COVID-19 has killed a lot of things. I hope it kills the income tax… at least at the state and local levels.
Let’s say you live in Waterloo, Iowa and work from your home for a company in Manhattan. To what government entity do you owe income tax? New York City and New York State believe you must pay them income tax because the origin of your income comes from their state. But, you never set foot within their borders so how is this legal or just?
However, five states besides Massachusetts (New York, Pennsylvania, Delaware, Arkansas, Nebraska) tax nonresidents working at home. New York requires nonresidents who telecommute for an in-state employer to pay its income tax unless “necessity, as distinguished from convenience, obligate the employee to out-of-state duties.”
If an employee of a New York-based firm chooses to work most days from home in another state, New York still taxes him as if he worked the entire day in Manhattan. In October state tax regulators said there would be no pandemic exception for nonresident telecommuters unless their employer “established a bona fide employer office at [the] telecommuting location.”
So unless Goldman Sachs sets up a satellite office in its bankers’ vacation homes, they will still have to pay New York taxes as long as they work remotely. Welcome to Hotel New York—you can check out but never leave.Wall Street Journal
You don’t travel their roads, use their public transportation, or use any of their public services so why should you pay their tax? This is why all states, and maybe even the federal government, should abolish the income tax and move exclusively to a consumption tax.
A tax by its very nature reduces the activity of the thing being taxed. It’s why we have “sin taxes”. These taxes are supposed to raise the price of things like cigarettes and alcohol for the supposed purpose of reducing the consumption of those products. The same concept works for the income tax. When you tax income you reduce that activity. People who can will try to change the way they are paid so it doesn’t appear on a W-2 or 1099-MISC. Less income means less tax paid.
Also, think of the complex web of laws that are going to result nationwide as states grapple with what to do. It’s complicated enough to file a personal tax return. Think how much more complex that will be when you have to figure out where every dollar you made came from and pay a remote income tax on those dollars. It’s not only inefficient it’s just plain stupid.
If we move to consumption taxes the way we pay tax is then straight forward. The more you consume the more tax you pay. It’s probably the most fair way to tax a population with varying levels of income. People with higher incomes and more wealth spend way more money than people with less. In addition taxes on necessities like food, clothing, and utilities can be kept very low while taxes on luxury items can be set higher.
This concept also eliminates the penalties for earning more money. If anything it incentivizes people to make more money because they get to keep more of their earnings.
In a world where people lived where they worked income taxes, while to me still unfair, worked. Now they don’t. Let’s get rid of them.
Image by Steve Buissinne from Pixabay