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Big Cuts in State Income Taxes Not Yielding Promised Benefits

UPDATED
February 21, 2018

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:

Economic Growth Remains Weak

All five states have seen slower growth in private-sector gross domestic product than the United States as a whole since their tax cuts took effect. And four of the five states — all but North Carolina — have seen slower private-sector job growth than the United States over the same period.

Lackluster Performance Is Consistent with Past Experience

States that tried tax cuts in earlier decades didn’t see their economies surge as a result either. For instance, states that cut taxes the most in the 1990s saw much slower average annual job growth during the next economic cycle than states that were more prudent.

Results Follow Academic Evidence

The lackluster results in states that have tried tax cuts to spur economic growth is consistent with most of the academic literature, which finds — after controlling for a variety of other factors — no correlation between lower state personal income taxes and economic growth.

 

End Notes

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, and CBPP, “State Personal Income Tax Cuts: Still a Poor Strategy for Economic Growth” (https://www.cbpp.org/research/state-budget-and-tax/state-personal-income-tax-cuts-still-a-poor-strategy-for-economic).