Curious Kids is a series for children of all ages. If you have a question you’d like an expert to answer, send it to [email protected].
How can some states get by with no income tax? – Vonnie, age 12, Auburn, Alabama
Right before I was born in the 1970s, my family moved to Texas from Nebraska. A big reason was because Texas was – and still is – considered a low-tax state, and my dad wanted to start his business there.
Texas is also one of nine states that don’t have an income tax on the “earned income” of people working there.
That doesn’t mean Texas doesn’t impose any taxes on its residents – it does. Texans pay other taxes to help pay for schools, hospitals, health care, roads, airports, firefighters, business loans, public safety and all kinds of other public services. For example, Texans pay some of the highest property tax rates in the United States.
Understanding the kinds of taxes that states can collect can be complicated. As a tax professor and policy expert, it’s my job to explain how our tax system is designed and operates.
Why states get to make the rules
In general, states have the power to tax their residents. When residents choose to live in a state, they benefit from that state’s laws and protections and pay taxes as part of sharing the costs of government.
Like how the U.S. Constitution gives the U.S. government the right to impose federal taxes, every state has its own state constitution and laws that may impose taxes on a range of items. They might tax earned income from wages, money earned from investments, purchases of alcohol, fuel, tobacco or groceries, or any number of other items, industries and activities, such as sports events and hotel stays. There are lots of different kinds of taxes, and every state has unique rules.
Not just politicians decide what and how much tax to collect. Citizens often vote on whether to impose, increase or eliminate state taxes. For example, on Election Day in November 2024, voters in some states will be asked whether they want the state to increase taxes to fund social programs. In Oregon, voters will decide whether to increase taxes on corporations operating there to pay for a new anti-poverty program.
Curious Kids is a series for children of all ages. If you have a question you’d like an expert to answer, send it to [email protected].
How can some states get by with no income tax? – Vonnie, age 12, Auburn, Alabama
Right before I was born in the 1970s, my family moved to Texas from Nebraska. A big reason was because Texas was – and still is – considered a low-tax state, and my dad wanted to start his business there.
Texas is also one of nine states that don’t have an income tax on the “earned income” of people working there.
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