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.
Although our top income tax rate in Oklahoma, at 5.25 percent, is in the middle of the pack, we face tough competition from our neighbors. Colorado and New Mexico assess lower income taxes (4.9 and 4.63 percent, respectively) and Texas doesn't have one at all. Given their low tax burdens, it's unsurprising that these states have grown faster than Oklahoma over the past decade.
Two other border states are full steam ahead in their tax reforms. Kansas consolidated its tax brackets and cut the top personal income tax rate from 6.45 to 4.9 percent, while Missouri aims to cut its income tax entirely, replacing it with a broad-based sales tax.
States don't enact policy changes in a vacuum. To behave as if they do makes Oklahoma look less competitive. If we don't address our high income tax burden here in Oklahoma, we risk falling behind our lower-tax neighbors.
Our lawmakers in Oklahoma City would be wise to ignore politically charged calls to raise taxes on top earners and instead focus on creating a welcoming environment for economic growth. Oklahoma could benefit economically — and, consequently, attract more tax revenue — if we fostered a low-tax environment that allows people and businesses to keep more of their hard-earned money. It's common sense!
Jolly is Oklahoma state director of Americans For Prosperity.