Let's assume President Trump is successful in eliminating the federal income tax. I would be interested in your thoughts as to whether the states would follow suit, or if they would keep their income tax as before at the same rate. OR if they would jump at the chance to increase their tax rate because of the new "windfall" of money flowing into your pocket? What's your best guess?
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There would have to be some stipulation that if States raised their income tax in response to Federal income tax elimination, their Federal "assistance" would be severely cut or removed. Otherwise we know states would capitalize and dip deeper.
Both, depending on whether it’s a red or blue state.
State (specially blue ones) will instantly raise state income tax because they would probably be losing some Federal money, so they're going to retaliate against their own citizens. States will see the removal of the Federal income tax as a chance to explode their own tax rate because they will want that money the Feds are not getting shifted to the state.
My state of Tennessee already has no income tax, and has NO plans to start one.
As a federal retiree with Civil Service retirement, my annuity is exempt from North Carolina state income tax.
The vast majority of States that have an income tax, base it on the federal income tax.
If feds say you have $X income, then the State just uses that number. They don't have their own calculation.
There are 5 States that do their own calculation.
9 States have no income tax.
So, 36 States would have a problem -- but being the assholes they are, they would just change the statute and continue on with it (possibly at higher rates).
However ...
There is a problem with all of that.
The Constitution says that Congress has the power to tax incomes (16th Amendment).
But it also says that all powers NOT delegated to the feds are reserved to the States (10th Amendment).
This means that the States do NOT have authority to impose an income tax, because that is a fed power.
I don't know if this issue has ever been challenged, but it should be, especially if the feds eliminate it.
Good states will drop it, bad ones will keep or raise it. The "Great Polarization" of states is about to begin, methinks, and not just on economics. When issues are moved back into states' control away from DC you'll really see who shines and who sucks
It would depend on how debt is in each state budget. Look for a big hike in CA. Look for the status quo in states already having no income tax.
Feeling 7.5 for awhile now.
I'll pick "other."
I think that a high number of states, and especially the high income tax states, will be declared to have no legitimate government and therefore will be managed as federal territories until they can re-establish a legitimate government and qualify for reinstatement, similar to how the South wss treated in reconstruction. So they'll zero out completely in taxes for the immediate future.
I'm sure Illinois would double the rate (or worse) in a heartbeat.