Individual Income Tax Insights: State Income Taxes, the Uncertain Certainty

Benjamin Franklin famously said, “in this world nothing can be said to be certain, except death and taxes.” Although medical science has come incredibly far since Mr. Franklin’s day, (for one, doctor prescribed leeching has suffered a dramatic drop in recent years) death is still a certainty. Just as death has remained, taxes, too, have stood the test of time, albeit in varying forms. The debates surrounding income taxes in a handful of states best illustrates this ever changing “certainty.”   

On one end of the spectrum we find Alaska. Alaska, which hasn’t had an income tax for 35 years, is currently facing a major budget deficit as a result of fluctuating oil prices, according to a Dec. 9 article from the U.S. News and World Report. Alaska Governor Bill Walker proposes to solve this issue by instituting an individual income tax, among other cuts, notes the article.

On one end of the spectrum is a state governor proposing an income tax, while on the other end is a state governor proposing income tax cuts - that is where we find Ohio. In almost the exact inverse of Alaska, Ohio Governor John Kasich is calling for increases in severance taxes in conjunction with cuts to income taxes, according to a Dec. 23 article in The Journal Gazette.

While income tax cuts are being proposed in Ohio, Massachusetts has reduced its income tax from 5.15 percent to 5.1 percent as a result of hitting revenue targets as set by the state’s legislature, according to a press release issued by Governor Charlie Baker’s office.

Whether these cuts are good or bad depends on who you ask. Highlighting the classic tension surrounding income tax cuts, advocates of the reduction say the cuts increase the amount of money taxpayers have to spend, while opponents say it reduces funding available to government programs, notes a Dec. 22 article in The Bay State Banner.

Death and taxes, so called certainties in an uncertain world, but apparently only to a point.

Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Should states try to find ways to reduce the income tax burdens on individuals through increased consumption and severance taxes?

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