Create Jobs not Justifications... for tax increases
The Institute on Taxation and Economic Policy (ITEP) recently published a
paper arguing that the nine states with the highest income taxes are actually
faring better than the nine states with no income tax. ITEP cites Gross State
Product (GSP) per capita, Real (inflation-adjusted) Median Household Income, and
the Unemployment Rate as their basis.
Using per-capita data to justify that high-tax states are doing well deliberately
discounts overall growth in GSP, employment and population shifts. One needs
only a simple drawing to see GSP Per Capita, Real Household Income, and the Unemployment
Rate are not appropriate measures.
In this first scenario our state has nine individuals; seven earning an income and
two unemployed. GSP per capita is $3, Real Median Household Income is also
$3, the Unemployment Rate is 22%, and lastly our overall wealth is $28. Now
supposed the first 4 individuals decide to seek opportunity in another state. Now
our state looks like this:
Our GSP per capita is $5, Real Household Median Income is $5, the Unemployment Rate
is 0%, but our overall wealth is now $25. Not one person’s wealth increased
and in fact our state is worse off, we have fewer jobs and less wealth.
This is precisely what IRS data suggests is happening. From 2000 to 2009 the
average adjusted gross income for taxpayers leaving the 9 states with the highest
income taxes was $59,502, which is $5,000 lower than the average AGI for those states.
Instead of focusing on math trickery to justify our spending habits we need to focus
on the policies that foster wealth and job creation.
- The nation saw 2.9% decline
in private sector employment between 2001 and 2010.
- The 9 highest income tax states saw 4.8%
decline in private sector employment.
- The 9 states without an income tax saw a 2.4%
increase in private sector employment.
(Source: Bureau of Labor Statistics)