The more that economists and fiscal experts review the data, compare real-world information from states like Tennessee and Missouri, the more they agree: Eliminating the state income tax is the right way to go.
Forbes’ Peter Ferrara wrote a blog ON THE CUTTING EDGE entitled The Anachronism Of State Income Taxes. It’s a pretty concise description of why eliminating the state income tax and replacing it with, well, almost anything, is better than what we have now.
Income taxes are the most economically destructive of all taxes. That is because income levies tax directly the reward for work, savings, investment, and entrepreneurship. With the reward reduced, the incentive for pursuing these economically productive activities is reduced. The result is less work, less saving, less investment, fewer new businesses, less business growth, less job creation, lower wages and income, and lower overall economic growth.
Ferrara heavily references work done in comparing the economic performance of Missouri and Tennessee when talking about the economic impact of an income tax versus not having one:
Experience and economic studies bear this out. The latest work was produced by Art Laffer, Steve Moore and Jonathon Williams in their annually recurring volume Rich States, Poor States, published by the American Legislative Exchange Council (ALEC).
In case you haven’t read it, here is the study he references: The Missouri Compromise.
Ferrara points out some salient findings from the study in his posting:
The authors further contrast the economic performance of Tennessee, with no state income tax, with the performance of Missouri next door. From 1998 to 2008, Tennessee’s Gross State Product grew 27% faster than Missouri’s, while jobs grew 29% faster in Tennessee. Yet over that period, total state revenues generated by Tennessee’s faster growing economy grew 39% faster than Missouri’s.
If Missouri’s economic growth just caught up to the average of the states with no income tax, which are growing 50% faster, Missouri would enjoy $100 billion in increased state GSP and income over the next 10 years. From 1998 to 2008, the average job growth among the no income tax states was 349% (more than four times) faster than in Missouri. The growth in GSP per capita, or standard of living, was 80% faster. If GSP per capita over 1998 to 2008 had grown in Missouri at the same average rate as for the no income tax states, income for each Missouri resident would be more than $12,000 higher on average.
Wow, $12,000 higher income on average. Yep. Sounds like eliminating the state income tax and replacing it with a consumer driven sales tax is bad for the state all right — at least bad for the surrounding states that still have an income tax anyway!