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Thursday, November 21, 2024

State income taxes play to mixed reviews

Incometaxpixabay2

Income tax revenue seems to be inferior to other forms of taxation according to the Tax Foundation. | Pixabay

Income tax revenue seems to be inferior to other forms of taxation according to the Tax Foundation. | Pixabay

The collection of income tax varies from state to state and some states do not even mandate an income tax.

A report by the tax policy nonprofit Tax Foundation has shed some light on the parameters and effectiveness of state income tax.

In an aggregate sense, the nation depends on state individual income tax. It is essential for the states that do utilize a more local tax system.

In 2016, 23.5 percent of total U.S. state and local tax collections solely consisted of the individual income tax, the report indicated.

North Carolina ranks fairly high (ninth overall) in its dependence on state and local income tax; 30.3 percent of its total tax is derived from it.

Conversely, Tennessee ranks 42nd at just 1.5 percent. Oregon, which does not have a state sales tax, grabs the top spot with 41.7 percent of its taxes coming from state and local income tax.

In general, the individual income tax falls below sales tax (23.6 percent) and property taxes (31.5 percent) as the most significant state and local revenue source, the Tax Foundation reported.   

The nonprofit further noted that income taxes are more prone to undermining economic growth than sales taxes or property taxes. Sales taxes target what people spend as opposed to what they earn resulting in their more neutral position. Additionally, income taxes are more unstable than sales taxes, and people tend to experience a higher degree of volatility with income tax in relation to the business cycle.     

In essence, the Tax Foundation has deduced that the income tax has a greater tendency for instability, therefore, rendering it a much less reliable source of taxation.  

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