Editor’s Note: When considering economic issues, it is important to stick to the facts. An emotional argument about income inequality might seem like a strong case for a progressive tax, but if that tax is shown to be a hazard to economic growth then it is important to look past emotion and focus on the course of action that actually helps people.
Do states do better economically in a higher or lower tax environment?
Everyone has a gut reaction to this question, as does every governor – especially those with relatively high and low taxes.
. . .
But what are the actual facts?
The Mercatus Center, a research center at George Mason University, recently completed a comprehensive study on state economic prosperity and taxation. Its key findings:
- Higher taxes reduce economic growth. A 1% increase in taxes results in a 1.9% decrease in growth.
- Taxes impact where people live. People move to states with lower rates and leave those with higher ones.
- Income tax progressivity (higher rates as income increases) affects new firm creation.