Posts Tagged ‘state income tax’

Hey Democrats, Why Is It That States With The Highest Tax Rates Have The Highest Debt???

December 21, 2011

I wrote an article entitled, “Tax Cuts Increase Revenues; They Have ALWAYS Increased Revenues” that documents the fact that, on every single occasion in which it has ever been tried, cutting income tax rates has increased federal tax revenues and resulted in a healthier economy.

Democrats stupidly won’t believe that.  Mostly because they are stupid people who are committed to stupid and depraved world views (such as Marxism).

A Newsmax article documents that what is true of the federal government and tax cutting also happens to be true of the states and tax cutting:

Abolish State Income Taxes
Tuesday, 20 Jul 2010 11:15 AM
By Richard Rahn

Did you know there are nine states that have no state income tax?

The non-income-tax states (see accompanying chart) are geographically and economically diverse, ranging from the state of Washington in the Pacific Northwest, to Texas and Florida in the South, and up to New Hampshire in the Northeast.

Why is it that some of the states with the biggest fiscal problems have the highest individual state income tax rates, such as New York and California, while some of the states with the least fiscal problems have no state income tax at all?

High-tax advocates will argue that the high-tax states provide much more and better state services, but the empirical evidence does not support the assertion.

On average, schools, health and safety, roads, etc. are no better in states with income taxes than those without income taxes. More importantly, the evidence is very strong that people are moving from high-tax states to lower-tax-rate states — the migration from California to Texas and from New York to Florida being prime examples. (Next year, the combined federal, state, and local income tax rate for a citizen of New York City will be well over 50 percent, as contrasted with approximately 38 percent for citizens of Texas and Florida.)

If the citizens of California and New York really thought they were getting their money’s worth for all of the extra state taxation, they would not be moving to low-tax states.

The obvious question then is, Where is all the extra money from these state income taxes going?

It is going primarily to service debt, and to pay for inflated salaries and employee benefits. It is interesting that the high-tax-rate states also, on average, have much higher per capita debt levels than states without income taxes. (Alaska is an outlier because it has its oil reserve to borrow against and actually gives its citizens a “dividend” each year.)

The biggest additional burden the high-tax states have is unionized government worker contracts. My Cato colleague Chris Edwards notes: “Half of all state and local spending — $1.1 trillion out of $2.2 trillion in 2008 — goes toward employee wages and benefits.”

His study showed that, on average, total hourly compensation for state and local government workers was 45 percent higher than for equivalent private-sector workers.

In addition, the government workers are rarely fired even those with poor job performance. Importantly, the differential was much greater in states where more than half of the state employees were unionized, and these were all in states with state income taxes, with the exception of Washington.

High rates of unionization of public employees and high rates of debt go hand in hand. Those states whose government workers are less than 40 percent unionized have median per capita state debt of $2,238, while those states where unionization rates are over 60 percent have a median per capita state debt of $6,380.

High rates of unionization tend to lead to excess staffing, unaffordable benefits, and pensions.

There have been a number of both empirical and theoretical studies showing the negative impacts of state income taxes and particularly those with high marginal rates on economic growth within the state.

A recent study published in the Cato Journal by professors Barry W. Poulson and Jules Gordon Kaplan, which was carefully controlled for the effects of regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states concluded: “Jurisdictions that imposed an income tax to generate a given level of revenue experienced lower rates of economic growth relative to jurisdictions that relied on alternative taxes to generate the same revenue.”

State Income Tax Rates and Debt (All Figures Percent)
States Income Tax State Debt as % of Income
Without Individual Income Tax
Tennessee 0 2.02
Texas 0 2.70
Nevada 0 4.07
Wyoming 0 4.90
Florida 0 5.20
Washington 0 7.93
South Dakota 0 10.95
New Hampshire 0 14.10
Alaska 0 24.01
Highest Individual Income Tax rates
Iowa 9.28 6.47
Maryland 9.23 7.26
California 10.55 7.55
Oregon 11.36 8.61
Hawaii 11.00 11.89
New Jersey 9.06 12.01
New York 10.67 12.22
Vermont 8.95 13.12
Rhode Island 9.9 20.04

The state of New York is a poster child for what not to do. At one time, it was the richest and most populous state. But at least going back to the Harriman and Rockefeller administrations decades ago, it decided it could tax and spend its way to prosperity. (Note: New York City residents face a maximum combined state and city income tax of over 12 percent, while those in many New York counties pay a little less than 9 percent, giving the state an average maximum tax rate of almost 11 percent.)

The results have been the opposite of what was promised.

New York’s relative population, economic growth, and per capita income have all declined, particularly in relation to those states without a state income tax.

In the past year, per-person taxes have increased by $419 in New York, far higher than any other state. (Note: They went up only $1 in Texas. Is New York or Texas now better off?)

Income taxes, as contrasted with consumption (i.e., sales) taxes and modest property tax rates, are far more costly to administer and do far more economic damage (by discouraging work, saving and investment) and are far more intrusive on individual liberty.

The states without state income taxes overall have had far better economic performance for most of the past several decades than have the income tax states — particularly those with high marginal taxes.

The Tea Party movement indicates that it might be the right time politically for politicians in the income tax states to call for those taxes to be phased out.

Good economics might actually be good politics this year.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

That table alone is worth a million bucks.  Notice how it documents the fact that liberal/Democrat economic policy is about as abject a failure as you can get.

What is also interesting is that the United States did not have a permanent federal income tax until 1913.  That, coincidentally, was the same year that Democrats also gave us the Federal Reserve with the promise that they would now be able to fix everything.  Like all of their promises, it was a giant lie.

Many founding fathers warned against a federal reserve system that Woodrow Wilson ultimately rammed down our national throats.  Here are the words of Thomas Jefferson in particular:

“If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” -Thomas Jefferson, The Debate Over The Recharter Of The Bank Bill, (1809).

For the factual record, the Federal Reserve, perversely named as it is, is in fact the very kind of “private bank” that Jefferson warned us about.  It’s fascism, but Democrats love fascism.  Fannie Mae and Freddie Mac are examples of other “government sponsored enterprises” devised by Democrats that give us the very, very worst of both government and private enterprise.

And this article directly relates that tax and the out of control Federal Reserve system with our present out of control debt.

Democrats have led the way in screwing up America for the last hundred years.  They were screwing it up in 1913 under Woodrow Wilson.  They were screwing it up again in the 1930s under FDR.  And now we are royally screwing it up under Obama.

And now we have no chance of lasting another hundred years because Democrats have loaded us up with debt that we can never hope to ever repay even as our debt continues to spiral even more out of control.