How do some states survive without taxing income?

[Doc]

Texas and Florida and maybe more states do not charge income tax. So how do they make up the difference? Higher sales tax? I suspect Florida makes up a good bit of it with hotel taxes that those of us who visit pay. But is that enough to do without income tax from all your residents? If they can survive that way why can't other states do the same? Do those that do not charge income tax do so by because of the huge influx of tourist dollars?

It sounds like Phil Mickelson might be making some changes to deal with the increased tax burden:

Phil Mickelson gave a civics lesson after his play Sunday in the final round of the Humana Challenge. The lecture: I’m not going to pay more in taxes than I can take home to my wife and kids.

As a longtime California resident, Mickelson vented after shooting a final-round 66 for a 17-under-par 271 total and tie for 37th in his 2013 debut. Last fall, Californians approved Proposition 30, which boosts the state income tax to 13.3 percent on earnings of $1 million or more. That’s a 29.1 percent increase from the previous “millionaires tax” in a state with tremendous fiscal issues.

Compound that increased liability with the recent changes to the federal tax code, which bumps the top bracket to 39.6 percent from 35 percent to avoid going over the so-called fiscal cliff, and Mickelson’s tax hit is substantial.

“If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate is 62, 63 percent,” Mickelson said. “I’ve got to make some decisions on what I am going to do.”

Entire Article: http://msn.foxsports.com/golf/story/phil-mickelson-plans-drastic-changes-due-to-tax-situation-012013

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Phil has since apologized for his remarks saying he should not have complained publicly. But the poll at the link above has 75% of people saying he was right on in what he said. 25% said he was whining. I'm with the 75%.

Taxes are an issue and even those who are not millionaires will have to make moves to lessen their tax burden. Moving to a state with no income tax seems like a move in the right direction, if that is possible for you. But how do those states who do not charge that tax make up for that lack of income each year?

 

[pixie]

NH has no "income" tax or sales tax but they sure do tax interest and dividends and our real estate taxes are high.
I think rooms and meals tax is 8-9%. Gas tax is fairly low but gas cost 30-50 cents more a gallon anyway.

 

[Mama]

From the Tax Foundation:

According to the latest U.S. Census Bureau data, state-level individual income taxes make up the largest share of total state government tax collections. In 2011, state governments brought in $259 billion through these taxes, approximately 34 percent of total collections. However, there are currently 9 states that do not tax wage income (New Hampshire and Tennessee tax interest and dividends): Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. The composition of tax collections in these states varies considerably.
For example, Florida, South Dakota, and Washington each raised about 60 percent of their collections through sales taxes in 2011; nearly double the national average. New Hampshire collected 39 percent of its $2.3 billion of tax revenue from excise taxes (national average: 17.4 percent), and around 25 percent from corporate income taxes (national average: 5.3 percent). Alaska and Wyoming, both of which rely heavily on severance taxes on natural resource extraction, each collected a much larger percentage of their tax revenue from "other taxes" than the national average of 12.1 percent; 82.4 and 59.9, respectively. Besides severance taxes, this category includes state-level property taxes, death and gift taxes, documentary and stock transfer taxes, and licenses. Nevada and Texas each collect about half of their respective totals from sales tax collections, splitting the rest between excise and other taxes.
Since 2000, some of these states have seen large changes in the overall make-up of their tax collections, while others have stayed rather consistent. In 2000, over 30 percent of Alaska's tax revenue came from its corporate income tax; in 2011, that same figure accounts for less than 5 percent of total collections. This has not been caused by decreases in corporate tax collections, which in fact increased by 64 percent between 2000 and 2011, but by enormous increases in severance taxes. These tax revenues, included in "other" below, increased by nearly 600 percent in Alaska since 2000. In Florida, excise taxes increased from 16.6 percent of the total to 24 percent between 2000 and 2011. During those years, dependence on "other taxes" fell from 18.1 percent to 10.8 percent. On the other hand, the composition of tax collections in Tennessee and Texas has largely remained unchanged over the last decade.
After income, sales taxes make up about 31 percent of state government tax collections nationwide. Out of the five states that don't levy a sales tax (Alaska*, Delaware, Montana, New Hampshire, and Oregon), Alaska and New Hampshire rely on corporate income taxes over individual income taxes, with the opposite being true for Delaware, Montana, and Oregon. In every year since 2000, Oregon has collected over two-thirds of its tax revenue through personal income taxes.

