Lawmakers are seriously considering cutting or even repealing the personal income tax in at least ten states: Indiana, Kansas, Louisiana, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, and Wisconsin. One of the most common arguments for these tax cuts is that they’d encourage small businesses to grow and create jobs, since most small firms pay taxes on their profits under the personal income tax.
In reality, personal income tax cuts would likely be counterproductive, as my new paper explains. They are a very poor way to stimulate job creation among small businesses, and, by weakening state revenues, they impair states’ ability to provide the educated workforce, well-maintained roads and bridges, and adequate police and fire protection that businesses demand.
In short, cutting state income taxes in the name of boosting small business job creation and entrepreneurship represents a quintessential violation of the “first, do no harm” principle.