Policymakers are using the Tax Foundation’s flawed readings of academic literature to suggest that there is an economic consensus that their tax plans are the right path forward for North Carolina. The Center on Budget and Policy Priorities released a report yesterday that dug into the research and finds that no such consensus exists.
- Numerous academic studies find no correlation between state tax levels and various measures of state economic performance (for example, income growth, firm formation, job creation and net household migration).
- Other studies find that higher taxes are actually associated with better economic performance when they finance higher-quality education and better infrastructure needed and desired by businesses and households.
- Some studies find that taxes have no effect in one time period and a negative effect in another, a positive effect on one measure of state economic performance and a negative effect on a different measure and/or different effects depending upon how tax levels are measured and the time frames under examination. But there is no consistency in the findings as to which time periods or measurements matter.
- Nor are there consistent findings as to which taxes matter most for economic growth. Some studies find that state corporate income taxes don’t affect economic growth but state personal income taxes do, and others conclude precisely the opposite.
- Finally, some studies conclude that while taxes’ effect on economic performance is statistically significant, the effect should be viewed as of such little economic significance that it should not be allowed to drive decisions as to whether taxes should be increased or cut.
To put it simply, there is no economic consensus that cutting taxes is a good strategy to grow the economy.