Taxes are as inevitable as death. Yet, in nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), residents are not paying a dime in income taxes on their wages. And, contrary to the howls of big government advocates, it seems to be working for those states’ economies by creating a better business climate. As we prepare for the release of the Mid-Biennial Review bill, it is expected that Gov. Kasich will take a step along the path toward elimination of Ohio’s income tax, which will be a good thing for Ohio if done in the appropriate way.
A look at “Rich States, Poor States,” the annual report compiled by economists Arthur Laffer, Stephen Moore, and Jonathan Williams, shows not only which states are performing the best economically, but projects their economic performance out into the future by analyzing public policy on a state-by-state basis.
The empirical evidence presented in the report shows that, in the case of state income taxation, less accomplishes more. The nine states without an income tax on wages (two of the nine tax certain non-wage income) were rated economically on a scale from 1-50, with 1 being the best, as follows:
- Texas: 1
- Nevada: 2
- Wyoming: 4
- Alaska: 8
- Washington: 10
- Florida: 14
- South Dakota: 16
- Tennessee: 23
- New Hampshire: 32
Of the nine states with no income tax, only one of them was ranked below 25, and five of them were ranked in the top ten. Ohio, on the other hand, fared much worse than any of them with a score of 49.
While rankings shift over time, they do raise legitimate questions about wider and more general trends. Why would people move to Ohio if they could choose to move to one of nine states where they would not pay income tax on their wages?
Higher income-tax states, like Ohio, which also has the additional burden of municipal income taxes, are hemorrhaging residents, and non-income tax states are experiencing population booms and the affiliated positive economic benefits that correspond thereto. The states without an income tax are simply more competitive and gaining more residents and, ultimately, jobs as a result.
The abolition or decrease of income tax can actually produce tax revenue growth. In fact, according to Arthur Laffer, the states without an income tax actually have higher levels of tax revenue growth than the average of the highest income tax states.
Richard Rahn of the Cato Institute contends that moving away from the income tax is a step that can move a state toward a less intrusive, more economically friendly tax system that will help a state’s relative competitiveness.
“Income taxes, as contrasted with consumption (i.e., sales) taxes and modest property tax rates, are far more costly to administer and do far more economic damage (by discouraging work, saving and investment) and are far more intrusive on individual liberty.”
While other factors besides income taxes play a role in determining a state’s overall economic climate, it is clear that once the burden associated with income taxes is lifted, history has shown that the economy benefits. Ultimately, this economic growth benefits taxpayers as well. If nine other states can do it successfully, it is time for Ohio to make itself number ten, and reap the resulting economic rewards (job growth, businesses relocating here, and an influx of residents) that we desperately need to climb up from our current position.