As A Matter Of Fact…Reality Check: Income Taxes Don’t Impede Economic Growth

by Jon Whiten | Published in NJPP Blog: As a Matter of Fact …

As Gov. Chris Christie prepares to unveil the specifics of his proposed 10-percent income tax cut at next week’s budget address, he’s working under a key tenet of conservative economics: that high tax rates harm economic growth.

There’s just one problem, according to a new national report by the Institute on Taxation and Economic Policy (ITEP): that tenet doesn’t match up with reality.

These claims are based largely on misleading analyses generated by Arthur Laffer, long-time spokesman of a supply-side economic theory that President George H. W. Bush once called “voodoo economics” because of its bizarre insistence that tax cuts very often lead to higher revenues. Recently, Laffer’s consulting firm has been very successful (with the help of the American Legislative Exchange Council, Americans for Prosperity, and the Wall Street Journal’s editorial page) in spreading the talking point that the nine states without personal income taxes have economies that far outperform those in the nine states with the highest top tax rates.

In reality, however, residents of “high rate” income tax states are actually experiencing economic conditions at least as good, if not better, than those living in states lacking a personal income tax.

The report pits the nine “high rate” states identified by Laffer (a list that includes New Jersey) against the nine states that don’t have a broad-based personal income tax in three categories: growth per capita, median family income and unemployment rate.

From 2001 to 2010, the “high rate” states have seen stronger growth per capita and less erosion of median family income, while the average unemployment rate has been the same as the un-taxed states.

The bottom line, according to ITEP?

“There is no reason for states to expect that reducing or repealing their income taxes will improve the performance of their economies.”

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Filed under As a Matter of Fact, blog, Gov. Chris Christie, income taxes, Institute on Taxation and Economic Policy (ITEP), New Jersey Policy Perspective

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