevin Zelhart on July 21, 2010 at 3:04pm

The fair tax was put forth bya congressman Linder and Neil Boortz, the talks how host. It is based on an extensive sudy of taxes by a group of economists who were asked to come up with the best alternative to the income tax which would be revenue neutral, that is, provide the same amount of revenue as the taxes it replaces. The Fair tax would replace the income tax (both personal and corporate), all with holding taxes and the death tax I believe (can correct me on that last one, it has been a couple of years since I read the book). It would institute a sales tax on all new goods and services. Used goods would not be subject to the tax. Each household would get a 'prebate' equal to the amount one would pay in sales tax up to the poverty line, to offset the tax for the poor.

The tax in the Boortz book is figured as you would an income tax, that is inclusively. This means that If you see something priced a dollar, 23 cents of that would be tax, or 23% of each dollar spent. One of the common arguements against it has centered around this method of computation. if you look at it the other way, if you bought a 77cent item, it would cost you a dollar with the tax, and they compute that as .23/.27=.298 or 30%. It is still 23 cents of every dollar spent.
The beauty of this type of tax is that immediately, even the poor would get a raise of approx 7.5%, the current withholding tax rate. If you actually pay income taxes, you would get that money also. Companies, which currently spend between 20 and 25% of their product cost (which you as the consumer pay in the purchase price) on tax related issues, would then more than likely use that to reduce the price of their offering to gain a competitive edge. As such prices should fall, it is estimated approx 20%, which would cover much of the cost of the sales tax. It would also take a lot of power away from lobbyists that normally are trying to get breaks in the tax code for their clients.

That is it in a nutshell. I would recommend you get the book, The Fair Tax, to fully understand the concepts.

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Permalink Reply by Vern Shotwell on July 21, 2010 at 4:05pm

Perhaps they went elsewhere?
Who knows...

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Permalink Reply by Vern Shotwell on July 21, 2010 at 3:06pm

Agreed.
Imagine the furor for a 7 -10 year period, as you describe though!
Kind of like the farmer whose Boxer needs its tail bobbed, takes off one inch a week! Or a tooth pulled slowly, over a period of months. I agree, but it probably can't happen that way. The pain might be unbearable, to many!
And the half that don't pay income taxes? They don't pay income taxes! Good for them, I guess....
Hope we can win. But it's a long, steep, uphill battle!

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Permalink Reply by Kevin Zelhart on July 23, 2010 at 2:16pm

Have to dig into my bag for an idea I have put forth here before. How about a two tier tax. The base tax would be a 'constitution tax' which would fund those things specified by the constitution that the federal government or the state is responsible. All other items would have to have a tax for that expressed purpose (However if we obtain what we desire, at the federal level, that would mean only the constituion tax). In bad times, all spending other than what is covered by the constitution tax would have to be cut before one could touch the constitution tax.

What this would mean for the states would be that the old tactic of 'if you don't approve this tax increase, we will have to cut teachers and police' would no longer hold, as in most states this would becovered under the constitution tax. I personally would like to see this tax restricted for education ONLY to the basic courses. If the schools run short, sports and the arts need to be the first to be cut, not the basic education courses