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States with High Income Taxes Outperform States with No Income Tax

March 1, 2013

Lawmakers in a number of states are considering either cutting or eliminating their state personal income taxes to boost economic growth, but a new report argues that states with high income taxes often outperform those without personal income taxes.

The report, from the Institution on Taxation and Economic Policy, evaluated the frequent claim that the nine states without personal income taxes outperform the rest of the country, and their growth can be replicated in any state that abandon its income tax.

“Some have also claimed that the nine states with the highest top income tax rates are experiencing below-average growth,” said ITEP. “The governors of Indiana, Oklahoma, and South Carolina, as well as high-ranking officials pushing for income tax repeal in Louisiana and North Carolina, are just some of the more influential lawmakers that have attempted to frame the debate in this way.”

These points have been widely disseminated by groups such as the American Legislative Exchange Council and Americans for Prosperity, based on an analysis by supply-side economist Arthur Laffer that ITEP considers to be extremely flawed. In a rebuttal last year, ITEP argued that Laffer’s state-by-state comparisons do not reliably explain the impact of tax policy on state economies. ITEP also demonstrated that in reality, the residents of the states that levy income taxes—including residents of those states with the highest top tax rates—are experiencing economic conditions at least as good, if not better, than those living in states lacking a personal income tax. “Only by focusing on blunt aggregate measures of economic growth was Laffer able to purport to show the opposite,” said ITEP.

The new report, which was published Thursday, updates ITEP’s 2012 findings in light of new available data and explains in more detail the group’s problems with Laffer’s analysis.

Comments (3)
Not a soul wants to pay taxes. Every person does, however, want the stuff taxes pay for though some differ on how they should be collected. State income taxes are despised by some and a few states are considering ditching them, but there's evidence as to how good and bad they really are. Article resource:
Posted by heidisoon | Wednesday, March 06 2013 at 5:12AM ET
Let's repeal tax shelters and offshore gimmicks. That is where all the wealth created by policies of Reagan and Bush went. Then the sequester games of Congress are irrelevent and then maybe they can start earning their retirement checks as part of the government of the country instead of perpetuating the re-incarnated feudal class. Do we really need another world war to eliminate that sickening philosopy of divine right of kings
Posted by Janosik | Monday, March 04 2013 at 3:22PM ET
The ITEP board is filled with left leaning individuals (Robert Reich as an example). They are not open about thin funding but bused on the board their claim of non-partisan is if laughable.
It could be argued that the question's of tax rates at the state level are really questions of chicken and egg, which came first. Did the high tax rates happen first or did the higher than average incomes come first. That question is not addressed but only a short history approach to the issue. The real study here has to be the history of the economy of the state rates and income levels over time. I can't prove it without gathering a large quantity of data but my suspicion is that the income levels and economic growth occurred First and the high tax rates followed. Which means that having low tax rates does equate with economic growth. There is also the significant issue of micro economic decision making which the ITEP has completely lift out of their "report". States with higher tax rates are watching high income individuals leave their states in npt small numbers. And where are they going, to states with lower rates.
Posted by SullivanAcctg | Monday, March 04 2013 at 9:28AM ET
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