Zero income tax?

There are nine states that have no personal state income tax: Alaska, Florida, Nevada, New Hampshire, Texas, Washington, Wyoming, South Dakota and Tennessee.

Based on the Urban Institute’s collected data, circa 2017, WV spends more on ‘public welfare’ and less on ‘health and hospitals’ than the US as a whole, and even, for the most part, among states that don’t have a personal income tax (depicted above). Because these labels are aggregates of the categories in the original data, one must drill down to get the true picture, but this gives a good overview.

The revenue sources of those states that don’t collect personal income tax vary a bit, though those that have general sales tax below WV either have much greater ‘federal transfers’ and ‘charges’ (Alaska), or much higher ‘property taxes’ and ‘corporate income taxes’ (New Hampshire).

The current proposal (skip to the bottom for the plain-language explanation of what’s being proposed) by the WV governor is to increase various sales taxes, both general and selective. This is not going over well in the WV legislature (see HB3300 (has been shot down in the House) and SB600 to see what they propose, instead). While one can chalk up some of the above differences in collections and expenditures to regional differences, it’s basically a zero sum game. If we don’t replace the revenue lost through deleting the individual income tax stream, we need to cut spending on something. The only place we’d be exceeding our peers (in the zero individual income tax game) would be public welfare. It seems unlikely that WV can get away with cutting there. We’re already getting more than average from the federal government. Further, raising general sales taxes is a regressive tax policy that will disproportionately burden the poorest in the state while lightening the tax burden of the rich. SB600 seeks to provide a tax credit to low-income households to offset the sales tax increase, which just means the middle class will bear the brunt of the burden. For well-off countries, increasing the wealth gap is not a good strategy to improve the economy.

Aside from Florida and Nevada, the number one reason states seem to attract an influx of migrants (from other parts of the country) is low unemployment and high GDP (reference). Florida, Washington, and Nevada grew from migrants outside of the U.S. “In addition to traditional factors such as employment and education opportunities, Americans are increasingly considering weather and cost of living in their relocation decisions.”

According to the Brookings Institute:

The effects of state tax policy on economic growth, entrepreneurship, and employment remain controversial. Using a framework that in prior research generated significant, negative, and robust effects of taxes on growth, we find that neither tax revenues nor top income tax rates bear stable relationships to economic growth or employment across states and over time. While the rate of firm formation is negatively affected by top income tax rates, the effects are small in economic terms. Our results are inconsistent with the view that cuts in top state income tax rates will automatically or necessarily generate growth.

THE RELATIONSHIP BETWEEN TAXES AND GROWTH AT THE STATE LEVEL: NEW EVIDENCEWilliam G. Gale, Aaron Krupkin, and Kim Rueben

According to David Cay Johnston, Pulitzer Prize winning journalist, (Divided: The Perils of Our Growing Inequality) civilization is dependent on taxation. Without taxation, there would be no civilization. The people who need to pay the most in taxes are the people who benefit the most from civilization, i.e. the very wealthy.

Here‘s another take, from wvmetronews.com. Be sure to read the comments. They’re pretty much spot on.

According to The Tax Foundation (center-right according to mediabiaswatch, but non-partisan according to their own website), “States without an income tax already see population growth twice that of their peers” (Evaluating WV Income Tax Repeal Plans), but I could find no place in the article where this observation was backed up with facts. Further, when I contacted them asking for data to back this assertion, I got no response (so far). However, it might be worth reading the article to get an idea on how far apart the three proposals by the governor, house and senate are.

There is lots more that should go into this post, but time is of the essence, here. The legislative session ends April 10th. It is likely this’ll go into a special session, but just in case…. I hope I’ve inspired you to write your legislators.

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