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State and Local Government / Transparency

Growth by State

By Vince Smith on Jul 2, 2010

Many variables affect a state’s economic growth, including public policy, natural resources, geographic location, business centers, etc. The large number of contributing factors make it difficult to definitively attribute growth, or the lack thereof, to any particular variable. However, it is clear that, on the margin, income tax rates matter.

Every dime that the state takes away from an individual or business, through an income tax, is essentially taken out of the productive economy. Consequently, the capital that would have been spent investing in future goods is no longer available to the entity that would have otherwise used it. This, in effect, stifles growth.

Some might argue that public spending pumps that money back into the economy, but the 2009 American Recovery and Reinvestment Act is a perfect example of that kind of Keynesian theory failing in practice. The bill massively increased government spending,but did little to stimulate growth in the economy; unemployment remains around 10 percent. In practice, government spending provides much less of a stimulative effect than comparable tax cuts.

It would be in Missouri’s best interest to lower — or even abolish — the state income tax, thus enabling Missourians to spend and invest more of their own money to grow our stagnant economy. As demonstrated in the table below, which displays average annual growth rates per state between 1997 and 2008, Missouri’s growth ranks seventh-worst in the nation. Abolishing or reducing the state income tax would be a step in the right direction toward positive change.

StateAnnual Avg. Growth RateStateAnnual Avg. Growth RateStateAnnual Avg. Growth Rate
Alabama1.63%Kentucky0.48%North Dakota3.39%
Alaska-0.45%Louisiana1.09%Ohio0.70%
Arizona1.69%Maine1.30%Oklahoma1.63%
Arkansas1.32%Maryland2.00%Oregon2.71%
California2.48%Massachusetts2.55%Pennsylvania1.68%
Colorado1.65%Michigan0.07%Rhode Island1.84%
Connecticut1.46%Minnesota1.78%South Carolina0.53%
Delaware0.93%Mississippi0.86%South Dakota3.05%
District of Columbia2.50%Missouri0.60%Tennessee1.21%
Florida1.72%Montana2.03%Texas1.65%
Georgia0.38%Nebraska1.61%Utah1.12%
Hawaii1.35%Nevada0.75%Vermont2.74%
Idaho2.24%New Hampshire2.04%Virginia2.14%
Illinois1.25%New Jersey1.43%Washington1.80%
Indiana0.94%New Mexico1.67%West Virginia1.23%
Iowa1.98%New York2.95%Wisconsin1.35%
Kansas1.77%North Carolina1.21%Wyoming2.04%

Source for GDP Numbers: Bureau of Economic Analysis

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Vince Smith

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