TAILIEUCHUNG - States with “High Rate” Income Taxes are Still Outperforming No-Tax States

Different constraints are decisive for different situations, but the most fundamental constraint is limited time. Economic and medical progress have greatly increased length of life, but not the physical flow of time itself, which always restricts everyone to twenty-four hours per day. So while goods and services have expended enormously in rich countries, the total time available to consume has not. Thus, wants remain unsatisfied in rich countries as well as in poor ones. | Informing the debate over tax policy nationwide INSTITUTE ON TAXATION AND ECONOMIC POLICY States with High Rate Income Taxes are Still Outperforming No-Tax States February 2013 About ITEP Founded in 1980 the Institute on Taxation and Economic Policy ITEP is a non-profit non-partisan research organization based in Washington DC that focuses on federal and state tax policy. ITEP s mission is to inform policymakers and the public ofthe effects of current and proposed tax policies on tax fairness government budgets and sound economic policy. Among its many publications on state and local tax policy are Who Pays A Distributional Analysis of the Tax Systems in All 50 States and The ITEP Guide to Fair State and Local Taxes. ITEP s full body ofresearch is available at . itep@ 1616 P Street NW Suite 200 Washington DC 20036 Tel 202-299-1066 Fax 202-299-1065 Executive Summary Lawmakers seeking to cut or repeal state personal income taxes often claim that states without such taxes are outperforming the rest ofthe country and that their economic growth can be easily replicated in any state that abandons its personal income tax. The governors ofIndiana Oklahoma and South Carolina as well as high-ranking officials pushing for income tax repeal in Louisiana and North Carolina are some ofthe more influential lawmakers that have used this talking point. But this claim is based on an analysis by supply-side economist Arthur Laffer that is extremely flawed. In reality states that levy personal income taxes including the states with the highest top rates have seen more economic growth per capita and less decline in their median income level over the last ten years than the nine states that do not tax income. Unemployment rates have been nearly identical across states with and without income taxes. Laffers claims to the contrary rely on cherry-picking a number ofblunt aggregate measures ofeconomic growth that are closely related to population trends and

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