Skip to comments.States with No Income Tax Grow Faster and Create More Jobs
Posted on 12/16/2012 6:13:01 AM PST by Kaslin
One of the key ways of controlling state and local tax burdens, according to this map from the Tax Foundation, is to not have an income tax.
But thats not too surprising. States have just a couple of ways of generating significant tax revenue, so it stands to reason that states without an income tax would have relatively low tax burdens.
The more important question is whether this approach leads to better economic performance. The evidence is pretty clear that zero-income-tax states grow faster and create more jobs.
Ive already shared some important research on this topic, including this review of research in the Cato Journal by Richard Rahn, as well as this summary of similar analysis in Rich States, Poor States by Art Laffer and Steve Moore.
Theres even some evidence that people is low-tax states are happier than those in high-tax states, though Im not sure that I trust that kind of subjective research since theres also a study showing people are happier in high-tax nations. (at least, unlike Brazil, nobody in the U.S. is talking about making happiness a responsibility of government).
Lets return to the more substantive topic of taxes and economic performance. Theres a column examining this issue in todays Wall Street Journal. Authored by two experts from the Kansas Policy Institute, it finds that states with no income tax have a lower burden of government spending.
In the midst of a dismal recovery where every job counts, one fact stands out: States that tax less achieve better economic performance. The secret to having low taxes is controlling spending, and thats exactly what low-tax-burden states do. States with an income tax spent 42% more per resident in 2011 than the nine states without an income tax. Every state has public schools, social-service programs, prisons, etc. Some just find ways to provide essentially the same basket of services at lower prices.
They also reveal that lower taxes and lower spending translate into more growth and prosperity.
States that allow taxpayers and employers to keep more of their earnings are reaping the benefits. States without an income tax have significantly better growth in private sector GDP (59% versus 42%) over the last 10 years. They increased the number of jobs by 4.9% while jobs in the rest of the states declined by 2.6%. States without an income tax gained population (+5.5%) from domestic migration (U.S. residents moving in and out of states) while all other states as a whole lost 1.3% of population between 2000 and 2009.
The migration data is particularly powerful, and its one of the reasons why Californias class-warfare tax policy is so suicidal and why Texas is growing so rapidly. As Ive said many times before, tax competition is a critical way of disciplining profligate governments and rewarding jurisdictions with more responsible fiscal policy.
Last but not least, if you want a powerful example of why income taxes are economic poison, read this research showing how Connecticuts economic performance dropped after imposing a state income tax about 20 years ago.
P.S. Heres a list of Americas greediest state and local governments, as measured by top income tax rates and most onerous sales tax systems.
P.P.S. Heres the famous Moocher Index of state dependency, and youll notice that states with no income tax are more likely to be near the bottom of the list (with Alaska being a notable but not surprising exception).
P.P.P.S. And if you like state fiscal data, the Cato Institutes Fiscal Policy Report Card on Americas Governors shows which states are moving in the wrong direction and right direction.
P.P.P.P.S. According to this map from a left-wing group, it also seems that states with no income tax do a better job of controlling welfare spending.
while this is true... it’s only so because of the existance of the other states.
The migration data is particularly powerful, and its one of the reasons why Californias class-warfare tax policy is so suicidal and why Texas is growing so rapidly.
um... this is NOT a good thing.
We here in Texas are being flooded with refugees from liberal states who bring their voting paterns with them and haven’t been seeped in the culture of Texas. This is what happened to California, and if it happens to Texas the Republicans will never win another national election.
Why is Delaware left off the map?
Well yes - the lower tax states and particularly those who do not tax productivity - will have better economies that the other states that do not.
I don’t understand your comment. Are you saying the no-income-tax states’ economies would not be as they are if the other states did not exist?
You’re absolutely right about what happens when libs leave one place and migrate to another. They will always bring their wild-eyed liberal politics with them. You can take the animal out of the jungle but you can’t take the jungle out of the animal.
In a smaller version of that phenomena, some neighbors we used to live next to were big champions of liberal causes. (Both of them naturally lived off of government jobs.) Eventually some of those causes turned out to have “unanticipated consequences” for them and, after telling everyone how great the new utopia was going to be, they were the first people to pick up and leave the county. I pity their new community.
Why is Delaware left off the map?
Tax friendly (for now) but its a rock solid blue state.
Thanks for posting this.
It's on the map. Just too small to be seen :)
“This is what happened to California, and if it happens to Texas the Republicans will never win another national election.”
Unfortunately (and realistically), it’s no longer a question of “if” it happens, but how long before it happens.
Hispanic demographics down there are going to hurt you folks, as well.
I doubt either of these trends can be reversed — at best, “managed”.
But time is not on Texas’ side...
Nevada is still in the doldrums.
No state income tax if Texas but our property tax is through the rood. The lowest I’ve ever seen is $2.10 per hundred dollar appraisal. A house taxed at $150,000 is $3,192.
I don’t understand how Tennessee can have such low property tax AND no state income tax.
TN doesn’t have a state income tax and my part of TN (Eastern) has an ample amount of jobs. They are also good non-union jobs. Our sales tax is higher to make up for it but sales tax is fair because everybody shops but no all people work. The welfare class still has to pay sales tax. LOL
“No state income tax if Texas but our property tax is through the rood. The lowest Ive ever seen is $2.10 per hundred dollar appraisal. A house taxed at $150,000 is $3,192.”
It’s HIGHER than that in other states.
Texas is nothing special wrt property taxes. Got oNJ, NY, Cali, or other states which tax income and property and sales - all higher.
Well we fought against a state income tax and won