NCPA - National Center for Policy Analysis

Flat Income Tax States Fare Much Better

April 11, 1997

States which have a flatter, simpler income tax system -- or perhaps no income tax at all -- are far outpacing other states in personal income, economic growth and job creation, according to economists J. Kenneth Blackwell and Richard Vetter.

  • Personal income per capita rose more than 40 percent faster in Texas and Florida during the last business cycle through the third quarter of 1996 than it did in California.
  • It grew 20 percent more in South Dakota than in North Dakota.
  • As of January, Massachusetts' unemployment rate was nearly one-fifth lower than Rhode Island's, and Indiana's 3 percent rate was much lower than Ohio's 5 percent.
  • The poorer performing states all have highly progressive income tax levies.

Not surprisingly, people move from high-tax to flat-rate states. From 1990 to 1995, the nation's 16 flat-rate income tax states had net immigration of native-born Americans of 1,181,000 -- about 1,000 each business day. All of them were fleeing from progressive income tax states.

The experience of the states suggests to the researchers that moving to a saner, fairer, growth-oriented tax system would significantly boost American real output from its current long-run rate -- a historically low 2.5 percent a year. It would also remove millions from the tax rolls while making all those remaining play by the same -- simple -- rules.

Source: J. Kenneth Blackwell (Treasurer of the state of Ohio) and Richard Vetter (Ohio University), Investor's Business Daily, April 11, 1997.


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