MIDLAND, Texas – A new study unveiled in Midland finds that an income tax would be a drag on Texas’ economy, and suggests that reliance on sales taxes and user-fees will harm economic growth the least.
“During the 1990s, almost 3 million people moved from states with incomes taxes into states without income taxes. That means that excepting Sundays, some 1,000 people moved into states without income taxes every day for nine years,” said economist Richard Vedder, Ph.D, referring to his new study for the Texas Public Policy Foundation.
Vedder, a former economist for the congressional Joint Economic Committee, finds that keeping the tax burden low is the most critical economic priority, but that the “wrong” tax can seriously reduce the growth of jobs and personal income. He found that real personal income growth was more than twice as high in the states raising taxes the least (or not at all), compared with the states with the biggest increases in tax burden. Further, the increase in tax burden was three times greater in states enacting an income tax within the last forty years compared to states with no income tax, Vedder finds.
“While the income tax has the most economically adverse effects, property taxes are not far behind,” said Vedder, noting that sales taxes are less economically harmful. “Lawmakers should tell those who advocate new or increased taxes: Don’t mess with Texas!”
TPPF president Jeff Judson told supporters and friends in Midland, Texas, where the findings were announced, that state leaders must recognize that there must be limits on state spending.
“People who feel the state must raise taxes to meet human needs in the state are overlooking the mountain of research showing that a tax increase will actually increase human misery, not reduce it,” said Judson. “Texas has weathered the national economic downturn in part because our business climate is so good. We shouldn’t sabotage ourselves by doing the two things we know will destroy growth: raise taxes or implement an income tax.”
Dr. Vedder’s study includes four “Principles to Live By” for tax policy decision-making:
- Keep the overall tax burden low.
- Make relatively heavy use of sales and other forms of consumption taxation, and make little or no use of income taxation. States without an income tax should under no circumstances create one. Try to keep property tax burdens moderate as well.
- De-emphasize federal grants-in-aid, and do not increase local spending to “match” federal funds.
- Charge user fees directly to those who use governmental services.