NCPA - National Center for Policy Analysis

Taxes And State Growth

December 1, 1995

A study of the effects of tax policy on economic growth in all 50 states shows that higher state and local taxes had significant negative effect on personal income growth from 1960 to 1993.

Key findings include:

  • Relatively low-tax states grew nearly one-third faster than high-tax states, resulting in higher income of about $2,300 per person or $9,000 for a family of four in low tax states compared to higher tax ones.
  • On average, an increase in the state and local tax burdens equal to one percent of personal income lowered income growth by more than 3.5 percent.
  • Since states raised tax burdens by an average of nearly 2 percent of personal income from 1960 to 1993, an average family lost almost $2,900 in income.

Finally, in those states with flat taxes, including states that had no personal income tax, personal income grew about 25 percent faster than in states with a progressive tax rate structure.

Source: Richard K. Vedder, "State and Local Taxation and Economic Growth: Lessons for Federal Tax Reform," December 1995, Staff Report, Joint Economic Committee of Congress, Washington, DC.


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