How State and Local Taxes Affect Economic Growth
This study finds that state and local taxes (expressed as a fraction of personal income) over the period 1957 to 1987 had a major impact on state economic growth.
This study finds that state and local taxes (expressed as a fraction of personal income) over the period 1957 to 1987 had a major impact on state economic growth.
Prior to the 1980s, most people assumed that if governments raised tax rates they would collect more total revenue from taxpayers. We now have dynamic evidence from the United States that a decrease in tax rates can lead to larger revenues.
This year 25 states — leb by California, Massachusetts, New Jersey, and New York — have approved roughly $10 billion in new taxes, making 1990 the second-largest state tax increase year on record. No state cut taxes significantly.
In budget summit negotiations, the President and Congress originally had agreed in principle to reduce the federal deficit by $50 billion next year and $500 billion over the next five years. About half of the first year's reduction was to come from reduced spending and the other half from increased taxes. Events in the Middle East and an apparent economic recession, however, have caused many to question the wisdom of any tax increase at this time.
Last year the House passed a capital gains tax cut which subsequently died in the Senate. The Joint Committee on Taxation (JCT) prediceted the bill would reduce federal revenues by about $60 billion over the next decade. The National Center for Policy Analysis predicted the bill would increase federal revenue by $60 billion. Congressional opponents of a capital gains tax cut agreed with the JCT. Congressional supporters agreed with the NCPA.
Lower personal income tax rates are Ronald Reagan's most significant legacy. The highest rate was 70 percent in 1980. Tax reform in 1981 reduced it to 50 percent and in 1986 to 28 percent that prevails today. Although tax rates are much lower, the federal government now collects more revenue (as a percent of GNP) than it did in 1980.
The federal government is going to subsidize child care, which approach is better: tax credits for working families or another government spending program? The current system relies on tax credits and is producing en enormous supply-side response.
Elderly taxpayers now face the highest marginal tax rates ever imposed on middle-income Americans. In some cases, elderly workers who earn a dollar will lose more than a dollar in taxes and lost Social Security benefits.
As the Administration and Congress persue deficit reduction and tax reform, America's private pension system finds itself in great jeopardy.
Whether measured in terms of investment, capital used per hour worked, or labor productivity, the performance of the U.S. economy over the past decare has been poor: