Growth by State
Many variables affect a state’s economic growth, including public policy, natural resources, geographic location, business centers, etc. The large number of contributing factors make it difficult to definitively attribute growth, or the lack thereof, to any particular variable. However, it is clear that, on the margin, income tax rates matter.
Every dime that the state takes away from an individual or business, through an income tax, is essentially taken out of the productive economy. Consequently, the capital that would have been spent investing in future goods is no longer available to the entity that would have otherwise used it. This, in effect, stifles growth.
Some might argue that public spending pumps that money back into the economy, but the 2009 American Recovery and Reinvestment Act is a perfect example of that kind of Keynesian theory failing in practice. The bill massively increased government spending,but did little to stimulate growth in the economy; unemployment remains around 10 percent. In practice, government spending provides much less of a stimulative effect than comparable tax cuts.
It would be in Missouri’s best interest to lower — or even abolish — the state income tax, thus enabling Missourians to spend and invest more of their own money to grow our stagnant economy. As demonstrated in the table below, which displays average annual growth rates per state between 1997 and 2008, Missouri’s growth ranks seventh-worst in the nation. Abolishing or reducing the state income tax would be a step in the right direction toward positive change.
| State | Annual Avg. Growth Rate | State | Annual Avg. Growth Rate | State | Annual Avg. Growth Rate | ||
| Alabama | 1.63% | Kentucky | 0.48% | North Dakota | 3.39% | ||
| Alaska | -0.45% | Louisiana | 1.09% | Ohio | 0.70% | ||
| Arizona | 1.69% | Maine | 1.30% | Oklahoma | 1.63% | ||
| Arkansas | 1.32% | Maryland | 2.00% | Oregon | 2.71% | ||
| California | 2.48% | Massachusetts | 2.55% | Pennsylvania | 1.68% | ||
| Colorado | 1.65% | Michigan | 0.07% | Rhode Island | 1.84% | ||
| Connecticut | 1.46% | Minnesota | 1.78% | South Carolina | 0.53% | ||
| Delaware | 0.93% | Mississippi | 0.86% | South Dakota | 3.05% | ||
| District of Columbia | 2.50% | Missouri | 0.60% | Tennessee | 1.21% | ||
| Florida | 1.72% | Montana | 2.03% | Texas | 1.65% | ||
| Georgia | 0.38% | Nebraska | 1.61% | Utah | 1.12% | ||
| Hawaii | 1.35% | Nevada | 0.75% | Vermont | 2.74% | ||
| Idaho | 2.24% | New Hampshire | 2.04% | Virginia | 2.14% | ||
| Illinois | 1.25% | New Jersey | 1.43% | Washington | 1.80% | ||
| Indiana | 0.94% | New Mexico | 1.67% | West Virginia | 1.23% | ||
| Iowa | 1.98% | New York | 2.95% | Wisconsin | 1.35% | ||
| Kansas | 1.77% | North Carolina | 1.21% | Wyoming | 2.04% |
Source for GDP Numbers: Bureau of Economic Analysis
Looking at the chart, I would say that tax reputations are inversely proportional to, or independent of, growth–California, New York, Vermont, Massachusetts all over 2%, with Delaware, Mississippi, Alaska, South Carolina all under 1%.
To be sure, the poster did say that there were other factors that influenced growth.
Comment by Papillon — July 2, 2010 @ 1:35 p.m.
yeah…I echo papillon’s sentiments. Some readers may benefit from more of a clarification of which states have low taxes. Perhaps you could pick a few pairs of states and compare growth rates.
Comment by abhi s — July 2, 2010 @ 5:05 p.m.
Segregate the states into geographic groups (like the South, Midwest, West, etc)…economic trends are more meaningful in a regional context. It doesn’t change your conclusion at all, but also note that some states that don’t have income tax (like Tennessee) aren’t as comparatively vibrant as you might expect, at least not from the comparison of a single year’s data.
Comment by Eapen Thampy — July 3, 2010 @ 8:18 a.m.
The fallacy in this article is that a dollar taxed is a dollar taken out of the productive economy. Taxes pay for schools, education, health care , police, firemen, etc. All of these expenditures are very “productive.” Contrast those public expenditures with money spent by the rich on oversized mansions, designer clothes, etc, which are not productive.
Comment by dempster holland — July 13, 2010 @ 10:09 a.m.
Dempster Holland,
The simple truth is government does not produce wealth, private industry does. Although schools, education, health care, etc. are all important public services, they all come with considerable waste. They could all be run in a more efficient manner and funded without an income tax.
To your second point, money spent by the “rich” is productive because it creates jobs in the private sector. Every over-sized mansion employs countless construction workers (not to mention the property tax revenue generated which goes to the schools), and every piece of designer clothing helps retailers grow and hire more workers.
Comment by Vince Smith — July 13, 2010 @ 10:46 a.m.
Victor Smith: please give specifics on “considerable waste” together with the percfentage of the budget that would be affected. Why is it better to create jobs in the private sector (eg, bulding mansions) rather than in the public sector ( eg, education)? Each creates jobs.
Comment by dempster holland — August 8, 2010 @ 11:10 a.m.