No State Income Taxes: a Bonus or a Bummer?

the digital CPAPayroll, Taxes

1933 cartoon showing the differing opinions on income vs. sales tax

Florida is currently one of only seven states without a state income tax. The other six are Alaska, Nevada, Texas, South Dakota, Wyoming and Washington. Additionally, New Hampshire and Tennessee only pay taxes on dividends and income from investments (no wage taxes.)

There is much discussion over whether the lack of income tax gives a boost to the economy… or the other way around. Let’s take a look at the facts first, and then the opinions.

Since these nine states don’t bring in wage taxes, they must get their revenue in other ways. In Florida, we have a 6% statewide sales tax, as well a minimal local tax on top of that. In Tennessee (where income tax is actually banned,) the combined statewide and local tax average of 9.46% is the second highest in the nation.

Washington relies quite a bit on gasoline taxes, where gas prices were second highest as of Jan 2017. Wyoming and Alaska depend on tax revenues from their natural resources.

Property taxes often make up for the lack of income tax in these states as well. This is the case in New Hampshire, which has one of the highest property taxes in the country. New Hampshire also has one of the highest in-state tuition costs in the nation. As for Florida, our property taxes are above the nation’s average. The cost of living in Florida (as well as South Dakota, Washington and New Hampshire) is also higher than the median.

So which kind of taxes of are best for the economy? Many people think that having zero income tax provides room for more growth and helps to create jobs. After all, a higher take-home pay is something we all appreciate. However, it isn’t proven that eliminating income taxes boosts a state’s economy. Many would say that the alternative of heavy sales tax puts more pressure on the poor-since the taxes are no longer proportional to income. It could also be argued that state income taxes have little weight in a person’s decision to live there or not.

Well, the debate will likely continue on as more data is accumulated. We hope you’ve enjoyed this brief overview of those few states without income taxes. There’s just one more fact worth mentioning about the Sunshine State: Florida has the second lowest state taxes per capita!