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Tax Competition Among States Boosts Growth

February 1, 2013 by Matthew Denhart

There’s a major tax competition underway in the states. We’ve been covering it for over a year now at the 4% Growth Project, and the national media are catching on. The latest evidence is a lead New York Times article by reporter Richard Stevenson chronicling the efforts of several governors to slash their states’ respective income taxes. The most recent tax announcements come from Gov. Bobby Jindal of Louisiana and Gov. Dave Heineman of Nebraska, who both hope to eliminate their state’s individual and corporate taxes this year. But Louisiana and Nebraska are just the most recent examples of how competition is forcing the states to take action on taxes. Already nine states levy no state income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. And last year states like Kansas, Maine, Ohio, Oklahoma, and North Dakota all reduced their state income tax rates, many with goal of eventually phasing the income tax out completely. This is consequential because tax reform is one sure way to boost economic growth. As Stevenson notes in his NYT article, “these governors are taking small first steps into a debate over what kind of tax system most encourages growth in a 21st-century economy.” That is the exact message we have been articulating over the past year at the Bush Institute. Indeed, in 2012 we hosted two major conferences on the topic of tax competition and economic growth. The first conference, held during tax week in New York City, convened five governors — Chris Christie (NJ), Sam Brownback (KS), Mary Fallin (OK), Bill Haslam (TN), and Paul LePage (ME) — who shared with us the imperative of maintaining a competitive tax system. When a state becomes uncompetitive on taxes, people and businesses move away and the state’s growth suffers. Our second conference was held in September in Chicago, Illinois. Illinois provides an example of what can happen to a state when it ignores tax competition for too long. Sadly, the Prairie State today has the 11th worst state and local tax burden in the country and ranks 48th in terms of economic performance. The state loses approximately one resident to out-migration every 10 minutes. Many of those people are moving to states like Indiana that offer a more friendly tax climate and stable fiscal situation. As Mitch Daniels — who was Indiana’s governor at the time — delivered the conference’s keynote address, it was clear to all that Illinois could learn a few lessons from its neighbor to the east. In the NYT article, Glenn Hubbard — former chair of the Council of Economic Advisors under President George W. Bush — is quoted as saying that the state tax battles “offer suggestions for federal tax reform, too.” As the tax debate heats up at the federal level, we hope at least one lesson Washington can learn is that when it comes to taxes, it’s all about competition … and growth.


Author

Matthew Denhart
Matthew Denhart

Matthew Denhart is an expert on immigration policy and is the author of the Bush Institute’s America's Advantage: A Handbook of Vital Immigration and Economic Growth Statistics, now in its third edition. He currently serves as executive director of the Calvin Coolidge Presidential Foundation and is a founder of the Coolidge Scholars Program which provides full-ride merit scholarships to America's most promising college students. A summa cum laude graduate of Ohio University, Denhart has written and spoken widely on a variety of policy topics including the economics of higher education, labor, and taxes. He has contributed articles to numerous national publications including The Wall Street Journal, Forbes.com, CNN Opinion, and Bloomberg View. 

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