A common myth about state tax policy is that income tax cuts don't benefit economies. Evidence from the states speaks loudly to the contrary. Tax policies play a huge role in shaping economic performance and determine whether a state will prosper or fall behind.
The real gross domestic product figures from 2000 to 2010 make the case for low income taxes. During that decade, economies in the nine states with no personal income tax grew by 26 percent — well above the national average of 19 percent. The nine states with the highest income taxes grew by only 17.8 percent. By nearly every economic measure, low-tax states perform much better than high-tax ones.
High taxes don't just redistribute income — they redistribute people. Americans are increasingly mobile and vote with their feet. They choose where to live, spend and invest based on the tax climate. It's no coincidence that, as a group, the nine states that have no personal income tax enjoyed a positive net domestic migration over the nine states with the highest personal income tax — every year. From 2000 to 2010, population in the no-tax group of states grew nearly three times faster than in the high-tax group.
Consider Maryland, which enacted a special tax on millionaires in 2008. As a result, high-income residents left Maryland in droves and they took their tax revenues with them. In the wake of the tax increase, Maryland saw a 33 percent decline in tax returns from millionaire households, and it lost $1 billion of its net tax base from residents moving to other states. Oklahoma should not repeat Maryland's mistake.
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