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It’s The Income Tax, Stupid

WANT A REAL ECONOMIC “STIMULUS?” THIS THIS IS THE TAX POLITICIANS NEED TO CUT … 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…

WANT A REAL ECONOMIC “STIMULUS?” THIS THIS IS THE TAX POLITICIANS NEED TO CUT …

Howard Rich

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.

Certain left-leaning researchers contend that this correlation between economic growth and low income tax is merely “coincidental,” but there is data supporting this fundamental linkage dating back several decades. In 2001 for example Ohio University economist Richard Vedder published research which revealed that between 1990-99, three million Americans voted with their feet – moving out of states that levied income taxes and into states that didn’t.

Vedder also conducted extensive research on state income levels dating all the way back to 1957, concluding that personal income growth was more than twice as high in states that didn’t raise their income taxes (or raised them only marginally) compared to states that enacted larger income tax hikes.

“The income tax is the champion of bad taxes, in terms of its destructive effect on people, prosperity and their economic well-being,” Vedder concluded.

High income tax rates choke off economic growth on two key fronts – consumer activity and small business expansion. Taxpayers have less disposable income to pump into the economy while small businesses, the primary drivers of job creation in our national economy, have less money to invest in hiring. It’s a double whammy – and there’s no amount of “fair share” class warfare rhetoric that can explain it away.

Consider this: The U.S. Joint Committee on Taxation recently concluded that the 3.5 percent of American taxpayers who report annual business income over $250,000 a year – i.e. those who would see their tax rates increase under Barack Obama’s plan – generate 53 percent of all small business income in America.

This isn’t just about taxing wealth, though. According to a recent Ernst & Young study, 54 percent of Americans are currently employed at companies whose owners file taxes individually. Is it really that difficult to imagine the economic carnage that would follow from raising their marginal rates?

“Taxing rich people and giving the money to poor people will increase the number of poor people and reduce the number of rich people,” Laffer and Moore conclude. “The dream in America has never been to make the rich poorer. It has always been to make the poor richer. The best form of welfare is a good, high-paying job, and the best tax for creating jobs is a low-rate flat tax.”

Indeed – and the further our politicians move us away from this demonstrable reality (as Obama continues to do) the further they move us away from prosperity.

***

Howard Rich is chairman of Americans for Limited Government. He is also a syndicated columnist for Liberty Features. This piece – reprinted with permission – was originally published by Forbes.

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20 comments

Torch October 25, 2012 at 8:42 am

And he probably only watches Fox News.

Reply
L I'll Be October 25, 2012 at 9:08 am

What Torch said! Or HR is the economic adviser to Fox.

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Colin October 25, 2012 at 9:10 am

And que the hatred against Howard Rich with very little comments on the actual post….

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Upstater October 25, 2012 at 9:56 am

“Queue.” Idiot.

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tomstickler October 25, 2012 at 11:35 am

“Cue”

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tomstickler October 25, 2012 at 9:15 am

Like Laffer was so correct with his infamous “curve” and that whole “supply side economics.”

This is just as much misinformation as Romney’s promise that the 1% will continue to pay the same share of taxes. When you understand that his plan will give even more of this nation’s wealth to the top 1%, that does not sound like a fair deal. If you are not in that top 1%, your same share of the taxes will have to be paid out of your smaller share of the wealth.

Rich’s factoid about “the 3.5 percent of American taxpayers who report annual business income over $250,000 a year – i.e. those who would see their tax rates increase under Barack Obama’s plan – generate 53 percent of all small business income in America” is true only because so many people making really big bucks take advantage of IRS rules and classify themselves as an “S Corporation.”

That technically makes them “small business” in more ways than one, since many have only one employee — themselves.

The vast majority of truly “small businesses” that actually have employees make less than $250,000/year.

This is just another propaganda attempt to sway the base of the Republican Party — the common uninformed voter.

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Smirks October 25, 2012 at 9:22 am

Why does the study only highlight the states with high income taxes and the states with no or low income taxes? Give me the raw data on all 50 states, in a table that can be sorted based on these figures, and I bet there will be plenty of both types at the top and at the bottom.

