Analysis shows that states with the highest top personal income tax rates experience faster economic growth

LAKE MARY, FL – A new report from the Institute on Taxation and Economic Policy (ITEP), “Trickle-Down Dries Up,” compares nine states that have no broad-based personal income tax to nine that have levied the highest top personal income tax rates over the past decade. The study finds that the latter group outperformed the former in measures of economic well-being.

“If there is no discernible economic advantage in having no state personal income tax, then we have to ask ourselves, what is driving economic growth in those states cited in the report? Research shows that economic growth is driven in large measure by investments in areas like education, workforce development and thriving communities. These are the things that Florida should focus on as it begins consideration of its new budget,” said Joseph F. Pennisi, executive director of the Florida Policy Institute.

The ITEP study compares Florida, Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, which have no state income tax, to Maine, Minnesota, Maryland, Vermont, New Jersey, Hawaii, Oregon, California and New York, which have an average top income tax rate of 10.01 percent.

Key findings from the report include:

• States levying the highest top personal income tax rates are experiencing faster economic growth than states without such taxes, measured both in terms of aggregate and per capita growth in gross domestic product;

• Average incomes are growing more quickly in the states with the highest top tax rates;

• Residents of states with the highest top income tax rates are more likely to have a job than people living in states lacking income taxes;

• Rapid population growth in the states without personal income taxes has not resulted in an improvement in economic well-being for the typical resident of those states; and

• States with the highest top tax rates collect an average of 7.4 percent of their most affluent residents’ income in taxes, while in states with no income tax, the rate is only 2.2 percent of income for the wealthiest residents.

“The ITEP report is especially timely as the Administration and Congress propose cuts to personal income tax and corporate tax rates on the federal level,” added Pennisi.

The Florida Policy Institute is an independent, nonpartisan and nonprofit organization dedicated to promoting widespread prosperity through timely, thoughtful and objective analysis of state policy issues affecting economic opportunity.