Taxes and Population Growth
September 20, 2002
Whether it is federal, state or local taxes, people are working harder and longer just to pay their tax bill. For example, Texans' tax burden is 11 times larger today than in 1972, according to a new study.
While some legislators believe population growth requires higher taxes due to the cost of providing essential government services for new residents, the opposite is true, researchers say. Therefore, claims by some that Texas' phenomenal population growth requires a tax increase are unfounded.
- New residents who participate in the labor force at high levels tend to raise more revenue at the margin for governments than they cost in incremental spending -- so population growth in low-tax states adds revenues that exceeds the cost of serving more people.
- As population increases, the cost per person of providing government services decreases -- put simply, the costs are spread among more people.
- The tax burden in low-population-growth states was 12 percent higher (per $1,000 in personal income) than in high-growth states.
- While increasing population does require new infrastructure -- roads, schools, and utilities -- the costs do not outweigh the added benefits those individuals bring to local and state economies, and therefore tax rolls.
Meanwhile, advocates of big government look for every opportunity to raise taxes and spending. If population increases, they say more is needed to pay for new services, and if population declines they want more to cover existing expenses, critics say.
But businesses and people want low taxes more than big government, and vote with their feet by moving to low-tax havens like the Lone Star State.
Source: Richard Vedder, "Boom or Bust: Does a Growing Population Require More Government?" Taxing Texans: a Six Part Series Examining Taxes in the Lone Star State, Part 3, Texas Public Policy Foundation, April 2002
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