fbpx

Growth lags in tax cutting states

Once again, sober analysis shows that tax cuts don’t create prosperity. A report out today looks at how states that cut personal income taxes have fared in the years that follow; the answer is, not that well. Bold promises about tax cuts are usually followed by harsh realities. Here are a few of the key results:

  • Job growth slower than the nation in 4 of the 5 largest tax cutting states in recent years. North Carolina is actually the one state that did outperform the nation since the recent tax cuts, but that means that its not the tax cuts that are doing the work. For example, Kansas passed even larger tax cuts that North Carolina did, and it has lagged behind the nation, and behind most of its neighbor states, since then.
  • Personal income grew more slowly in 4 of the 5 states that cut personal income taxes the most in the last few years. Even with anemic income growth nationally, most of the states that cut personal income taxes were sub-par performers. This includes North Carolina, where the average worker has seen the value of their wages slip further behind the national average.
  • The five states that cut taxes the most aggressively in the 1990s did worse than the rest of the country during the next economic expansion (2000-2007). Some tax cut cheerleaders say we simply need to be patient, that the good times will come, but that not what the data say. States that cut heavily in the 1990’s saw an entire economic cycle come and go without growth taking off.

Of course, none of this is a surprise to people who pay attention to history. Most rigorous studies have found that cutting state taxes has little or no effect on economic growth. Businesses are worried about a long list of costs before they consider the personal income tax rate, so its not a game changer for where they decide to invest. Likewise, people don’t suddenly decide to work harder because they stand to earn a few more cents on the dollar, particularly if they have to pay most of that back in higher sales taxes, worse schools, or deteriorating roads. Cutting personal income taxes in not a magic elixir, but expecting it to cause an economic boom is magical thinking.

Load More Related Articles
Load More By Patrick McHugh
Load More In NC Budget and Tax Center

Top Stories from NCPW

  • News
  • Commentary

Chemours – the billion-dollar company responsible for contaminating the drinking water of hundreds of thousands of… [...]

A new federal Inspector General's report found that ReBuild NC couldn't provide "reasonable assurance" that $2.5… [...]

Shaletta Ryans went to court Monday afternoon without even having to leave jail. She appeared in… [...]

For the better part of the past century, the American electric power system evolved around large,… [...]

‘The migrants are human beings, and we’ve got to treat them like human beings. They are… [...]

The post Democracy on fire. appeared first on NC Policy Watch. [...]

Six years. That’s how long it will have been, come next month, since Hurricane Matthew raked… [...]

REPUBLISHING TERMS

You may republish this article online or in print under our Creative Commons license. You may not edit or shorten the text, you must attribute the article to The Pulse and you must include the author’s name in your republication.

If you have any questions, please email [email protected]

License

Creative Commons License AttributionCreative Commons Attribution
Growth lags in tax cutting states