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InsiderOnline Blog: February 2013

Big Cuts in Income Taxes Are Coming—in the States

The action on tax policy is in the state capitals. Lawmakers in Oklahoma, Kansas, North Carolina, Indiana, and New Mexico, are planning major reductions in tax rates this year, reports the Wall Street Journal. Plus the governors of Nebraska and Louisiana want to eliminate their states’ income taxes while boosting sales taxes; in other words, they want to trade a tax on wealth creation for a tax on consumption. These lawmakers, observes the Journal, seem to have noticed the good results achieved by states with no income taxes:

A new analysis by economist Art Laffer for the American Legislative Exchange Council finds that, from 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax, though these states account for only about 20% of the national population. The no-income tax states have had more stable revenue growth, while states like New York, New Jersey and California that depend on the top 1% of earners for nearly half of their income-tax revenue suffer wide and destabilizing swings in their tax collections.

In the case of North Carolina, a new study by the Civitas Institute concludes that a tax reform that shifts more of the burden to consumption from income would increase average annual personal income growth by 0.38% to 0.66%. That’s enormous over time and would lead to much higher state tax revenues. North Carolina’s top income tax rate is 7.75%, which is higher than that of most nearby states that it competes with for investment. Virginia’s top rate is 5.75% while Tennessee has no personal income tax. [Wall Street Journal, January 29]

Posted on 02/01/13 12:27 AM by Alex Adrianson

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