Sunday, March 3, 2013

ITEP report says race to no income tax based on flawed theory

By SCOTT ROTHSCHILD, The Lawrence Journal-World

The effort by Gov. Sam Brownback and several other Republican governors to eliminate personal state income taxes is based on an economic theory that is "extremely flawed," a new report by a non-partisan research group says.

Brownback has depended on the claims of supply-side economist Arthur Laffer that states without personal income taxes are outperforming those with state income taxes.

Last year, Brownback hired Laffer for $75,000 to help draw up the governor's tax proposal.

But the Institute on Taxation and Economic Policy says income tax cuts don't appear to actually stoke state economies.

"In reality, states that levy personal income taxes, including the states with the highest top rates, have seen more economic growth per capita and less decline in their median income level over the last 10 years than the nine states that do not tax income," the ITEP report states. "Unemployment rates have been nearly identical across states with and without income taxes."

Laffer's claims are based on growth in Gross State Product, which is related to population trends, and he asserts that tax policy is behind the migration of people into low-tax states.

But ITEP says population growth in states isn't determined by tax policy. The report says the growth is more attributable to low housing prices, warm weather and high birth rates in those states.

The ITEP study looks at median family income, which shows that while income has declined in most states over the past decade, the declines have been smaller in states with income taxes. Five of the nine states without income taxes are doing worse than average in median income growth.

And ITEP says that Laffer's theory fails to take into account that some states don't choose to levy an income tax because they have an unusual economic resource, such as oil, coal or tourism.

Here is a link to the report: