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Sunday, December 16, 2012

States That Spend Less, Tax Less—and Grow More

Wall Street Journal op-ed:  States that Spend Less, Tax Less—and Grow More, by Dave Trabert & Todd Davidson (both of the Kansas Policy Institute):

States with an income tax spent 42% more per resident in 2011 than the nine states without an income tax. States in the bottom 40 of the Tax Foundation's Business Tax Climate Index (which assesses business, personal, property and other taxes) spent 40% more per resident. In the American Legislative Exchange Council's Rich States, Poor States Economic Outlook (based on 15 policy variables), the bottom 40 spent 35% more than the top 10 states. ... [T]he states with no income tax, plus those included in the Tax Foundation and Rich States, Poor States rankings (18 in all) are quite diverse: large, small, coastal, inland, bordering Canada and Mexico, densely and sparsely populated. ...

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 path to superior economic growth and job creation is clear.

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Comments

Direction of causation? No wonder this stuff never gets through peer reviewing.

Posted by: jmike | Dec 16, 2012 6:53:04 AM

I keep hearing that Ohio and Michigan would prosper if income taxes were dropped.

This assumes of course there will be a Disneyland built in Detroit and Cleveland will become a major oil field.

I quit reading the WSJ editorial page years ago because of the simple minded nonsense.

The other dandy is that North Dakota can be a model for other states - good grief.

Posted by: save_the_rustbelt | Dec 16, 2012 7:27:16 AM

Since we all lament the death of children, let's compare infant mortality rates in states without an income tax, to those in states known for high income taxes.

The four big states with no income tax, and their infant mortality rate in 2007, are:

Florida 7.05 per 1,000 live births
Tennessee 8.31
Texas 6.29
Washington 4.82

The four big states best known for high taxes, and their infant mortality rate in 2007, are

California 5.20 per 1,000 live births
Massachusetts 4.93
New York 5.57
Oregon 5.75

State tax collections per capita in Washington are $2,549, which may explain its lower rate than in neighboring Oregon, where state tax collections per capita are only $2,095.

Posted by: Bob | Dec 16, 2012 9:21:08 AM

High taxes are reflective of the attitudes of certain state governments that believe in big government and pass so-called "progressive," higher-tax, and job killing legislation, like compulsory unionism, and cater to public employee unions, which drive up taxes. National Right to Work

Posted by: Woody | Dec 16, 2012 9:59:52 AM

It's hard to argue with statistics and while low state spending and low taxes may not be the only cause of economic growth in the states mentioned in the article, it is at least the beginning of a compelling explanation.

Posted by: Bill Clinton | Dec 16, 2012 4:32:47 PM

Since when do we all lament the death of children? Let's compare the rate of abortion of known pregnancies in these same states, also in 2007.

The low tax states with higher infant mortality.

Florida 27.0%
Tennessee 15.4%
Texas 16.6%
Washington 21.9%

The four big states best known for high taxes, with lower infant mortality.

California 28.1%
Massachusetts 25.4%
New York 35.9%
Oregon 20.2%

It seems to me that the rate of abortion is more strongly correlated to the rate of infant mortality that the collection of income tax. This would make sense, because more problem pregnancies would be likely to be terminated in the states where abortion is more prevalent. Certainly this is a more likely factor than tax rates.

Posted by: Haiku Guy | Dec 17, 2012 7:20:19 AM

The other dandy is that Michigan and New Jersey are roll models for the other states...

That's why there's supposed to be Federalism - where each state sets it's own course under the Federal Government. But with Big Government forcing more and more centralism, States are not only prevented from setting their own course, they are not held accountable for their failures.

Hence Michigan, New Jersey, California, and Illinois.

Posted by: uncompassionate conservative | Dec 17, 2012 7:20:19 AM

The Laffer Curve? Its truth is inescapable to all but leftist democorrupt politicians and their wackodemic & media idiot enablers.

Posted by: Old One | Dec 17, 2012 7:39:26 AM

States that spend wisely don't have to tax as much and use their tax money to actually benefit the public. Such states attract citizens from other places who object to paying for waste and payoffs to unions.

Highest-Paid California Trooper Is Chief Banking $484,000

... Union-negotiated benefits, coupled with overtime that can exceed regular pay and lax enforcement of limits on accumulating unused vacation, allow some troopers to double their annual earnings and retire as young as age 50. The payments they get are unmatched by those elsewhere....

While more than 5,000 California troopers made at least $100,000 in 2011, only three in North Carolina did. ...

“You had very strong, influential unions that were very supportive politically, very popular to the public and were very effective at inside lobbying, making their case to the Legislature”....

California Highway Patrol officers earned $82.4 million in overtime last year, almost triple the $27.5 million overtime paid in Texas, the second most-populous U.S. state. ...

The 1999 pension benefit granting highway patrol officers 90 percent of their salaries after 30 years of service, signed by then-governor Davis and approved by the Legislature, was subsequently copied by cities and counties throughout California. As a result, many California municipalities are now hobbled by retiree obligations that consume 10 percent or more of their budgets. ....

California’s high compensation levels relative to other states are the fault of public officials who approved pay and benefit changes without adequately considering their long-term costs, said David Crane, a public policy lecturer at Stanford University and a Democrat who was an economic adviser to Schwarzenegger.

“It’s just a remarkable situation where they can make promises for things but not have to worry about the consequences,” Crane said. “It would be like you promising your child that you’re going to pay for their college but then knowing you’re going to be leaving in two to four years and you’re really not responsible for that.”

So, now you know where this country is headed. If people can't vote with their feet, then they'll change their tax situations to limit support for corrupt politicians buying votes with their money.

Posted by: Woody | Dec 17, 2012 7:57:21 AM

Bob - give us the same numbers with the number of abortions included.

Posted by: Jim | Dec 17, 2012 8:02:02 AM

You don't have to outrun the bear - just the other people on the trail.

Posted by: Vox Clams | Dec 17, 2012 8:02:27 AM

Not sure why Bob above chose to link infant mortality rate to income tax other than current events, but there seem to be more important factors on infant mortality than the existence of an income tax. The use of abortion to kill babies deemed to possibly have a subpar existence jumps to mind. From the CDC report at http://www.cdc.gov/mmwr/preview/mmwrhtml/ss6001a1.htm , see table 2 for data, abortions per 100,000 live births:

Florida No Report
Tennessee 174
Texas 191 Average: 214
Washington 278

California No Report
Massachusetts 300
New York 478 Average: 333
Oregon 222

So we have an average of 119 more dead babies in Bob's chosen income tax states than would have been delivered in the chosen no income tax states.

Posted by: Bakatya | Dec 17, 2012 8:10:11 AM

So if states with no income tax are so awful (e.g. infant mortality), why are people moving there, and away from the "progressive" states? Could it be that people reject progressive-ism that vigorously? Seems so.

Posted by: Big Mike | Dec 17, 2012 8:18:32 AM

Please run those numbers again, save_the_rustbelt, but this time for pregnancies, not live births.

Posted by: fit2post | Dec 17, 2012 8:21:16 AM

rust belt, why the infant mortality rate posting?? You are not so ignorant as to try and imply a causality between state income tax rates and infant mortality, are you?

Infant mortality rates are a function of the "race" breakdown of a state. The higher percentage population a state has of blacks and indians, the higher the infant mortality rate.

Posted by: WJW | Dec 17, 2012 8:31:01 AM

How much of this is internal tax preferential behavior and how much is greater economic dynamism. If growth is fueled by pulling jobs from other states, wouldn't. Elimination of income taxes on a national level have much less of a positive net impact?

Posted by: George | Dec 17, 2012 8:34:03 AM

The problem with statistics is that it does not look at many other items as is pointed out by several commentators. The states with no taxes all have unique assets. but how about their services v. the top 10, how about schools, libraries, parks, roads, etc. We can't just look at their growth...we are looking at Florida, Texas, and Washington ....all with mild and warm winter climates...retirees don't move to Michigan....I agree this analysis does not look at the total picture.

Posted by: Sid | Dec 17, 2012 10:14:06 AM

To: WJW | Dec 17, 2012 11:31:01 AM

"How much of this is internal tax preferential behavior and how much is greater economic dynamism. If growth is fueled by pulling jobs from other states, wouldn't. Elimination of income taxes on a national level have much less of a positive net impact?"

Think about it! Elimination of the income tax in the US would make this great country of ours THE TAX HAVEN OF THE WORLD, and our economy would grow by leaps and bounds with all the manufacturing moving in from other countries! There is a proposal called The FairTax Act, HR 25 in the House and S13 in the Senate, which does exactly that! Find out more at www.fairtax.org.

Posted by: ChuckB | Dec 17, 2012 1:59:50 PM