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Trend #6: Tax Abolition
Top 10 State Tax Trends in Recession and Recovery, 2008 to 2012
Seven states have no income tax and five states have no sales tax. Abolishing an entire tax means ridding
your taxpayers of the associated compliance costs and loss to economic growth, but one must figure out
whether to make up the revenue with spending cuts or higher taxes elsewhere. No state has abolished a
major tax since Alaska ended its income tax in 1980, but some are now trying.
How a state’s budget will deal with the loss of a major revenue source is of course a vital question. If the
revenue is merely swapped with an equivalent amount from a tax that imposes similar compliance costs,
nothing is gained. North Dakota proponents point to rapidly growing revenues from oil, the Oklahoma
proposal emphasizes spending reductions, the original Kansas proposal relied on loophole closures, and the
Missouri proposal recommended a sales tax base expansion to services.
Income tax reductions or repeals in particular are under consideration in a number of Midwestern states,
characterized by a Wall Street Journal article entitled “The Heartland Tax Rebellion.”1 If all proposals come
to pass, an income tax-free zone could stretch from Texas north through Oklahoma and Kansas and east to
Significant repeal action has occurred with estate and inheritance taxes. For decades, states received
essentially free tax money since the federal estate tax included a dollar-for-dollar credit for any state estate tax
paid. Taxpayers paid the same amount whether or not the state taxed estates, so most states adopted an
estate tax. This federal practice was ended in 2001, and state estate taxes began to have visible economic
Ohio’s estate tax ends in 2013, Indiana’s inheritance tax ends in 2021, and reduction and repeal proposals
are under serious consideration in many other states.2 While only a small number of taxpayers pay an estate
or inheritance tax, the compli