Forty-two states impose some version of a personal-income tax (PIT). And 31 of them harvest more than a third of their self-generated revenue from the levy.
That’s why PITs have proven to be stubbornly sticky.
Only one state’s PIT has been repealed. And Alaska’s change of mind resulted not from a principled commitment to tax relief and limited government, but a gusher of petro-bucks. The Last Frontier’s 1979 anomaly is worth remembering, as Sooners react to their governor’s “call to phase out Oklahoma’s individual income tax” and Arkansas Governor Sarah Huckabee Sanders moves “toward eliminating the income tax.”
Most state PITs were enacted in three spurts. The first came amid the Progressive Era. The second, and largest, struck during the Great Depression. Finally, JFK/LBJ/Nixon-style technocracy spawned the final epoch, in the 1960s and 1970s.
One exception, though, deserves special attention. In 1991, Connecticut broadened its PIT, then limited to capital gains, interest, and dividends, to cover all earnings. With the national economy weak, “experts” predicted that a trend was underway. Federation of Tax Administrators Executive Director Harley T. Duncan said he “would not be surprised to see three or four other states adopt a personal income tax, not this year but certainly over the next several years. The most likely prospects are Texas, Tennessee and New Hampshire, and possibly also South Dakota.” Steven D. Gold, director of the Center for the Study of the States at the State University of New York, agreed: “I think Connecticut is the first of numerous states that will have to pass an income tax in the 1990s.”
Yeah, no. Wisely, no-PIT states watched the disastrous consequences in The Land of Steady Habits, and stayed their courses. None of the nine states that lacked a broad-based PIT in 1991 — including Nevada, Washington, and Florida — have one today. In fact, at the start of 2021, the Volunteer State phased out the “last vestige” of its PIT, by eliminating the levy “on interest earned on bonds and notes and dividends from stock.” And on January 1st, the Granite State will end its “Interest & Dividends Tax.”
Reasons for hope in Oklahoma and Arkansas? Maybe not. Unfortunately, Connecticut’s folly, and the undeniable economic/fiscal vigor of states eschewing income taxation, frequently inspire irrational exuberance over potential PIT repeals. The Wall Street Journal’s editorial page is the worst offender. In 2007, it averred that “the next big thing in American politics” could be “the abolition of state income taxes.” Six years later, it claimed that “the race is on to see which [state] will be the tenth, and perhaps the 11th and 12th,” to slay a PIT. A few months ago, Americans for Tax Reform’s Governor Norquist speculated that one of ten states — including Arizona, Kentucky, Georgia, Montana, and Indiana — could be the next to appear on the “no-income-tax list.”
Here’s hoping, but if recent history is any guide, pessimism is warranted. A decade ago, Governor Bobby Jindal abandoned his attempt to eliminate the Pelican State’s PIT. (“And here is what I’ve heard from you, and from the people of Louisiana: ‘Yes, we do want to get rid of the income tax. But, governor, you’re moving too fast, and we aren’t sure that your plan is the best way to do it.’”) Jim Justice, West Virginia’s chief executive, hasn’t been able to shepherd his repeal proposal through a legislature with a massive GOP majority. And in 2022, Republicans in Mississippi’s Senate wimped out, refusing to follow the House of Representatives, which voted the kill the Magnolia State’s PIT. (Governor Tate Reeves lamented that he still believed that “we can and should eliminate the income tax,” but even though the “fiscal environment is right,” the “political environment in the MS Senate is not.”)
Oklahoma possesses “a record $1.3 billion in the Rainy Day Fund,” and at 2.8 percent, the state’s unemployment rate is well below the national mark. Arkansas fares even better, with 2.7 percent joblessness, and it has cut its income tax three times in the past year. (Little Rock ended fiscal 2023 enjoying “a $1.638 billion surplus, its second-largest ever.”)
But fiscal policy is rarely about the numbers. And while Republican lawmakers from Boise to Baton Rouge to Boston tout themselves as fiscally conservative, the truth is, they’re nearly as eager as their Democratic colleagues to spend other people’s money. Medicaid, tertiary education, corporate welfare, wildly generous employee compensation, transit pork — they secure a lot of votes. Why risk sweeping tax relief, when “public investment” is a surer guarantee of reelection?
We don't even need the PIT in New Mexico, because we have a tremendous income from Gas & Oil. Even though we are the home state of Marxist Socialist Communists like Deb Haaland & Michelle Lujan Grisham, we continue to slam home the big profits from Gas & Oil with record numbers of production. Let's also remember that New Mexico is the darling of Federal Aid Money. Regardless, there is NO NEED for PIT in New Mexico, but don't expect the Marxists to do anything actually good for the people!!
Colorado Governor Jared Polis recently made statements against Colorado's PIT. Hope for the future?
States will be foolish not to repeal PIT's and other prosperity roadblocks in order to appeal to the growing American Nomadic populations (read 'van life').