10.25.2012 1

The Reality Of Higher Taxes On Income Is An Ugly One

NRD Editor’s Note: This column originally appeared at Forbes.com.

By Howard Rich — As politicians hunt for votes in the final days before this November’s elections, they would be wise to take a look at fresh data proving the efficacy of income tax relief as an economic stimulant.  More than any other government levy, the income tax is directly linked to the health of the economy – with lower marginal rates promoting growth and higher ones inhibiting it.

This bedrock free market principle was reaffirmed this month in the form of a new study from economists Arthur Laffer and Stephen Moore examining state income tax rates.

First let’s look at the raw numbers – compiled by Laffer and Moore using data provided by the Bureau of Economic Analysis, U.S. Census Bureau and Bureau of Labor Statistics.

With regards to popular migration Laffer and Moore found the nine states that do not levy any individual income tax saw their populations expand by an average rate of 13.9 percent during the most recent decade (2001-10).  That’s significantly higher than the national average of 8.8 percent.  Meanwhile the nine states with the highest income tax rates saw their populations expand by an average of only 5.5 percent.

On the productivity front, the nine “no income tax” states posted average increases in gross state product of 56.1 percent from 2001-10 compared to 45.4 percent nationally and 41 percent for the nine highest-taxed states.

Want jobs?  Despite a major recession at the end of the decade, America’s nine “no income tax” states saw their non-farm payrolls expand by 5.5 percent from 2001-10 – well above the average national increase of 0.6 percent.  The nine highest-tax states?  Their employment actually shrank during the prior decade – by 1.6 percent on average.

These diverse metrics all point to the same unmistakable conclusion: Lower income taxes stimulate the economy, higher income taxes limit its growth.

Get full story here from Forbes.com.

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