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 that’s 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.
Light-blue states have no broad-based income tax
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.
I’ve 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.
There’s even some evidence that people in low-tax states are happier than those in high-tax states, though I’m not sure that I trust that kind of subjective research since there’s 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).
Let’s return to the more substantive topic of taxes and economic performance. There’s a column examining this issue in today’s 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 that’s 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 it’s one of the reasons why California’s class-warfare tax policy is so suicidal and why Texas is growing so rapidly. As I’ve 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 Connecticut’s economic performance dropped after imposing a state income tax about 20 years ago.
P.S. Here’s a list of America’s greediest state and local governments, as measured by top income tax rates and most onerous sales tax systems.
P.P.S. Here’s the famous Moocher Index of state dependency, and you’ll 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 Institute’s Fiscal Policy Report Card on America’s 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.
[...] STORY HERE [...]
Reblogged this on Public Secrets and commented:
We’ll never see this kind of reform in California. Quite the reverse, if the last election is an indication of a trend. Statists never get that, the more one raises tax rates, the more wealth-generating taxpayers will choose to leave and economic performance stagnates.
The most productive depart, leaving behind an ever larger proportion of ever more desperate moochers to vote for ever more redistribution. It is this positive feedback to suicide that makes the situation irreversible and the reason why the federal government will have to step in and “help” the struggling states, ie redistribute at the inter-state level. And this is one more manifestation of the fact that the US as a whole is toast.-Past the point of no return. The pendulum has barely started moving in the direction of decline. It is still in the acceleration phase. Any serious chance of corrective action would involve regurgitating all the statism americans voted for themselves post 9/11. How likely anyone thinks that is?
But the new norm America has already entered and is accelerating into, the lower growth trendline, will be ignored in the fractal behavior of the economy, the cacophony of short term band aids, and bouts of Hope. Hope of higher growth through flatter effort-reward curves. The movie that has played in virtually every country in Europe, is now playing in America. The result will be the same. Unfortunately Europe is not revealing the end result soon enough. The useful idiot momentum on this side of the Atlantic will win. It already has.
America may survive its current dusional, economically naive, and populist president. But it cannot survive the majority that voted for him.
Save a few bright exceptions that are inevitably part of every decline, the trend will be for American standard of living to converge to the world average. The 99%, now in the top 10% worldwide, will find themselves in the true middle of the curve. They will have caused it, they will deserve it.
Teach your children to be international citizens, capable of producing from anywhere, for any one electorate that will let them keep their rewards. In practical terms, that is where the future is. Cultural natural selection will weed out the delusional dreamer hippie cultures sooner or later. Sooner rather than later, as the pace of human activity seems to be moving ever faster.
P.S. If redistribution and central planning by majority appointed intellectuals were the key to success, prosperity would be widespread I the world. After all these are natural human traits in the polling booth. It is because the opposite is true that prosperity is so rare in the world. As the American voter starts voting like the average worldwide voter, his prosperity will inevitably follow.
[...] There’s a lot to like about Texas. The state has no income tax, for instance, which we know is a good recipe for faster growth and more prosperity. [...]
[...] There’s a lot to like about Texas. The state has no income tax, for instance, which we know is a good recipe for faster growth and more prosperity. [...]
[...] P.S. It’s just an anecdote that the Chevron jobs are going to Texas. But when you add together a bunch of anecdotes, you get data. And according to the data, Texas is kicking the you-know-what out of California. Maybe there’s a lesson to be learned? [...]
[...] P.S. It’s just an anecdote that the Chevron jobs are going to Texas. But when you add together a bunch of anecdotes, you get data. And according to the data, Texas is kicking the you-know-what out of California. Maybe there’s a lesson to be learned? [...]
[...] what lessons can we learn? Well, if you look at this map, you’ll notice that none of the states without an income tax are death-spiral [...]
