In an alarming trend, governors in Louisiana, Nebraska, and North Carolina have proposed eliminating their state’s personal and corporate income taxes and raising the sales tax to offset the lost revenue. These proposals are similar to so-called “FairTax” proposals that several states have considered — and rejected — in recent years. We outlined the problems with those proposals in a 2010 report.
Proponents claim that eliminating income taxes and expanding the sales tax would make tax systems simpler, fairer, and more business-friendly, with no net revenue loss. In reality, they would tilt state taxes against middle- and lower-income households and likely undercut the state’s ability to maintain public services. Specifically, they would: