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Fact Sheet: Big Cuts in State Income Taxes Not Yielding Promised Benefits

March 25, 2015

Five states  —  Kansas, Maine, North Carolina, Ohio, and Wisconsin — have cut personal income taxes by large amounts in recent years in hopes of boosting their economies. Here are the results so far:

Job Growth Remains Weak

Four of the five states  —  all but North Carolina — have seen slower private-sector job growth than the U.S. as a whole since their tax cuts took effect. That’s not surprising: the heavy majority of recent studies by economists find that state personal income tax levels are insignificant to economic growth.

Little Reason to Think Things Will Improve

All five states project personal income growth slower than U.S. growth over the next three years.

They Could Get Worse

By shrinking state revenues, the tax cuts contribute to problems that can harm state economies over the long term, including cuts in education funding. Four of the five states — all but Ohio — are among the ten states with the deepest cuts in general K-12 funding since the recession hit.

3 Reasons Why Personal Income Tax Cuts Are an Ineffective Strategy for Economic Growth

1. States have to balance their budgets so must pay for income tax cuts by raising other taxes or cutting funding for schools and other services. These actions can slow the economy. 2. For the fastest-growing firms, the quality of local workers matters far more than taxes. Cutting taxes at the expense of schools and colleges can make a state less attractive to these firms. 3. The vast majority of people who get a tax cut are in no position to create a job. Fewer than 3 percent of income taxpayers nationally own a business that hires other people.

Source: Bureau of Labor Statistics, state economic forecasts, and CBPP, “Most States Still Funding Schools Less Than Before the Recession” (http://www.cbpp.org/cms/?fa=view&id=4213).