States Are Changing How They Tax

Key Takeaways

• Many states have reduced income tax rates over the past three decades while increasing sales taxes.

• Since 1990, states have cut personal income tax rates far more often than they’ve raised them.

• Sales taxes have moved in the opposite direction, with increases far outnumbering decreases.

• Kansas is among the states that have both lowered income taxes and raised sales taxes.

Why It Matters

Taxes don’t just determine how much government collects. They also determine who pays.

Over the past three decades, many states have shifted away from taxing income and toward taxing consumption. Supporters argue that lower income taxes encourage investment, attract businesses, and make states more competitive. They also note that sales taxes tend to provide a more stable source of revenue.

Critics counter that sales taxes fall more heavily on lower-income households because they spend a larger share of their income on taxable goods. They argue that reducing income taxes while increasing sales taxes shifts more of the tax burden onto working families.

Kansas reflects this national trend. Since 1990, the state sales tax rate has increased from 4.25% to 6.5%, while policymakers have generally moved toward lower income tax rates.

My Perspective

Every tax system involves tradeoffs.

Taxes influence behavior as well as generate revenue. Income taxes may discourage work or investment at the margin. Sales taxes increase the cost of consumption. Property taxes affect the cost of owning real estate.

The debate is less about whether to tax than what to tax. As states continue to adjust their tax systems, voters should pay attention not only to the size of a tax cut or increase, but also to how the overall tax burden is being redistributed.

Further Reading: https://reader.pagesuite.com/shortcode/LMCWIC/edition/96ca4d9d-ae68-66ef-90c1-2e770cc281b9?page=eae0de2b-ceb3-bc0c-fe7d-4a8bb1537e8d

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