Tax Reform Sweeps the States

February 12, 2013

By Casey Given

American workers were shocked to see their paycheck last month, with the federal payroll tax rising to its previous rate of 6.2%. Just when income-earners could have used relief to survive these tough economic times, Washington leaves them with less to support themselves and their families. This negative effect of taxation ripples throughout the economy, as individuals save, spend, and invest less in the private sector, slowing down the engine of prosperity.

Fortunately, the states are becoming conscious of Washington’s recklessness and choosing a different path. This legislative session, numerous states are considering comprehensive tax reform – including North Carolina, Indiana, Kansas, Louisiana, Nebraska, Ohio, and Wisconsin. Americans for Prosperity applauds the governors of these states for recognizing the imperative of a competitive tax climate and urges residents to hold their elected officials accountable for following up words with action.

Although tax reform ideas floating around these states are not perfect, five are focused on reducing the personal income tax to pave the way for greater prosperity. Indiana, Ohio, and Wisconsin plan to reduce this burdensome tax while North Carolina and Louisiana seek to eliminate it altogether. Such a move would have tremendous positive effects on both residents and businesses within each respective state’s boundaries.

Contrary to popular belief, the personal income tax is levied not just on individuals but the majority of businesses as well. Thus, by levying high state income taxes onto the federal government’s unbelievable top rate of 35%, states leave not only its residents with less to provide for themselves but its businesses with less jobs to provide to its residents – an economic double whammy.  This impact of course hits those in society who are the most vulnerable.  As businesses have less to hire and invest with, workers and suppliers feel the pinch worst.

The negative effect of burdensome taxation is indisputably seen in the economic growth of high- and low-tax states. Since 1941, the Tax Foundation has annually ranked states on the competitiveness of their tax climate. Comparing the economic growth of the ten most competitive and least competitive states from the Tax Foundation’s ranking paints a clear picture of what fiscal strategy is best for prosperity.

Using government data from the Bureau of Labor Statistics, Census Bureau, and Bureau of Economic Analysis, the numbers show that the ten most competitive states grew faster than the ten least competitive from 2001 to 2011 by:

  • 36% in personal income
  • 58% in real gross domestic product
  • 142% in population

Most tellingly, the ten most competitive states gained 1,199,100 private sector jobs over the same time period while the ten least competitive lost 760,200. The economic evidence undoubtedly rests on the side of providing relief to overburdened individuals and businesses.

At the end of the day, tax relief is not just numbers but people’s lives. By following through with their proposed tax reform, the elected officials North Carolina, Indiana, Kansas, Louisiana, Nebraska, Ohio, and Wisconsin will allow its residents to better provide for themselves and their families as well as attract more citizens and commerce to their state. Hopefully Americans beyond these seven states will follow suit and demand that their elected officials respect their right to keep their heard-earned money to improve their lives as they see fit.

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