I love how income tax is the only factor that matters in any of these stats that Laffer and Moore tout and ALEC parades around. Gee, I wonder why Texas does so great? Can’t be the oil industry. I wonder why Florida does so great? Can’t be the tourism industry. I mean, it just has to be taxes! Clearly eliminating state income tax (despite that meaning taxes are just taken from you elsewhere) will suddenly result in the instantaneous, miraculous creation of an industry powerful enough to drive SC’s economy out of the gutter!

High income tax rates choke off economic growth on two key fronts – consumer activity and small business expansion.

If you want to spur consumer activity and small business expansion, cut taxes for the middle class and small businesses. If you want that to be revenue neutral, shift the burden you are lifting off those entities on the rich and large corporations. I’m all for helping the little guy, and Howie, you are not by any means the “little guy.”

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Isotope Soap October 25, 2012 at 10:04 am

Howard The Duck once again misleading his (cough) readers.

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? October 25, 2012 at 10:21 am

“If you want to spur consumer activity and small business expansion, cut taxes for the middle class and small businesses. If you want that to be revenue neutral, shift the burden you are lifting off those entities on the rich and large corporations.”

You’ll never get the “rich and large corporations” in your net.

They will payoff whoever is in power to get their breaks(rich people/companies don’t just support Romney, they support Obama too to hedge their bets), whether it’s Dems or Repubs. They will use their army of tax specialists and attorneys to do the “Dutch Sandwich to the Double Irish”, the offshore Cayman’s, etc. et al…

You’ll never stop it. If you get draconian enough then they will pick up and move. It’s pie in the sky fantasy land to think you are going to subjugate the rich to any kind of higher tax rate in the big picture.

If you want to spur growth-you are right Smirks-you need to lower taxes for the middle class, but it’s best to scale back gov’t to do so-and fight over what programs are kept between the Dems and Repubs.

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Disingenuous (sp?) October 25, 2012 at 10:48 am

So this is a great study for…I don’t know…encouraging Mexicans and Canadians to move to USA? News flash, state income tax differentials work because if you move to Florida, you are still in the United States…technically speaking of course.

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LD October 25, 2012 at 11:27 am

You can cherry pick statistics to get any answer you want. Bottom line– What Clinton did worked, what Bush did didn’t work. Obama never had a chance when the main platform of the Republican Party was to make him a one term President.

It is also interesting when you look at the “business friendly” states– most of the top 10 are “BLUE” states and most of the bottom 10 are “RED” states. What does that tell you?

The GOP (Greedy Old People) is out for themselves only. They have not yet figured out that it isn’t a “trickle down” economy, it is “flow up” economy.

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south mauldin October 25, 2012 at 11:52 am

Excellent post.

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? October 25, 2012 at 12:01 pm

Speaking of cherry picking, I could change your line to this as well:

“Bottom line– What Reagan did worked, what Obama did didn’t work.”

Around 50% of the people reading that statement would nod thier heads in approval.

Less than 10% would go outside the painted lines and say “What Clinton and Reagan did sacrificed future generations economically.”

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LD October 25, 2012 at 2:08 pm

You’re right what Reagan did worked, what Obama did didn’t work. But Reagan had Democrats that were willing to work with him. Obama had Republicans that were not willing to work with him. When Obama agreed with the R’s on anything, the R’s “anything” changed.

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? October 25, 2012 at 2:19 pm

I think you missed the point of my reply, but it’s all good.

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LD October 25, 2012 at 3:09 pm

gothcha

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Guero October 27, 2012 at 11:20 am

I’m glad to see the wingnuts here recognize Uncle Ronnie raised taxes in still the biggest tax increase in US history.

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? October 27, 2012 at 9:42 pm

Actually, I was referring to deficit spending. But if you want to obfuscate, feel free, it just makes you the wingnut-no one else:

dailycaller.com/2012/06/06/ronald-reagan-raised-taxes-11-times-the-real-story/

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BIN News Editorial Staff October 26, 2012 at 5:07 pm

Howard Rich (better known as Howie the Voucher Clown) only gets his silly essays posted on this sad little porn site because sic(k) willie needs to earn the voucher scam money Howie sends him from time to time.

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Guero October 27, 2012 at 11:21 am

I just wish Howie would tell Billy Folks to wipe his chin the next time Billy services Howie…just saying…

Reply

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