ON-Lion Letter

Individual income taxes are a major source of state government revenue, accounting for 27 percent of state tax collections, according to a February paper by Nicole Kaeding from the Tax Foundation in Washington, D.C.

Forty-three states levy individual income taxes, Kaeding reports.  Forty-one tax wage and salary income, while two states -- New Hampshire and Tennessee -- exclusively tax dividend and interest income.  Seven states levy no income tax at all.

Kaeding is an economist with the Center for State Tax Policy at the Tax Foundation, which is substantially supported by Milwaukee's Lynde and Harry Bradley Foundation.

Of those states taxing wages, eight have single-rate tax structures, with one rate applying to all taxable income, according to her paper.  Conversely, 33 states levy graduated-rate income taxes, with the number of brackets varying widely by state.

States' approaches to income taxes vary in other details, as well.  Some states double their single-bracket widths for married filers to avoid the "marriage penalty."  Some states index tax brackets, exemptions, and deductions for inflation; many others do not.  Some states tie their standard deductions and personal exemptions to the federal tax code, while others set their own or offer none at all.

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