February 9, 2012

ALEC claims that low tax states grow faster

http://blogs.kansas.com/gov/2012/02/07/experts-and-advocates-diverge-on-tax-policy/

Not sure what metric they are using - perhaps total state GDP, but a bigger GDP does not help if it does not outpace population growth.

So I looked at per capita GDP over the last 30 years. There are nine states with no income tax, the ones that ALEC just loves - Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming. This site has per capita income from 1980 to 2010 by state.
http://www.infoplease.com/ipa/A0104652.html

For comparison, I used Kansas, Connecticut, Iowa, Nebraska (which Brownback claims has the highest taxes in the region), Missouri, Massachusetts, Vermont, and three states with the most progressive taxes, according to ITEP - Delaware, DC, NY

Ranked by growth rate over the last 30 years.

DC - 479.9%
Mass - 410.26
Vermont - 406.3
Conn - 385.6
NH - 381.8
NY - 379.6
TN - 357.9
Nebraska - 344.7
Wy - 334.3
SD - 334.2
Wash - 324.8
Fl - 324.8
Mo - 319.6
Tex - 318.4
Iowa - 314.9
Kansas - 302.2
Del - 297.3
Nev - 241.1
Alaska - 239.6

Note that Taxachusetts is near the top and Vermont out-prformed its lower tax neighbor. Nebraska, with the highest taxes in the region, out-performed all of the tax free states except two. Higher tax states like Connecticut and New York significantly out-performed lower tax states like Texas, to say nothing of the dismal performances of Nevada and Alaska.

If you just look at the last decade, Alaska fares better, but then, so does Kansas.

DC - 82.9%
Wy - 74.8
Vt - 50.0
Alaska - 49.0
Kansas - 45.2
Iowa - 44.8
Ne - 43.2
Tex - 42.3
Fl - 41.5
NY - 40.7
Wa - 39.5
Mass - 38.9
Conn - 37.6
Tenn - 36.1
Mo - 35.9
NH - 32.9
SD - 30.5
Del - 28.9
Nev - 25.4

Again, some lower tax states are near the bottom, and some higher tax states, including Kansas and Nebraska and Iowa grew faster than Texas, Florida and Tennessee.

Looking at some other metrics, like poverty rates, since a higher per capita income may not be shared with the poor in some places like Washington DC, which has a shameful poverty rate of 21.3% in spite of having a per capita income of $71,044, far more than the next nearest state, Connecticut at $56,001, buit a 9.3% poverty rate. Kansas' poverty rate is not good, being higher than all of the tax free states except Texas and Tennessee. Still, Texas is the state Brownback wants to emulate, with a 16.2% poverty rate to 12.5% for Kansas.

Nebraska's high taxes apparently help to alleviate poverty since their 9.5 poverty rate is better than all of the tax free states except New Hampshire which has an amazing 5.6% poverty rate.

Texas has, of course, experienced massive population growth, over 110% between 1960 and 2000 while Kansas only grew by 23% over the same four decades, but having more people does not necessarily improve the quality of life. Texas population growth probably has more to do with its proximity to the Mexican border than it does to its tax policies. Its tax policies are similar to South Dakota, my home state that I had to leave to find work. Wiki writes of SD

"South Dakota, in common with other Great Plains states, has been experiencing a falling population in many rural areas over the last several decades, a phenomenon known as "rural flight" as family farming has decreased. This trend has continued in recent years, with 30 of South Dakota's counties losing population between the 1990 and the 2000 census.[84] During that time, nine counties experienced a population loss of greater than 10%, with Harding County, in the northwest corner of the state, losing nearly 19% of its population.[84] Low birth rates and a lack of younger immigration has caused the median age of many of these counties to increase. In 24 counties, at least 20% of the population is over the age of 65,[85] compared with a national rate of 12.8%.[72]

The effect of rural flight has not been spread evenly through South Dakota, however. Although most rural counties and small towns have lost population, the Sioux Falls area, the larger counties along Interstate 29, the Black Hills, and many Indian reservations have all gained population.[84] Lincoln County near Sioux Falls is the ninth-fastest growing county (by percentage) in the United States.[86] The growth in these areas has compensated for losses in the rest of the state,[84] and South Dakota's total population continues to increase steadily, albeit at a slower rate than the national average.[72]"

Wiki also says "As of 2005, South Dakota has the lowest per capita total state tax rate in the United States". And yet their growth rate for the last 30 years is still slower than Nebraska and their per capita income is about $6,000 (about 17%) less than Kansas.