By Dr. Vance Ginn & Kiara Pillay
Several states legislatures passed tax relief last session. Those that included a substantial tax cut, whereby there was a net decrease in taxes during the budget cycle and were applied broadly and neutrally were included in the American Legislative Exchange Council’s (ALEC) latest State Tax Cut Roundupreport. Chart 1 shows the states that qualified to be included in the report.
Chart 1: States that had major tax changes in 2015
Source: State Tax Cut Roundup
Slower economic growth from higher levels of taxation is historically consistent among states. One can see this clearly by looking at the four largest states, as outlined in this Texas Public Policy Foundation report. Texas and Florida are two relatively low-taxing states, while California and New York are two of the highest.
For example, Texas and Florida don’t have personal income taxes, but California (13.3 percent) and New York (12.7 percent) have the two highest nationwide. From 1990-2014, Texas has outpaced California and New York in personal real income growth. With personal income growth of 125 percent in Texas compared with California’s 62 percent and New York’s 41 percent, it’s easy to see that a low tax environment contributes to economic prosperity.
Chart 2: Texas outperforms California and New York in personal income growth, 1990-2014
Source: State Tax Cut Roundup
Texas legislators pushed for tax reform during the last session. They ultimately voted to eliminate annual professional fees, which resemble a tax, helping about 600,000 workers save a total of more than $125 million. In addition, they passed a massive $3.8 billion dollar tax relief package. This package included a reduction in the business franchise tax, also called the margin tax, and an increase in the homestead exemption for school districts to provide some property tax relief.
Finally, Texas Legislators eliminated or reduced misleading taxes that were previously labeled fees. These fees made it difficult to enter professional fields. Some examples of these taxes include delivery fees of petroleum products and elimination of multiple $200 professional licensing fees.
Overall, Texan’s will have about $4 billion more dollars in their pockets during the 2016-17 budget period by this tax and fee relief. With more money in their pockets, Texas is sure to experience greater economic prosperity than otherwise.
It’s nice to see Texas made it in the ALEC report this year. Let’s make sure that it’s in there again after the 2017 Legislature by continuing to put the margin tax on a path to elimination.
Found here: http://www.texaspolicy.com/blog/detail/texas-makes-it-in-the-state-tax-cut-roundup-after-major-tax-relief
Vance Ginn, Ph.D.
Free market economist with leanings towards Chicago and Austrian schools of economics. Hard rock drummer. Classical liberal. First gen college graduate at Texas Tech. Hometown H-town. Work at TPPF to find ways to let people prosper. Live the dad life in Round Rock, TX. Views=mine.