Even though the federal government keeps increasing taxes, many states are moving in the opposite direction.
That’s the finding of a recent State of the States report by the American Legislative Exchange Council (ALEC). The authors, researchers at ALEC’s Center for State Fiscal Reform, analyzed governor’s speeches for all 50 states in order to determine what changes could happen to tax policy in the coming year.
The results are heartening. “It appears most governors have learned the lesson that they are in constant competition with other states for jobs and capital,” said the authors. “In order to keep their state economically competitive, they must make tax cuts a continuing priority, while keeping tax increases at a minimum.”
For example, while nine governors proposed cutting the state’s income tax, only one governor proposed raising it (Gov. Tom Wolf of Pennsylvania). Nine governors also proposed reductions of the corporate tax and eight proposed cutting the property tax.
Among the governors that wanted to raise taxes, the primary targets were taxes on gasoline, transportation, or vehicle registration.
Nine states currently have no income tax, but the report noted that two more states may soon join that group – Kansas and Maine. Governors Sam Brownback and Paul LePage, respectively, have spoken publicly about finding other ways to fund the budget.
Interestingly, the authors of the report also compiled a table of the states with the highest and lowest marginal personal income tax rates. Over the last ten years, the nine states with the lowest tax rates had more than twice the average job growth as the nine states with the highest tax rates.
The nine low-tax states also had an average positive migration, whereas the high-tax states had negative migration. Basically, that means people are leaving the high-tax states for the low-tax states (a phenomenon described in a prior Opportunity Lives article).
The report shows a “very encouraging” trend for state tax policy, said the authors. “It appears the nationwide move in the states toward lower taxes is continuing, with more governors understanding that tax cuts mean greater economic growth and that providing a more business-friendly environment will result in more job creation and opportunity for their residents, as well as a broader tax base to fund state government.”
For individual descriptions of each state’s proposals, the report can be accessed at ALEC’s website. Color-coded maps provide helpful descriptions of each state’s economic competitiveness.