 

[Kane]

As mentioned, Florida has no state income tax. But the State sales tax is slightly higher at 7.5%, and the County coffers are filled with substantially higher property taxes, the lions share of which is directed towards schools.

In addition, the state and the counties share a "bed" tax on tourism. On the beach rental I own, for instance, I must charge 11.5% on the bare rental income, 5% to the County and 6.5% to the State. This is a huge source of income for the beach areas and, of course, the attractions in Orlando, but I have no idea how the locals augment tax revenues in the steaming hot hell holes of the Florida interior.

 

[XeVfTEUtaAqJHTqq]

Washington has higher other taxes to compensate for the no income tax. The nice thing is that Oregon is close for the high dollar items.

 

[luvs]

pre-cooked food items @ the grocery- taxed, here.

 

[FrancSevin]

Your premise is flawed. It presumes everything is a zero sum game. It's is not about the amount of taxes collected but more about how tax revenues are generated.

Income taxes are a negative influence on the generation of higher income. It simply takes more of a person's time/pay as their wages increase.

States can fill their coffers in many ways. But progressive inome taxes is probably the worst. Primraly because it transfers the cost burden off of some and unfairly on to others. At some point those who are not taxed still insist on their right to the benefits provided by the State. Benefits for which they do not belive they are paying. In fact, they are, thus making that transfer a lie.

Texas realestate taxes are relatively low. Sales taxes are also not far from neighboring states with income taxes. But Texes generates a healthy economy, and theat generates tax revenues. The better the economy of the State performs, the more revenues.

This isn't just a question of size either. California has a larger economy. But it also has a larger portion of that economy involved by activity of teh State.

By leaving more money at the descretion of those who earned it, the State can expect to receive more revenue from the investments and spending done by that person. And when tose investments and spendingcrete more jobs and opportunities, then more revenue flows from that enterprise.

Put taxes on spending, not earning. The low income population will then contriubute to the state coffers accordingg to their decision making aabout their own money. The middle class will spend more because the earn more. And the rich will also.

So whether the little guy buys a $1,200 boat to go fishing or the rich guy a $12,000,000 yatch to go sailing, both contributre tothe state coffers. In states that have set their taxation up this way comes prosperity. And revenues. And if the Legilature does their job, hi mproves and they get more to spend.

Corporate taxes, sales taxes, use taxes are not personal, not in the way personal income taxes are. And when you make personal taxes progressive to income, you apply a negative pressure to those who would earn, and consequently spend, more.

Progressive taxes are always punitive. And the negatively motivate those who can earn high incomes to avoid, at all costs, payment of them. Aside from legal tricks, that includes simply holding the size of their companies down or moving them to states that offer more favorable tax environments.

Like Texas

 

[Doc]

I know it is working for some states but I think there is more to it than that.

So whether the little guy buys a $1,200 boat to go fishing or the rich guy a $12,000,000 yatch to go sailing, both contributre tothe state coffers. In states that have set their taxation up this way comes prosperity. And revenues. And if the Legilature does their job, hi mproves and they get more to spend.

I see little difference in an income tax vs the tax for when you buy a boat. One is prior to you getting your check the other is when you spend your check ...and yes, I know my state gets you on both ends of that equation. The difference is like PB said, anyone spending 12 million on a boat might go across state lines where the tax might be a whole lot less, or where there is no tax at all or they'll buy it on a business account and get out of paying tax on it no matter where they buy it.

I do find it interesting that some states do just fine without income tax but since everywhere I lived had income tax it is just another tax that I am used to. If Ohio did away with income tax they would have to raise that same amount of money some other creative way. Much like when they created the lottery and sold it as a way to support the schools. Now the Lottery is a big business generating hundreds of millions but only a very small percentage of that money goes to the schools. Just as I expect the Oil industry in Texas helps them do without income tax, fracking might help Ohio enough to get rid of an income tax ....but I doubt the powers that be would ever give that tax up willingly.

