The ITEP Guide to State & Local Taxes
Income & Profits
How Do Personal Income Taxes Work?
The personal income tax funds public education, health care, public safety, and other public services provided by state and local governments. If well-designed, it is the fairest major revenue source available to states.
How Do State Corporate Income Taxes Work?
A robust corporate income tax ensures that profitable corporations help fund the public services they benefit from, just as working people do. It’s one of the few progressive taxes available to state policymakers.
How Do States Tax Investment Income?
State personal income taxes apply not just to wages and salaries but also earnings on investments, like stocks and bonds. Most investments are held by wealthy people, so when states tax investment income at a lower rate than wages, high-income households pay tax at lower rates than middle-income households. By contrast, states that strengthen taxation of investment income can raise substantial revenue while improving economic and racial equity of their tax code.
How Do State Tax Credits for Workers and Families Work?
State-level Earned Income Tax Credits (EITCs) and Child Tax Credits (CTCs) help workers and families make ends meet by reducing their taxes and providing refunds. Research shows these credits are very effective at reducing poverty and creating more equitable tax systems.
Institute on Taxation
and Economic Policy
ITEP is a non-profit, non-partisan tax policy organization. We conduct rigorous analyses of tax and economic proposals and provide data-driven recommendations to shape equitable and sustainable tax systems.
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