States that require wealthy residents to reinvest in their communities did better over the past decade, according to a new report from the Institute for Taxation and Economic Policy. States that collect more income taxes from wealthy people generally outperformed their peers that chose to give their most fortunate residents a comparative pass on supporting public goods between 2006 and last year—contrary to claims made here in North Carolina and nationally to justify tax cuts that primarily benefit the wealthy.
“Lawmakers who support reducing or eliminating state personal income taxes typically claim that doing so will spur economic growth. Often, this claim is accompanied by the assertion that states without income taxes are booming, and that their success could be replicated by any state that abandons its income tax. To help evaluate these arguments, this study compares the economic performance of the nine states without broad-based personal income taxes to their mirror opposites—the nine states levying the highest top marginal personal income tax rates throughout the last decade.
The study’s broad finding is that the states with the highest top tax rates are experiencing more favorable economic conditions than the states without income taxes. While this finding does not indicate that higher income tax rates necessarily cause economic growth, it does call into question the notion that cutting or abandoning state income taxes leads to a clear improvement in state economies.”
Specific evidence that taxing wealthy people helps to build an economy that works for everyone include:
- States levying the highest top personal income tax rates are experiencing faster economic growth than states without such taxes.
- Average incomes are growing more quickly in the states with the highest top tax rates.
- Residents of states with the highest top income tax rates are more likely to have a job than people living in states lacking income taxes.
- States without personal income taxes levy higher overall taxes on the poor, due largely to their heavy reliance on regressive sales and excise taxes to fund public services. High-income taxpayers, by contrast, are the largest beneficiaries when states refuse to levy personal income taxes.
This report is particularly timely given the current debate in our nation’s capital about the future of federal tax policy and the current direction that North Carolina policymakers are taking with our state tax code. As lawmakers debate changing our tax code, its vital to remember that giving rich people a pass on paying their fair share of taxes will only hold our country back, and make it even harder for many to realize the American Dream.
Patrick McHugh is a Policy Analyst at the Budget & Tax Center, a project of the NC Justice Center. Contact him at firstname.lastname@example.org.