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Trivia Tidbit Of The Day: Part 207 -- Lower Taxes, Higher Growth.

States As Economic Laboratories-

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income taxes.

New York, California, Oregon, Rhode Island, Vermont, Ohio, New Jersey, Maine, and Hawaii have the highest state income taxes.

Notice a pattern?

In 2004, Bush won 7 of 9 of the states with no income tax, but just 1 of 9 of the states with the highest marginal income tax rates.

There are more patterns at play than mere politics. How about economics?

An interesting set of facts:

Relative to the average of the nine states with the highest marginal taxes on personal income, over the course of a decade the average of the nine states without a personal income tax demonstrated:

♦ Faster growth in gross state output (79.7% vs. 62.5%);

♦ Greater personal income growth (77.2% vs. 60.2%);

♦ A much greater increase in total population (17.8% vs. 7.8%), including a net inflow of residents into the nine no-tax states from other states (4.1% of total population) vs. a net outflow of residents from the nine high-tax states to other states (2.2% of total population)

Oh, but there's more.

Yet more important facts:

Relative to the average of the nine states with the highest marginal taxes on personal income, over the course of a decade the average of the nine states without a personal income tax demonstrated:

♦ Much more rapid job creation (22.9% vs. 12.8%);

♦ Only slightly higher personal income per capita growth (50.9% vs. 48.7%); and

♦ Only a very slightly lower unemployment rate (5.1% vs. 5.2%).

Hmm. So... why doesn't each and every state eliminate its state income tax, and why are some folks pushing to add income taxes to the states without them?

Well, there are varying reasons, including the misguided belief that implementing state income taxes will lower sales and/or property taxes. But it mostly just comes down to the addiction to government programs. Politicians are addicted to them. Constituencies are addicted to them. Individuals are addicted to them. And they want more, more, more.

That's just the wrong answer. Taxes do not have a neutral impact on economies. In the short term, it may be tempting to raise taxes to pay for x, y, and z. But that's a great way to drive Americans away, from high tax states to states with lower tax burdens.

More on this to come, including more than just state income taxes.

Source:
Texas Public Policy Foundation (.pdf).

Previous Trivia Tidbit: Paris Burning.

Posted by Will Franklin · 5 November 2005 05:11 PM

Comments

Posted by: ScottJ at November 6, 2005 04:00 PM