As a lifetime California resident (and public employee of the court system, which Jerry Brown is slicing and dicing) and taxpayer, I remember when we were a high prosperity/freedom state. Sadly, most everyone I work with or meet have no cultural memory of the “Reagan Revolution” or of the former glory of this state. I hate to throw another wet blanket on this party, but apparently I am the only one(outside of judges and lawyers) that reads the legal community newspapers here, and the news on the Courts-As-Protectors-Of-Liberty-And-Rights front is nearly all bad. Our courts have decided that water should be turned off to the ranchers/farmers to “protect” the delta smelt, a small fish, leading to miles and miles of parched fallow orchard/farmland and that our own “cap-and-trade” program, reading like a fantasy game a la “World of Warcraft,” where imaginary crimes and weapons are instituted and “carbon credits” are auctioned off to allow industry to keep doing business, has the Courts’ imprimatur. The liberals, and this includes the Sheriff of LA County and LAPD police chief, are moving to protect illegal aliens by not cooperating with ICE or the Feds when illegal alien criminals are arrested, even for heinous crimes. The experiment of “3 Strikes” law to keep hard core criminals(who commit most crimes) is being whittled away. Californians no longer are concerned about protecting their families from crime. Not to mention Supreme Court Justice Kagen’s speeches advising developing peoples not to use or embrace our Constitution, and that our Courts should consider other leftist countries’ policies when deciding our court cases. Their Oaths to defend the Constitution are violated on a daily basis, but again, no one cares.
Add to this the fact that 43% of LA City’s population, as of 5 years ago, was born in another country, and, for the most part, have no knowledge of our Constitution and culture. They are tied to their “mother country” and socialist ways of doing things. And most pay little or no taxes, and are on welfare/public housing. So why not tax those who work for a living and pay taxes? Freedom? who cares? Prosperity? Unfair. Not interested.
Even people old enough to know better have seemingly flipped to the Stalinist mode, and not one Republican is elected to statewide office. Despite everyone wringing their hands about the dysfunctional government we live with, no one connects the dots to the lunatics we elect. No decrease in state spending. Throttling of private industry. Encouragement of illegal immigration and their anchor babies to drain taxpayer $$.
The waves of reform(and our grass roots Tea Party) that began with hope here and in other states in 2010 broke on the eastern slopes of the Sierra Nevada, leaving us unchanged. The state has all but chased out the Aerospace/Aircraft/Marine/manufacturing industries, choking our once huge agriculture industry and sits on huge resources, not developing them.
As bad as things are, it is only the beginning. No cavalry will ride to our rescue. We have had good candidates running against our to brain-dead Senators and Governor, but the Stalinist/mainstream media strategy of defining conservatives as cruel and uncaring runs full tilt and is successful.
Upon retirement, I will take my pension, with my 10% state income tax and 10% sales tax, and find another state to be happy in.
[...] P.S. It’s just an anecdote that the Chevron jobs are going to Texas. But when you add together a bunch of anecdotes, you get data. And according to the data, Texas is kicking the you-know-what out of California. Maybe there’s a lesson to be learned? [...]
[...] would be a big and bold step, and I shared some evidence recently showing that states with no income tax grow faster and create more [...]
[...] Texas is in much better shape than California. Taxes are lower, in part because Texas has no state income tax. [...]
[...] exas is in much better shape than California. Taxes are lower, in part because Texas has no state income tax. [...]
[...] This impulsive and misguided exercise in class warfare surely will backfire as more and more productive people flee to other states – particularly those that don’t impose any state income tax. [...]
[...] This impulsive and misguided exercise in class warfare surely will backfire as more and more productive people flee to other states – particularly those that don’t impose any state income tax. [...]
[...] That’s why researchers consistently have found that states without this punitive levy grow faster and create more jobs. [...]
[...] That’s why researchers consistently have found that states without this punitive levy grow faster and create more jobs. [...]
[...] Which states have no income taxes. [...]
[...] I see it, but for every well-known celebrity who publicly speculates about migrating to a zero-income tax state, there are probably dozens of investors, entrepreneurs, and small business owners who actually take [...]
[...] checked the “fiscal” and “tax burden” categories, and South Dakota (no state income tax!) jumped to #1 for both of those [...]
[...] We also know that low-tax states grow faster and create more jobs. [...]
[...] We also know that low-tax states grow faster and create more jobs. [...]
[...] Which states have no income taxes. [...]
[...] Which states have no income taxes. [...]