Thinking Outside the Box?
Studies in Fiscal Federalism and State–local Finance series
Edited by Sally Wallace
Comments on ‘Going without an income tax: how do states do it?’ Don Bruce State revenue systems are under enormous strain, the current economic recession notwithstanding. For starters, sales tax bases continue to erode as a result of our shift in consumption toward services (and away from goods) and the continuing growth in remote sales, namely electronic commerce. Corporate income taxes are a declining revenue source thanks to aggressive tax planning activities alongside state efforts to use tax breaks to attract business activity. The siege on property taxes, which picked up significant steam with the passage of California’s Proposition 13, continues today. One might wonder, then, how nine of the 50 US states have been able to operate without the relative stability of a tax on personal income. Sjoquist’s chapter asks this important question by comparing states without personal income taxes to those with personal income taxes. The major problem with prior discussion along these lines is that consideration of adding a tax on personal income is often viewed by the voting public as an effort to increase taxes. This inability to separate the structure of the revenue system from the size of the revenue pie has seriously impeded productive reform efforts in many states. Sjoquist dispenses with this issue by comparing states without personal income taxes to a relatively more comparable group of ten income-taxing states. The obvious answer to how these states survive is that they either depend more heavily on other sources of revenue, or they...
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