Debunking Myths that Taxes Undermine Economic Growth

One reason states are readily raising revenue as an alternative to more cuts is that they can turn to a wealth of examples to debunk the rhetoric that raising taxes to fund services in a state is harmful to the economy. 

Taxes Do Not Undermine State Economic Growth: As we've highlighted in previous Dispatches, research consistently shows that, contrary to right-wing rhetoric, there is no link between tax increases and job loss.

- States with higher personal income tax rates experienced significant job growth in the past decade, as the Fiscal Policy Institute and Center for Working Families point out in their report, Back on Track and as the Center on Budget and Policy Priorities found in a similar report.
- Moreover, according to a 2008 Information Technology & Innovation Foundation analysis, states with some of the higher marginal income tax rates, including New York and Maryland, have more innovative new economy industries. Likely as a result of larger investments in infrastructure, education, and technology, these states are better suited to foster economic growth that is sustainable and well-paying in an increasingly fierce global competition for jobs.
- This builds on analysis by the Institute on Taxation and Economic Policy (ITEP) detailing that states that collect the highest percentage of personal income in taxes actually sustain higher income growth.
- Similarly, an older study by the California Budget Project (CBP) analyzed state economies and concludes, "[s]tates that enacted large tax cuts between 1994 and 2001 – reducing revenue by at least 7 percent – subsequently experienced weaker growth in jobs and personal income and larger increases in the unemployment rate, on average, than other states."

Progressive Taxes Don't Cause Out-Migration of Wealthy Residents: Opponents of progressive income tax reform like to argue that tax increases cause wealthy residents to leave a state. In fact, states that have increased the top rate in recent years have not experienced any significant out-migration of wealthy residents:

- California: The California Budget Project found that there was a significant growth in millionaire households after California passed higher PIT rates in the 1990s and again in 2004. In fact, the number of California millionaires increased by 37.8 percent between 2004 and 2006.
- New Jersey: A Princeton University report discovered that the passage of a higher top rate in 2002 had "little effect on migration patterns among half-millionaire households."
- New York:  After the state temporarily raised income taxes on the wealthy from 2003 to 2005, the number of high income tax returns grew 30 percent, from 250,000 to 325,000.

A New York Times article, entitled "Taxes Not Seen as Making the Rich Flee New York" succinctly articulates:

There is surprisingly little evidence to support the proposition that rich New Yorkers would bolt if forced to pay higher income taxes.  Though tracking the movement of wealthy taxpayers from state to state is difficult, experts on public finance and migration say they have yet to document a substantial 'rich drain' in states that have raised income taxes in recent years.