How do some states (TN, FL, etc) get by with having no income tax? Why can’t every state get rid of it?
In: Economics
They raise revenue by other means.
Tennessee has one of the higher sales tax rates of the country, with the non-grocery sales tax reaching 9-10% in many parts of the state, and a roughly average property tax alongside it.
Alabama has one of the lowest property tax rates in the country, but charges a 6% statewide sales tax (only discounted to 5% on groceries) when many local sales taxes bring that up to 9-10%. (Few, if any, counties/cities exempt their own sales taxes for groceries). Hence why the state also has a fairly moderate income tax.
They receive taxes through other sources such as property taxes, sales taxes and road tolls.
The no-income-tax states just get the revenue from other types of taxes like property, sales, payroll, etc. One way or the other, the state government will get funded. Wealthy people are able to game this system in ways the lower and middle classes can’t.
For example, a wealthy person can identify State A with low property tax and high income tax and State B with high property tax and no income tax. He can then buy property and show no income in State A while renting an apartment and showing all his income in State B. And he can have his company’s headquarters be in a State C with low business taxes and regulation, even if the “headquarters” is little more than P.O. box.
>How do some states (TN, FL, etc) get by with having no income tax?
They raise other taxes instead. This often means lowering income taxes (to help the rich), and raising sales taxes (which hurts the poor) to make up for it.
They also slash public services (don’t spend money fixing roads, have fewer and worse assistance programs, etc).
>Why can’t every state get rid of it?
Because doing so would make life worse for almost everyone (see above).
Texas has no income tax. Our sales tax is 8.25-8.50 but it isn’t charged on food or drugs. Our property taxes are also high and almost every road they build now is a tollroad.
In addition to the other responses about sales taxes, etc. Florida makes up for a good percentage of its no state income tax via tourism taxes, hotel stay taxes, gas taxes, etc.
New Hampshire has no state income tax and no sales tax, however has some of the highest property taxes in the country. It’s also expensive to register a car.
NH has a (relatively) huge property tax to make up for 0 sales tax… they will always tax *something* to get the same amount of money, it’s just a question of what
States like Wyoming, Alaska and Texas rely on mineral extraction taxes to avoid income taxes. States without much mining or drilling resources have to look elsewhere.
A lot of it is also tourism. Florida generates insane amounts of tourism revenue on sales tax. Sometimes it helps just getting lucky with your location. Tennessee also has fair amounts of tourism to Nashville, Memphis, Dollywood, etc.
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