States, Taxes, and Growth

In a recent Wall Street Journal online column on CBPP’s new income inequality report, Robert Pollock writes incorrectly about one of our recommendations for reducing inequality:  reforming state tax systems so that low-income people no longer pay a larger part of their income in taxes than the wealthy.

Mr. Pollock contends that there are “mountains of empirical data showing more job creation in states that tax and regulate lightly” and further argues that “high” taxes slow growth.  In reality, studies find that the effect of state taxes on economic growth is typically quite small.  State spending on education, infrastructure, highways, and public health matter at least as much as taxes in determining economic growth rates.

Prolonged growth in income inequality is a serious problem.  States deserve accurate information as they weigh various steps to counteract it.