In 1912, Mississippi became the second state in the union to levy a personal and business income tax (after Wisconsin). By 1940, 33 states had an individual and/or corporate income tax.
Fast-forward 100 years.
In 2014, Mississippi’s business climate was ranked 37th out of the 50 states. The state improved only one position since 2013.
Republican leaders in the state of Mississippi are responding to the state’s negative standing. They have entered into a spirited competition over tax policy this legislative session. But take note: This isn’t the typical pro-tax versus anti-tax clash. The pivot to creating pro-growth tax policy came late in 2014, just before the start of the 2015 legislative session, from Governor Phil Bryant. His relatively modest tax cut proposal, which called for a $79 million tax cut for families earning less than $50K annually, would only apply in years when the state sees revenue grow by at least 3 percent.
The states aren’t waiting for the federal government to come to terms on tax reform. According to last Friday’sWall Street Journal opinion piece by Stephen Moore, there are at least 20 governors who are moving forward with pro-growth tax reform initiatives this year.
Moore (who is chief economist at the Heritage Foundation and the co-author, along with Arthur Laffer, Travis H. Brown, and myself, of “An Inquiry into the Nature and Causes of the Wealth of States”) highlights several such initiatives, including those in Arkansas, Illinois, Maryland, Massachusetts, South Carolina, Illinois, Maine, Tennessee, Indiana, and Nebraska.
The 21st-century path to state economic prosperity, increased wages at every income level, employer re-investment, and job creation is in fact pretty straightforward. It is not a matter of wealth redistribution; it is a matter of wealth creation. It is not about slicing up a shrinking pie; it is about creating a bigger pie through economic expansion.
The pro-growth policy path is clear: cut income taxes on small business and their workers; broaden the sales tax base; wipe out corporate loopholes and cronyism that come in the form of tax breaks for favored industries; and provide sales tax rebates or “pre-bates
to low-income households. When states grow, property taxes and sales taxes are multiplied by a growing gross state product, which in turn increases government revenue and its ability to provide more social services.
Two actions taken this week by Illinois Governor-Elect Bruce Rauner indicate that he plans make good on his pro-growth campaign promises. And Illinoisans across the state must be breathing a heavy sigh of relief.
Illinois’ state-run pension plans are quite simply bleeding the state dry. Illinois’ pension debt now is well over $100 billion. According to an Illinois Policy Institute (IPI) report released this week, the state contributes the equivalent of up to 127 percent of its state employee salaries just to meet the defined-benefit pension systems’ obligations. In the average private sector, where employers have shifted to defined-contribution plans, the employer contributes the equivalent of 9 to 10 percent of a worker’s salary each paycheck.
Last week, the Kansas Department of Labor and the U. S. Bureau of Labor Statistics (BLS) released October 2014 jobs and earnings reports that are sure to galvanize the nationwide push for sensible state tax policy.
In the two years since Kansas’ tax-reform measures went into effect, the promises of Governor Sam Brownback’s administration are becoming a reality. I challenge tax-and-spend naysayers to dispute the following facts:
- 8,400 seasonally adjusted non-farm jobs have been added since September;
- Workers saw their earnings grow by 3.3 percent in a year; and
- The Sunflower State’s unemployment rate is now 4.4 percent, down from 5.2 percent a year ago.
Last week, voters across the country sent a powerful message by electing (and re-electing) pro-growth leaders. Incumbent Republican governors Scott Walker of Wisconsin, Sam Brownback of Kansas, Rick Snyder of Michigan, John Kasich of Ohio, Rick Scott of Florida, and Paul LePage of Maine led by example by taking the long view on fiscal policies — and they were duly rewarded with the opportunity to advance their reform initiatives over the next four years. And in the blue state of Illinois, Republican candidate Bruce Rauner handily beat sitting Gov. Pat Quinn and will become the first Republican governor elected since 1998.
These are all truly extraordinary accomplishments, considering the fact that unions spent an estimated $80 million in mid-term election expenditures.
While the state-level rivalries in competitive economics may not enjoy the mass appeal of the World Series, The Voice, or Shark Tank, annual reports that rank each state’s economic position provide valuable insights for voters as we approach this Tuesday’s mid-term elections.
Each year, several national and state-based policy think tanks review fiscal policies by looking at a variety of measures, including state budgets, tax burden, growth trends, and forecasting, and then publish those results along with competitive advantage (or disadvantage) ranking systems. With about seven gubernatorial races being called as toss-ups and with 10 key state U.S. Senate races hanging in the balance, a clear analysis of one of this year’s pro-growth all-stars may help inform undecided voters.
Last week CATO Institute released its biennial Fiscal Report Card on America’s Governors, which provides some startling facts that should have voters across the country seriously considering how they vote on November 4 and in the coming years – and, quite possibly, where they will choose to live, operate their businesses, and raise their children.
With the exception of Virginia and Alaska (for reasons stated in the report),the CATO guide examines each state’s spending and taxing policies across three areas: spending, revenues and tax rates.
Tax revenue reports are tools that provide a useful, albeit narrow, snapshot of a state’s economic position each month. They are meant to be informative within a broader context of quarterly and yearly reporting instruments.
In a highly charged political environment, such as what we find in Kansas, Illinois, and a number of other primary elections across the country, short-term glimpses become highly politicized. As we approach the November election cycle, voters need to take into consideration the preponderance of evidence that shows that states with long-term, pro-growth tax policies perform better across all measurable indicators than high-tax, big government states.