State Tax Differences Don’t Affect Growth
In a recent editorial, “Weak economies lead to income inequality,” the Daily Mail wrongly concluded that generous (high tax) states underperform economically compared to stingy (low tax) states. Read
The reality is that most academic research finds that tax differences between states have only a small effect on economic growth.
Why? Simple arithmetic.
Take business taxes. State and local taxes make up a very small portion of the cost of doing business – usually 2 percent to 3 percent – and pale in comparison to capital, labor, occupancy and electricity costs.
As the Center on Budget and Policy Priorities has shown in several reports, there is no obvious correlation between state and local business tax rates and economic growth.
This is why arguments for business tax cuts stand on a shaky foundation and why big corporations that advocate for these cuts are engaged in rent-seeking behavior, not an altruistic endeavor to grow the state’s economy.
What businesses need the most are customers, not handouts.
It is also important to recognize that the “high tax” states typically get what they pay for, including a better educated workforce, better health outcomes and a better overall quality of life.
A race to the bottom on taxes, regulations and investments in our children not only makes little economic sense, but it deprives our state of the revenue it needs to help families climb the ladder of opportunity.