As American taxpayers wrap up their individual tax filings, the vast majority of our state legislatures still have a few weeks or months to complete their efforts for state tax reform. In the coming days, small business owners will try hard to forget how much they paid into the system in 2012. Given the pain associated with paying, measured against the return, one can easily see why business owners move to more tax-advantaged locations — just as several professional athletes and entertainers have done recently.
However, if our job creators are to turn around America’s economy, they cannot turn a blind eye to leading reforms happening within their own state capitols. Watching Washington, D.C., languish its way through more than 73,000 pages of Internal Revenue Service regulations could easily consume years. However, the chief executives of our states, the 50 governors, often navigate substantial tax code changes within weeks or months. If turning around Washington, D.C. can be likened to shifting the direction of a battleship, realizing change within the states is more akin to a few folks padding rapids inside a canoe.
The trend towards state action, in part as a hedge against rising uncertainties with federal taxes, may be on pace to break a state legislative record. Kansas Governor Sam Brownback led with tax cuts this past January. State legislatures in Oklahoma, Missouri, Iowa, Indiana, Ohio, Louisiana, and North Carolina have responded with tax cut bills of their own. What do these states have in common on other issues beyond income tax reform? Their commitment to take responsibility for reigning in major increases in state spending is clear. States serious about economic growth are putting new ideas on the table.
Based on the headlines, and even well-meaning critiques, the strength of this trend is not always apparent. Governors who lead with bold tax-cutting principles are fought by many stakeholders. Those who choose to oppose new, independent tax codes often write political obituaries before bills are even considered. Owners of small businesses know that success starts with courage and conviction. If the process for tax reform were an easy one, every governor, speaker, and senator would be leading the charge.
Governors do not have to guess about the past performance of how their business climate has lured new income. Thanks to migration data, we see the clear evidence that when states make empty promises, taxpayers leave. That means that auditing Milwaukee’s leadership versus the loss of more $22 billion in adjusted gross income within Chicago will be easier to do. That’s one audit worth having in our economic future.