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state tax rates on personal income

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United States (Economics): Explain why state tax rates on personal income vary more on a state-by-state basis than do corresponding tax rates on corporate income.

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Solution Summary

Variations on state tax rates on personal income are rationalized.

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In the US, the personal income tax vary from state to state, however, the corporate income tax is more nation-wide and has the same rate. We can approach this question from both macro and microeconomic sense.

First, these two income taxes are collected by different levels of governments. Personal income tax is a state-level tax and is generally collected by the state government. Therefore, the states can decide their own tax rates. On the other hand, corporate income tax is shared by the state government and the Federal government. Then the states have limited leeway in setting the tax rates. Thus, we see a ...

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