More Evidence Against State Income Taxes

On Tuesday, the Wall Street Journal ran an editorial by economist Art Laffer about the negative impact of state income taxes, and the statistics he cites are worth repeating:

In the past decade, the nine states with the highest personal income tax rates have seen gross state product increase by 59.8%, personal income grow by 51%, and population increase by 6.1%. The nine states with no personal income tax have seen gross state product increase by 86.3%, personal income grow by 64.1%, and population increase by 15.5%.
[…] Over the past 50 years, 11 states have introduced state income taxes exactly as Messrs. Gates and their allies are proposing—and the consequences have been devastating.

The 11 states where income taxes were adopted over the past 50 years are: Connecticut (1991), New Jersey (1976), Ohio (1971), Rhode Island (1971), Pennsylvania (1971), Maine (1969), Illinois (1969), Nebraska (1967), Michigan (1967), Indiana (1963) and West Virginia (1961).

Each and every state that introduced an income tax saw its share of total U.S. output decline. Some of the states, like Michigan, Pennsylvania and Ohio, have become fiscal basket cases. As the nearby chart shows, even West Virginia, which was poor to begin with, got relatively poorer after adopting a state income tax.

These findings support the conclusions of a number of Show-Me Institute publications. In March, we published a policy study showing that taxes have a negative impact on economic activity. I used that data to write an op-ed. Show-Me Institute Chief Economist Joe Haslag and intern Abhi Sivasailam wrote last fall about the relative benefits of a sales tax versus an income tax. Finally, policy analysts Dave and Jenifer Roland compared the economic growth of Missouri to Tennessee, and found Missouri falling behind Tennessee, possibly because of Tennessee’s lack of an income tax.