Taxation & Government

Taxation & Government:

Abolition of State Income Taxes

By:

Anna M. Bucciarelli

ACC-131

Federal Income Tax

The idea of financing state services without an income tax is hardly radical. Nine states today - Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington & Wyoming mange well without one. With a few exceptions, the states without an income tax are America's most prosperous. In this paper we will be looking at a state that has a personal income tax, North Carolina and one of the nine states that do not, Florida.

It is a widespread belief that if the lottery were allowed in North Carolina taxes would be cut and more money focused on education costs. However, that is not the case, in article printed in the Fayetteville Observer, 14 October 2007Ñ'that the revenue generated from the sale of lotteries would not be enough to complete construction of one half of an elementary school. Of course it has only been in existence for a couple of years and we may not have seen the true profit potential of the lottery. Hence is a major factor on why we still pay personal income taxes.

At the federal level, federal tax revenue comes from personal income tax, and payroll taxes. These taxes are used to fund social security payments, the costs of national defense, medical expenditures and interest payments on the national debt. These funds are not necessarily funneled down to the state and local agencies and thus make it necessary to for states to impose their own taxes. It is not mandated which taxes the state charges its citizens in order to run their state from federal regulations so these so called nine "breakaways" have thought outside the box. They have imposed their own taxes and fees and seem to be excelling and meeting their financial goals.

North Carolina receives about $26 billion from many sources, including taxes, fees and funds from the federal government. After taking out federal monies which must be used for specified types of spending and states taxes earmarked for specific items - like gas taxes that are earmarked for road maintenance or monies set aside for the Clean Water Trust Fund -

about $4 billion remains to fund the state's "discretionary" spending. This spending is usually what is meant when people refer to the "state budget" or General Fund.

Personal income tax in North Carolina gets a lot of attention from lawmakers and the media because it can be spent on just about anything from public schools to paper clips to elephant food at the state zoo.

For North Carolina's state government, the personal income tax is like the family's nine-to-five job. People who earn money in North Carolina pay anywhere from 6% to 8.25% of their income to the state and about 3.6 million individuals and couples file returns each year.

About 58 cents of every state General Fund budget dollar is allocated to education in one of the "product" areas - schools, community colleges or universities. The next most costly area in which state government is involved is health & human services. This product line requires 25 cents of every General Fund dollar and covers a wide range of services that can be connected to; educating, informing, demonstrating, helping, protecting, preventing, healing, curing, and permitting. The next largest area is centered among courts, law enforcement,