 

[Snowtrac Nome]

the state of alaska and also i believe texas survives off oil production taxes the state of alaska have some of the highest oil taxes in the us. as for other states like utah i don't know i do know we have no state sales tax but we do have local sales tax in some areas

 

[FrancSevin]

I know it is working for some states but I think there is more to it than that.



I see little difference in an income tax vs the tax for when you buy a boat. One is prior to you getting your check the other is when you spend your check ...and yes, I know my state gets you on both ends of that equation. The difference is like PB said, anyone spending 12 million on a boat might go across state lines where the tax might be a whole lot less, or where there is no tax at all or they'll buy it on a business account and get out of paying tax on it no matter where they buy it.

I do find it interesting that some states do just fine without income tax but since everywhere I lived had income tax it is just another tax that I am used to. If Ohio did away with income tax they would have to raise that same amount of money some other creative way. Much like when they created the lottery and sold it as a way to support the schools. Now the Lottery is a big business generating hundreds of millions but only a very small percentage of that money goes to the schools. Just as I expect the Oil industry in Texas helps them do without income tax, fracking might help Ohio enough to get rid of an income tax ....but I doubt the powers that be would ever give that tax up willingly.

There is a BIG difference.

First,,,,YOU get to decide what to do with your money.
Second,,,, your decision is not based on any tax laws motivating you to do the purchase one way or the other.
Third, the Tax on that boat would be the same for everybody. No matter their inconme.

As for the Texas OIL industry, that's a redherring argument. Many states have resources from which to generate opportunity, jobs, and revenue. California certainly has a mining industry (including oil reserves) that could flourish. Why hasn''t that happened?

Virtually no oil in IOWA.
IOWA is doing well and all they can produce is Corn, Beans, beef, pork and insurance policies. The State has done well for the Agriculture industry and so,,,the State coffers fill.

On the side;;;
Yes the boat can be bought and titled elsewhere. What motivates that? Complicated tax law. But again, anyone, rich or poor could do that buy out of state with the exact same tax implications.

My 27 foot Sloop is titled in Illinois because there is no personal property tax there.

 

[FrancSevin]

the state of alaska and also i believe texas survives off oil production taxes the state of alaska have some of the highest oil taxes in the us. as for other states like utah i don't know i do know we have no state sales tax but we do have local sales tax in some areas

I believe some Texas cattlemen, and certainly some Alaskan fishermen, who would take offense to that assumption.

Texas isn't just rich in OIL, they are rich in technologies, energy production (other than oil) manufacturing and agriculture. All segments that have prospered there in the last four years while the rest of us suffered losses.

The State of Alaska has a constitutional basis for the royalty sharing of the State's resources. This system actually encourages development of those resources.

 

[Snowtrac Nome]

yes you are right as oil provides most of our revinue but all natural resources are taxed weather it is minerals timber fishing oil or gas

 

[Snowtrac Nome]

my problem with income tax is why should those who work and report their income be the ones to suport the government ?dump income and do a sales tax on every thing that way welfare moms pay, their babie daddys pays, the dope dealers ,and importers of dope, pay and those trying to avoid their child support by working under the table help pay. about the only place you won't collect it, is on the boot leg dope which we are always trying to shut down.

 

[FrancSevin]

yes you are right as oil provides most of our revinue but all natural resources are taxed weather it is minerals timber fishing oil or gas

Aren't you drifting off the point here?

Progressive Income taxes are negative motivators and presume a Zerosum Game. Wealth does not exist,,,it must be created. Progressive income taxes redistribute the wealth created by one person and gives it, For no other reason than so called fairness, to another.
But it doesn't make it fair.

Wealth comes from commerce, not taxation. Revenues come from improved commerce, improved wealth, not punitive taxes.

The state needs to worry about creating revenue, not social engineering. The state can insure equal opportunity. It cannot engineer equal outcomes. Simplist system to do that,,,,,Tax the movement of money, not it's creation.

 

[Snowtrac Nome]

That was the way i was looking at it taxes are a necessary evil ,but i would rather see a tax system that captures everybody not just those that work. or choose to report their income. I could live with a flat 25 percent , but once again you are taxing those that work or choose to show their income,a group that becomes smaller every year.