When it comes to providing economic relief to those in need, wartime energy security, and principled tax policy, the EU can do all three. But a windfall profits tax is not the policy to achieve these goals.
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Designing tax policy in a way that sustainably finances government activities while minimizing distortions is important for supporting a productive economy.
With other states upping their game to attract ever-more-mobile people and businesses, lawmakers and the governor are not content to leave Tennessee’s business taxes in their current, uncompetitive form.
Most states avoid municipal income taxes for good reason. These taxes are more volatile and less economically competitive than other forms of taxation available to local governments, and add substantial complexity for governments and taxpayers alike.
Levied in thousands of cities, counties, school districts, and other localities, local income taxes are often used to either lower other taxes (like property taxes) or raise more revenue for local services. While they may make sense on paper, local income taxes come with more challenges than other local revenue sources.
Individual income taxes are a major source of state government revenue, accounting for more than a third of state tax collections:
Immediately balancing the $20 trillion budget shortfall would take drastic, unwanted policy changes. Instead, lawmakers should target a more achievable goal, such as stabilizing debt and deficits with an eye toward comprehensive tax reform that can produce sufficient revenue with minimal economic harm.
While hoping for inflation’s continued decline, policymakers should finish the job and index the tax code to prepare for future bouts of high inflation and as a contingency in case it takes longer to defeat elevated inflation than expected.
Despite robust revenues, some state lawmakers are champing at the bit to raise taxes on higher-income households, sometimes to extraordinary levels.