Time to Tell the Truth on Taxes

As a co-author that helped compile literally fifty years of evidence among and between state economic performance, articles like this New York Time’s piece entitled “Republican Governors Buck Party Line on Raising Taxes” remind me how important it is to have sound economic proofs available to those who need it.  Too often, major media sources are quick to brush off any look at the peer review literature that clearly points in one solid direction:  lots and lots of evidence that proves that lower marginal tax rates on income yields stronger economic growth.  More simply, when you lower the price of work, you see more of it.  As co-author Art Laffer likes to say, “this isn’t rocket surgery.”

As one of last year’s New York Times Bestsellers in April 2014, our book, An Inquiry into the Nature and Causes of the Wealth of States, should be an easy reference off which to find an alternative point of view than that of Michael Leachman in this January 24, 2015 article.  A full list of peer review studies can be found within our book, along with an entire chapter entitled “Au Contraire, Mon Frere,” that looks at most opposing views.  Within Chapter Three, we address the effects of energy, personal income taxation, and overall tax burden in a very comprehensive way.

The real spoiler here within the long-term data is not merely that states with lower income tax rates grow faster, but that those states with an overall lower tax burden grow their state and local tax revenue faster than those with higher burdens.

When one looks back from 2002 to 2012, an equal weighted average of the nine highest tax burden states (ME, MA, MN, RI, WI, CA, CT, NJ, and NY) shows a growth in state and local tax revenue of 48.9% over the decade.  By contrast, an equal weighted average of the nine lowest tax burden states (AK, SD, TN, LA, WY, TX, NH, AL, and NV) shows a growth in state and local tax revenue of 80.9% from 2002 to 2012.   So, why on earth would so many liberal-leaning advocacy groups ignore this evidence?  Perhaps it doesn’t fit their faith with big government, even if it has been ineffective time after time.  Features like that of Adam Nagourney and Shaila Dewan should more accurately look at what Governors are really trying to do today:  lower their overall tax burdens away from taxing work, and towards less distortionary ways to collect revenue.  If that was done more objectively, one would see that Governor Synder of Michigan has been attempting to lower the overall burden that Michiganers must absorb.  Governors like Sam Brownback (KS) and John Kasich (OH) are trying to upgrade their tax codes to be in line with the true nature of their workforce, while lowering their overall tax burden.

By looking at the long run evidence, having a low tax burden within our state is good for how we provide for our public services.  There’s even more incredible results to observe by comparing the nine lowest tax burden states compared against the nine highest tax burden states.  The nine lowest tax burden states have more full-time equivalent education employees per 10,000 of population than do the nine highest tax burden states.  The nine lowest tax burden states are increasing the number of full-time equivalent education employees far faster than are the nine highest tax burden states.  The nine lowest tax burden states pay the education employees a lot less per full-time equivalent employee than do the nine highest tax burden states – think public-sector teacher unions.

Fellow co-author Stephen Moore covers the real trend of federalism in today’ s Wall Street Journal piece, “The Tax-Cutting Boon Sweeping the States.”  American workers are finally getting tax relief from their states.  Such assistance would be even more stimulating if Washington wasn’t attempting to hike federal tax rates during the same moment.