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
Every state needs money to run, to pay the state workers, repair roads, and do all the necessary things. That money can come from many different places, but it has to come from *somewhere*. If a state chooses to not get money from income taxes, it must come from somewhere else. It’s not magic. Alternatives could be sales tax, licensing and inspection fees. If the state allows legal cannabis or gambling, they state can charge fees and taxes for that.
Here in Wyoming we have no income tax, approximately 70-75% of our tax comes from fossil fuel industries and with that said we dont provide shit for services and are very “boot strappy”. Sadly with the fossil fuel industry tanking and coal being basically dead we are in big trouble but noone talks about it. We actually have counties now that have such low populations they cant sustain a working county govt to provide basic govt services.
Just want to point out these tax systems are often regressive and place the burden on the poor and middle class. If you’re making $40k a year and it costs $500 to register your car, that’s a lot of money. If you’re making $1,000,000 a year, it’s nothing. The money to run the government has to come from somewhere, so if it’s not income taxes, it’s higher sales taxes, higher fees, higher property taxes, etc. These taxes are a bigger burden on the working classes than they are on the rich.
It’s no different than your personal finances or company finances. You have a certain amount of money that needs to be coming in. You may have multiple streams of money coming in. If you don’t have enough coming in on one stream, you increase the flow on another.
In the case of states, the could have income taxes, sales taxes, property taxes, sin taxes (tobacco, alcohol, etc.), entertainment taxes, tourist taxes, etc. Some states like Florida make a ton of money on tourism. So they can go without an income tax. Delaware makes a bunch of money on corporations. So they don’t have sales tax.
At the end of the day, the state will get the money they want. If it doesn’t come in as income tax, you can bet it’s coming in somewhere else.
In Florida there are high regressive taxes (everyone pays the same including poor folks) like sales tax. Plus we have additional taxes on tourism type activities like bed taxes on hotels and local entertainment taxes on businesses in high tourism areas.
It’s not better, just different and crappy in its own way.
Without an income tax, a state is forced to raise its revenues in other ways. This may include sales tax, property tax, or other forms of taxation.
Moreover, some states do not spend as much. Here in Tennessee, our roads and schools and some other public services suffer from underfunding.
A third way of paying for State services is being a net recipient of federal tax dollars. Some states take more money from the federal government than their residents collectively pay out.
On the whole, not having an income tax merely means that the burden of paying of services needs to be shifted elsewhere to other taxes or other jurisdictions.
I live in Ohio. The state income tax rate in Ohio ranges from 2.75 to 3.75 percent. People who make under 26,000 pay no income tax. But in Ohio there is no sales tax on groceries and no property tax on vehicles. So if you are poor you are not soaked for state revenue every time you go to the grocery or buy license plates.
Outrageously high property taxes. Sales taxes. Putting bills up for vote every election cycle for yet another penny tax. Civil forfeiture.
For those of you interested in a comparison.
[2024 State Tax Data: Facts & Figures | Tax Foundation](https://taxfoundation.org/data/all/state/2024-state-tax-data/)
Even in states with income taxes, property taxes make up the majority of revenue for state and local governments, so it’s not impossible to operate a state without an income tax.
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