Wih he economy lagging, lawmakers seeking o reduce or eliminaesae personal income axes are ouing heir proposals as ools or boosing economic growh. O paricular noe are he governors o Kansas and Oklahoma, boh o whom jusied income ax repeal inheir Sae o he Sae speeches by claiming ha saes no levying personal income axes are ouperorming hose levying heir axes a hehighes raes.
Tese claims are based largely on misleading analyses generaed by Arhur Laer, long-ime spokesman o a supply-side economic heory ha Presiden George H. W. Bush once called “voodoo economics” because o is bizarre insisence ha ax
very oen lead o
revenues. Recenly, Laer’s consuling rm has been very successul(wih he help o he American Legislaive Exchange Council, Americans or Prosperiy, and he
Wall Sree Journal’s
ediorial page) inspreading he alking poin ha he nine saes wihou personal incomeaxes have economies ha ar ouperorm hose in he nine saes wihhe highes op ax raes.
In realiy, however, residens o “high rae” income ax saes are acually experiencing economic condiions a leas as good, i no beter, hanhose living in saes lacking a personal income ax.
As Figure 1 shows,he nine “high rae” saes idenied by Laer have acually seen more
economic growth per capita
over he las decade han he nine saesha ail o levy a broad-based personal income ax. Moreover, whilehe
median family’s income
, adjused or infaion, has declined inmos saes over he las decade, hose declines have been considerably smaller in “high rae” saes han in hose saes lacking an income ax enirely. Finally, he
average unemployment rate
beween 2001 and2010 has been essenially idenical across boh ypes o saes.Te appendix includes sae-specic ndings or each o hese hreemeasures, and reveals ha he economic problems in non-income ax saes aren’ limied o jus Florida and Nevada, as some observers haverecenly claimed.
Per Capita Real GSP GrowthReal Median Household Income GrowthAverage Annual Unemployment Rate
Figure 1: Three Measures of Economic Performance, 2001-2010
9 "High Rate" IncomeTax States9 States Without aPersonal Income Tax
Kansas Governor Sam Brownback
ha he wans o “ge us ever closer o he pro-growh saes wih no sae income axes - which are among he counry’s srongeseconomic perormers,” while Oklahoma Governor Mary Fallin
an Arhur Laer analysis in atemping o make he case or income ax repeal.
“High rae” saes include Caliornia, Hawaii, Maine, Maryland, New Jersey, New York, Ohio, Oregon, and Vermon. Saes wihou a broad-based personal income ax include Alaska, Florida, Nevada, New Hampshire, Souh Dakoa, ennessee, exas, Washingon, and Wyoming. See OCPA and ALME, “Eliminaing he Sae Incomeax in Oklahoma: An Economic Assessmen,” November 2011, pp. 4.
Tis repor ocuses on saes wih he highes marginal income ax raes as o January 2011 in order o be consisen wih he relevan Laer analysis, hough we shouldnoe ha his measure provides only a very parial snapsho o wha are in realiy much more complicaed personal income ax codes.
Te Hearland ax Rebellion,”
Te Wall Sree Journa
l, February 8, 2012.