State Income Tax Policy

The podcast discusses state income taxes in the United States. It explores the nine states that do not have a state income tax. The speaker presents the pros and cons of not having an income tax, highlighting issues such as higher property taxes and sales taxes in these states. Additionally, the speaker mentions that states without income taxes tend to have higher costs of living. On the other hand, states without income taxes benefit from tourism revenue and may be advantageous for wealthier individuals. The speaker concludes by suggesting that states without income taxes should consider implementing them to lower other taxes while maintaining revenue. Hello. Welcome back to my podcast. My name is Jeff Bautista, and I think I have a very interesting topic to talk about with everyone today. Today we're going to be talking about taxes. I know how exciting taxes can be for everybody, and I actually think that the topic of discussion that I have today is actually pretty interesting, and the law and policy that I'm going to propose is interesting, at least it is to me. So, taxes. Specifically I wanted to talk about the state income tax, and how some states in the United States actually don't include a state income tax in their yearly taxes. So first, I guess, what is a state income tax? It varies by state. It's essentially a percentage of money that you pay to the state government, and it's based on the income that you make at your job. But like I said, it varies from state to state, so it's not just one solidified percentage that everyone gets charged no matter what. And there are some states in the United States here that do not have an individual income tax, and there's nine of them. They include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. And like I said, those nine states, yeah, nine states do not include an individual income tax, actually. And I'm here to talk to you about the pros and cons of those state income tax, and whether or not it should be required for states to include a state income tax. So, I guess we'll start off with what are some of the cons. I mean, I'm going to come forward and say I don't really understand not including an individual income tax. Some people may view it as a positive because then they don't have to file state taxes, but I believe there are a lot more negatives, but we'll get into that in a little bit. Let's just start off with, in 2018, I found this article. It's titled, hold on a second. The title is, Is a State with No Income Tax Better or Worse for Your Finances? And it's a whole article talking about pros and cons. It states that, according to Forbes, in 2018, states that don't have income tax have seen a net inflow of 285,000 new residents, and those residents were leaving the other 41 states that do include the income tax. So, even though that these states, so because these states don't include an income tax, they are seeing this huge net inflow in 2018 of 285 new residents leaving the states that do. But does this mean that states that do not offer an income tax are doing necessarily better than those that are? And that's what I'm trying to present to you guys today. So, what you have to understand is that the state governments use the taxpayer dollars to fund a lot of things throughout the community and throughout the state. These things include like road maintenance, it helps fund law enforcement agencies like your local police stations and other public services like I'm sure building parks. Like I said, road maintenance, filling potholes, public services like school services. And these services, the funding for these services, they come from three main key areas, and that's property taxes, sales taxes, and income taxes. So, when you take out income taxes and you just leave the state with property taxes and sales taxes, it leaves a big gap and the state needs to figure out how to combat this and work with this. And basically, what they end up doing is they just make the other taxes, the property taxes and sales taxes higher to make up for what they're missing for in the income taxes. And some examples of these, I mean, you see it in Washington. Washington is one of the nine states that does not include an income tax, and they see pump prices. Sorry about that. So, like I was saying, sorry about that. My computer just had a problem right there, but Washington, like I was saying, Washington, it is included in one of the nine states that does not include an income tax, and they see the highest gas, the gasoline tax in Washington is the highest. It is one of the highest in the countries. So, what that gasoline tax does is, obviously, it adds money on to how much the pump prices are and the pump prices go up, and people pay a lot of money for gasoline in Washington. We also see it in Tennessee. Tennessee, again, one of those nine states, and Tennessee has the highest combined sales and local tax rates in the country, and it's at 9.55%. And I'm going to include a link to this chart that I found, but it's from the Tax Foundation, and it shows the chart of the state sales tax and then the average local sales tax. And, like I just said, Tennessee is ranked as one of the highest, it is the highest at 9.55%. And if we look at the other ones, the other highs, it's Texas at 8.9%, Washington at 9.23%. So, we see a pattern here with all of the states that don't have an income tax and how high their combined sales tax rate is. It's, like I said, when you take away the income tax, the state has to replace it with something else, so they make the other taxes more. We see it again here, homeowners in New Hampshire pay the third highest property tax in the country, it's at 1.89%, and Texas, another state that does not include the income tax, is not far behind that at 1.6%. Also, in New Hampshire, New Hampshire gets almost 64% of their revenue for the state, that's over half of their revenue, strictly from property tax money. This is the most from any state, which is just an unreal number. Almost 64% of their revenue comes straight from property tax money. So, like I said, New Hampshire pays the third highest property tax in the country at 1.89%, and that is greatly seen in their almost 64% revenue from property tax income. Another main thing to look at when we are discussing no income tax would be cost of living. Cost of living is a huge factor for people, whether or not they move to another state, depending on how much that state's cost of living is. Florida, Washington, Nevada, New Hampshire, all states without income tax, they ranked among the top 20 most expensive states to live in, and these rankings took into consideration for groceries monthly, transportation monthly, housing and health costs, and four out of the nine states that do not include income taxes were ranked in the top 20 for the most expensive states to live in. Another big thing for people, another big thing is for, if you live in a state with no income tax, you may not be able to claim the full state and local tax deduction. And what that basically means is, the local state and local tax deduction allows most taxpayers to itemize their taxes instead of taking the standard deductions of a maximum of $10,000 from their federal taxes. So, if you live in a state with no income tax, you may not be eligible to do this, and you may not be saving the full amount you can on your taxes. On the other side of things, there are a few pros to living in a state with no income tax. So, one of the big things is for heavy tourist sites, states like Florida and Nevada, out-of-state guests contribute heavily to the sales tax revenue, and so the state and the community gain a lot of money from out-of-country or out-of-state guests who tour there and spend a lot of money there. Another pro is, obviously, you only have to pay the federal tax instead of the local state taxes, and if you're from a wealthier family, moving to a state with no income tax might be a great advantage for you because they do not tax you based on your yearly income. You only get taxed the federal tax. In my own opinion, I'd say that the nine states that do not have a federal, I'm sorry, a state income tax should try and implement them into their laws and policies because, as you can see, I mean, giving no income tax only makes the state make up for it in other areas and other taxes. They take away the income tax, they raise the gasoline income tax, or they raise the property tax, or they raise the sales tax, and then the people of the state are just still paying almost the same amount. So, yeah, I'd say that the nine states that do not have an income tax should definitely try and implement one to lower other taxes while still maintaining the same amount of income and revenue that they gain.