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Monday Map: State Income and Sales Tax Deductions
Today’s Monday Map shows which states benefit from the federal income tax deduction for state taxes. Taxpayers can elect to deduct either state income or sales taxes, but not both; in most states, the income tax deduction is worth more. New Yorkers deducted state taxes worth 6.16% of their income, to take the top spot. Alaska, where state income and sales tax deductions amounted to only 0.26% of the state’s income, comes in last. (Alaska has no income tax, no state sales tax, and small local sales taxes.)
Click on the map to enlarge it.
View previous Monday maps here.
New Jersey Reverses on Cosmetics Tax
On January 17, 2012 New Jersey Governor Chris Christie signed into law the abolition of the state’s 6 percent tax on cosmetic procedures.
A cosmetic medical procedure is any medical procedure performed on an individual which is directed at improving the subject’s appearance, and which does not meaningfully promote the proper function of the body or prevent or treat illness or disease. Examples include cosmetic surgery, cosmetic injections, dermabrasion, laser skin resurfacing, and cosmetic dentistry.
The phase out will begin after July 1 of this year with an immediate reduction to 4 percent in the first calendar quarter. The rate then drops to 2 percent after that first quarter until its complete elimination on July 1, 2013.
The measure operates like a selective sales tax on cosmetic services, where a 6 percent tax was levied on each purchase of a cosmetic service. However, regardless of the “luxury” nature of cosmetic services, governments should not use the tax code to influence what individuals want to purchase.
Georgia Governor Proposes Modest Sales Tax Reform, Restructured Jobs Tax Credit
Georgia Governor Nathan Deal (R) had this to say in his 2012 State of the State Address:
First, I am proposing the elimination of the sales tax on energy used in manufacturing, a move that will align us with many of our top competitors. This will have a dramatic impact on manufacturers’ overall cost structure and vastly improve the competitive position of our producers.
Secondly, I am proposing sales and use tax exemptions for construction materials used in projects of regional significance, giving us an important tool when competing with other states for projects creating large numbers of jobs.
A third piece, we are proposing to restructure Georgia’s Job Tax Credits and Quality Jobs Tax Credit programs. The programs now in place was created in 1994, at a time when the competitive landscape was far different than the one our businesses operate in today. We will modernize our job tax credits to better incentivize small business growth and to help every Georgia community compete with their regional peers.
The first two steps are good moves.
Your retirement savings as a ‘tax expenditure’
How much of the federal deficit of about $1.6 trillion can be attributed to (1) the tax deferral on contributions into retirement plans such as IRAs and 401(k) plans and (2) the deferred tax effect of appreciation of securities held in these plans? There is a substantial amount of trading that occurs within 401(k) plans, with gains and losses being realized but not taxed until ultimate withdrawal of funds.
With the deterioration in market values that have occurred over the last decade, many would assert there have been next to no gains inside these plans. But how would the deficit be affected if the policy on the taxation of participant and employer contributions to these plans and the earnings within these plans were somehow different? Does it even move the needle?
When does the taxation of plan withdrawals (due to high retirement rates) begin to outstrip the deferral of contributions and non-taxation of activity while within the plans?
How Federal (IRS) Income/Salary Tax Brackets Really Work
Just because your income puts you in the X or Y % tax bracket, that doesn’t mean that is really what percentage of your income you pay in taxes. We actually have a progressive tax system in place in the US, where you are taxed at different levels as your income increases. I wrote about the 2010 tax rates before on the site, and will discuss them a little later, but people often have the misconception that if their income falls in the 25% tax bracket it means that they pay a full 25% in taxes. This is simply not the case, and I wanted to put together a little post to explain how the tax brackets actually work. Throughout this post, I will use the figures from the “Filing as a single” tax brackets, as that is how I file:
10% Tax Bracket – $0-$8,375 15% Tax Bracket – $8,375-$34,000 25% Tax Bracket – $34,000-$82,400 28% Tax Bracket – $82,400-$171,850 33% Tax Bracket – $171,850-$373,650 35% Tax Bracket – $373,650+
These are the single tax brackets for when you file your 2010 tax returns next April. To show you how t
Conservative party rule out tax hikes
George Osborne, the shadow chancellor, has today ruled out additional tax rises as a way of reducing the UK budget deficit and national debt. He believes that the recently announced Labour Party initiatives regarding tax increases in the short to medium term, together with savings from the public sector, will be more than enough to reduced UK debt and bring the budget deficit under control.
This has now given the Labour Party something of a headache because aside from attacking the announced reduction in national insurance contributions, the Conservative party has announced no more new tax initiatives to criticise. It is also a very dangerous strategy to attack the intention of reducing the cost of public services in the UK because ultimately many voters believe this is where excess spending in years gone by has caused the most damage.
So far there has been no immediate response from the Labour Party but there is no doubt we will hear something in due course, once a strategy has been agreed.