Low-tax states outperform high-tax states economically, according to a new issue brief by The Maine Heritage Policy Center.
“High Taxes Lower Economic Performance,” by J. Scott Moody, reveals “states with low taxes have greater job creation and wage growth than states, like Maine, with high taxes,” according to Moody.
“If Maine policymakers are serious about increasing economic activity and providing Mainers with the same economic opportunities that residents of low-tax states experience, they need to lower the tax burden on Mainers,” Moody wrote. (See Table 1.)
Entire Business Cycle Covered
In the study, released in September, Moody evaluated all 50 states between fiscal years (FY) 1994 to 2004, examining the impact the level of taxation had on three important measures of economic prosperity: population growth, personal income growth, and employment growth.
The time period was chosen because it is a full decade long, includes an entire business cycle (i.e., recovery from the 1991 recession to the boom in the late 1990s to the recession in 2001 and back to the recovery from the 2001 recession), and includes the most recent tax burden data available by state.
The analysis found the 10 lowest-tax states had an average tax burden of 9.5 percent, while the 10 highest-tax states averaged 13 percent. The lowest-tax states’ level of taxation was 27.2 percent lower than the highest-tax states. Correspondingly, the low-tax states had
- population growth 172.1 percent higher,
- personal income growth 31.9 percent higher, and
- employment growth 78.6 percent higher.
“The data reveal that high-tax states, like Maine, are missing out on the level of job creation and wage growth that low-tax states are experiencing,” Moody said. (See Table 2.) “Maine policymakers should act to implement pro-growth economic policies that reduce the state tax burden.”
All States Examined
Additionally, the report compared the performance of the 25 lowest-tax states to that of the 25 highest-tax states. The lowest-tax states had an average tax burden of 9.9 percent, while the highest-tax states averaged 11.5 percent. The lowest-tax states’ level of taxation was 13.7 percent lower than the highest-tax states. (See Table 3.)
Correspondingly, the 25 lowest-tax states had
- population growth 74.4 percent higher,
- personal income growth 15 percent higher, and
- employment growth 32.6 percent higher.
“Moody’s report reaffirms the need for pro-growth policies that lower the tax burden,” said Maine state Rep. Scott Lansley (R-Sebattus). “By lowering taxes, Maine elected officials can help boost the state’s economic performance.”
Jason A. Fortin ([email protected]) is director of communications/projects manager at The Maine Heritage Policy Center.
For more information …
“High Taxes Lower Economic Performance,” by J. Scott Moody, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.policybot.org and search for document #19897.