Nationwide Study: Higher Taxes Correlated to Lower Economic Performance

income_rates_largeEditor’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:

  1. Higher taxes reduce economic growth. A 1% increase in taxes results in a 1.9% decrease in growth.
  2. Taxes impact where people live. People move to states with lower rates and leave those with higher ones.
  3. Income tax progressivity (higher rates as income increases) affects new firm creation.

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