Building an Economy that Works for Everyone

Tax cuts for growth? Don’t make me Laffer out loud

Analysis: ‘High Rate’ Income Tax States Are Outperforming No-Tax States

Arthur Laffer is the go-to guy for conservative fiscal types who think tax cuts for millionaires are just the recipe for economic growth. Problem is, Laffer’s numbers don’t hold up under scrutiny.

Laffer contends that the nine states without personal income taxes have economies that far outperform those in the nine states with the highest top tax rates. But according to a recent analysis by the Institute for Taxation and Economic Policy (ITEP), the reverse is actually true.

Over the last decade, in the nine states with the highest top marginal tax rates, per capita gross state product has grown more, and median income has decline less, than in the nine states without income taxes. What’s more, unemployment rates in both types of states have been virtually identical.

Where does Laffer’s analysis go wrong? He fails to account for the effect of huge regional population trends and the natural resource advantages enjoyed by many no-tax states.

More from ITEP: ‘High Rate’ Income Tax States Are Outperforming No-Tax States (pdf)

Bonus report: Arthur Laffer Regression Analysis is Fundamentally Flawed, Offers No Support for Economic Growth Claims  (pdf)

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