Eliminating state income taxes doesn't help growth or revenues

Bloomberg:

Governors seeking to expand their economies by eliminating income taxes find little support for the idea in the record of U.S. states that lack such a levy.

The BGOV Barometer shows the nine states with the highest personal income taxes on residents outperformed or kept pace on average with the nine that don’t tax their residents’ incomes, according to a study of economic output, unemployment and household income by the nonpartisan Institute on Taxation and Economic Policy.

Mr. Laffer & his curve.

The findings show cutting state income taxes to stimulate growth relies on “flawed analysis” based on the theories of economist Arthur Laffer, said Carl Davis, a senior analyst at ITEP in Washington and author of the report. Laffer’s work was cited by Republican Governors Sam Brownback of Kansas and Mary Fallin of Oklahoma as a reason to cut income taxes as a way to stimulate job growth and attract business.

“Being low-tax doesn’t generate economic competitiveness or long-term economic viability,” said Ralph Martire, executive director at the nonpartisan Center for Tax and Budget Accountability in Chicago...

Median household income declined an average 0.7 percent among the nine “high-rate” states, compared with a 3.5 percent drop in the nine states without such a levy. The study found no difference in the average unemployment rate between the two groups of states. The time period of the report includes the 18- month recession that ended in June 2009.

“States that have higher overall taxes have better capacity to weather economic downturns,” Martire said. “Then they can maintain their spending on the salary of workers, who then go out and spend their paychecks on the local economy.” ...

“Those who don’t believe in Santa Claus or the Easter Bunny anymore, and actually look at facts and data, recognize that since supply-side economics has been implemented in America, the complete opposite of what supply siders had promised has occurred,” Martire said.

 HT: John Thompson