Income taxes and economic growth

Income taxes and economic growth

Supporters of trickle-down economics have tried to argue for years that income taxes are a barrier to economic growth, and that states without income taxes fare better than states that have them. But a report out today from the Institute on Taxation and Economic Policy successfully dispels that myth.

Number of the Day

34 percent - The average increase to the most popular marketplace health insurance plans in the upcoming year  (Source: Associated Press)

Supporters of trickle-down economics have tried to argue for years that income taxes are a barrier to economic growth, and that states without income taxes fare better than states that have them. But a report out today from the Institute on Taxation and Economic Policy successfully dispels that myth. The report compared economic growth in the nine states with the highest marginal income tax with the nine states that don’t currently levy an income tax. The results are worth excerpting in full:

States levying the highest top personal income tax rates are experiencing faster economic growth than states without such taxes. This is true of growth in the overall size of these states’ economies and, more importantly, of economic growth per person over the last decade (2006-2016).

Average incomes are growing more quickly in the states with the highest top tax rates. Per capita personal income and disposable per capita personal income both grew more rapidly in these states over the last decade. Per capita personal consumption growth is also more robust in the states with the highest top tax rates.

Residents of states with the highest top income tax rates are more likely to have a job than people living in states lacking income taxes. Compared to states without income taxes, a larger share of people in their prime working years (ages 25 to 54) has found work in the states levying the highest top tax rates. Additionally, under a wide range of measures, the unemployment rate is lower in the states with the highest top income tax rates.

Rapid population growth in the states without personal income taxes has not resulted in an improvement in economic well-being for the typical resident of those states. While some measures of aggregate growth are more favorable in the states without income taxes (e.g., total number of jobs and total dollars of income earned within a state’s borders), these are primarily indications of a growing population and offer very little insight into how these states’ residents are faring. In fact, job growth has lagged significantly behind population growth in the states without personal income taxes, contributing to larger increases in their unemployment rates, and smaller increases in average incomes, relative to what has occurred in the states with the highest top tax rates.

While the alleged economic benefits of refusing to levy a personal income tax do not appear to have materialized, the negative impacts of this decision on taxpayers struggling to make ends meet are clear. Relative to the states with the highest top income tax rates, states without personal income taxes levy higher overall taxes on the poor, due largely to their heavy reliance on regressive sales and excise taxes to fund public services. High-income taxpayers, by contrast, are the largest beneficiaries when states refuse to levy personal income taxes.

 

Health care premiums rising

A new independent study by health care consulting group Avalere Health shows an average 34 percent increase in the most popular marketplace plans available to consumers in the upcoming enrollment period. Louisiana is among the 47 states and Washington, D.C. facing a net increase in the average costs of marketplace insurance. Avalere cited market instability caused by President Donald Trump’s decision to end subsidy payments and the repeal-and-replace debate in Congress among the causes of the price hike. Ricardo Alonso-Zaldivar of the Associated Press writes:

Bipartisan legislation to resolve the problem is pending, and the Congressional Budget Office on Wednesday said the bill would reduce federal deficits and have no major impact on coverage. But the legislation by Sens. Lamar Alexander, R-Tenn., and Patty Murray, D-Wash. faces an uncertain future. Trump has sent mixed signals about whether he would support it. Restoring the funds may have little immediate impact on 2018 premiums, but the bill calls for insurers to rebate money to the government and consumers if they collect too much.

 

Sales taxes among the highest nationwide

A report released Monday by the right-leaning Tax Foundation shows Baton Rouge and New Orleans tied with two Alabama cities for third ranking highest combined state and local sales taxes at 10 percent. According to researchers Jared Walczak, Scott Drenkard and Raymond Roesler, the only major cities with higher rates are Chicago and Long Beach, CA at 10.25 percent each. An interesting footnote in their key findings claimed that part of the city of New Orleans was in Jefferson Parish, and therefore has a lower sales tax than most of the city. As far as we know, they haven’t redrawn the lines to annex parts of Jefferson, yet. Where we concur: in reference to Commercial Activity Taxes, like the one proposed by Governor John Bel Edwards’ administration this past spring at the Louisiana legislature, the Tax Foundation noted this:

Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain. These recommendations would result in a tax system that is not only broad-based but also “right-sized,” applying once and only once to each product the market produces. Despite agreement in theory, the application of most state sales taxes is far from this ideal.

 

Legislators and lobbyists say “Us Too”

The #MeToo social media visibility campaign against sexual harassment and sexual violence sparked a chain reaction across the country as women and men came forward to share their experiences. Among the latest to step forward publicly are the nation’s politicos. In state houses around the country, women legislators and lobbyists are joining together to expose the rotten underside of the halls where our laws are made:

Illinois became the latest to join the chorus, as signatures piled up Tuesday on an open letter describing harassment and intimidation for women trying to negotiate legislation and work on campaigns. In California this week, the Senate hired a law firm to investigate after women described a culture of sexual intimidation. “Every industry has its own version of the casting couch,” read the letter circulating in Illinois, which by Tuesday had more than 130 signatures. “Ask any woman who has lobbied the halls of the Capitol, staffed Council Chambers, or slogged through brutal hours on the campaign trail. Misogyny is alive and well in this industry.”

While there hasn’t been a coordinated effort among Louisiana legislators or consultants to address sexism in the State Capitol as a part of this specific campaign, we can never forget the floor speech given by  State Representative Julie Stokes in May 2016. In response to the infamous stripper “joke” made by Representative Kenny Havard, she said:

“I hear derogatory comments about women in this place regularly. I hear and see women getting treated differently than men, and you know what, you gave me a perfect forum to talk about it. I’ve got to say, looking out over this body, I’ve never been so repulsed to be a part of it. I refuse the spirit of everything that I’ve heard, and I just can’t even believe the behavior in here. I think we need to call an end to this.”

 

Number of the Day

34 percent – The average increase to the most popular marketplace health insurance plans in the upcoming year  (Source: Associated Press)