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Finally, some good news. In nine states and counting, residents will owe less on their next state income tax bill as local officials seek to stimulate the economic recovery by lowering taxes.
Arizona is the latest state to slash income taxes, Fox Business reports, with Governor Doug Ducey signing into law last week a “flat tax” reform that will lower the average Arizonan’s tax bill by $340. According to the Tax Foundation, the other states to lower income taxes include Ohio, Idaho, Oklahoma, Iowa, Louisiana, Missouri, Montana, and New Hampshire. Others such as North Carolina and Wisconsin are currently considering doing the same.
“Many states that are in a strong fiscal position despite the pandemic view tax reform as an opportunity to make a down payment on continued long-term economic growth and to make a name for themselves as a taxpayer-friendly state, especially given the increased remote work flexibility many employers are offering,” Tax Foundation senior policy analyst Katherine Loughead said.
Will these tax-cut-based attempts at “stimulus” be successful? To answer this question, it’s worth revisiting three reasons why state-level income tax cuts fuel economic growth.
1. Change Incentives, Grow the Pie
If you think of the economy as a pie, government programs just take slices from one person and give them to another. So, government “stimulus” programs rarely actually grow the economy overall, because the money spent stimulating one part of the economy must ultimately be taken away via taxation (direct or indirect) from another part of the economy. This typically results in a politically determined redistribution of resources, rather than a larger economy on net.
However, cutting taxes can actually grow the pie overall. Why?
Well, economics teaches us that people make decisions “on the margin.” Basically, they look at the next apple purchased or hour worked and do a cost-benefit analysis, only going through with the transaction if the benefits exceed the costs. Lower income taxes change the decision “on the margin” about working. Tax cuts increase the benefits of working additional hours—while the costs remain the same—incentivizing people to do more work.
So, the economy can produce more overall than it did before.
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2. Distribute Resources More Effectively
Another upside of tax cuts is that they free up cash for individuals to spend or invest on their own. The “downside” of income tax cuts is that the state then has less revenue to spend on government programs.
However, the benefits of the cash-freeing effect almost certainly outweigh this “downside,” because government spending is inherently wasteful and bureaucratic, as Nobel-Prize-winning economist Milton Friedman famously explained. Moreover, government spending is allocated based on political, not economic, logic. In a free market, the money invested in private hands will respond to price signals and go where it is needed most—typically finding a more efficient home than if guided by a politician’s pen.
The result overall is more money going where it’s needed in the economy, and less being lost to waste and politics. (But I repeat myself).
3. Increase Inter-State Competitiveness
At the state level, income tax cuts can grow the local economy by increasing its attractiveness relative to other states. Basically, wealthy residents and prospective business investors are more likely to relocate or invest in your state if they will face lower taxes by choosing your locale.
By lowering their taxes, these nine states will increase their competitiveness and thus grow their economy. However, they’ll still not fare as well on this front as the handful of states that have zero income taxes at all!
The Takeaway
Truly astonishing levels of fraud and waste have corrupted the government’s biggest “stimulus” spending plans during the pandemic to date. And Ivy League economic projections show that the wasteful spending plans will actually hurt the economy over the long run.
However, by lowering their income taxes, these nine states are showing us a way local governments can actually boost their economies during a downturn. That’s a lesson worth remembering the next time a recession rolls around and politicians want to confiscate and spend trillions more from taxpayer wallets.
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Brad Polumbo
Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.
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New Conservative Network Seeks Crowdfunding Help
They say we have to go big or go home. We’re trying to go big and bring the patriotic truth the the nation, but we need help.
Readers may or may not realize that over the past year, we’ve been bringing more conservative news and opinion outlets under our wing. Don’t take our expansion as a sign of riches; all of the “acquisitions” have been through sweat and promises of greater things to come for all involved. As a result, we’ve been able to bring together several independent media sites under a unified vision of preventing America from succumbing to the progressive, “woke,” Neo-Marxist ideologies that are spreading like wildfire across America.
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Most “Conservative” News Outlets Are on the Big Tech Teat
Not long ago, conservative media was not beholden to anyone. Today, most sites are stuck on the Big Tech gravy train.
I’ll keep this short. The rise of Pandemic Panic Theater, massive voter fraud, and other “taboo” topics have neutered a majority of conservative news sites. You’ll notice they are very careful about what topics they tackle. Sure, they’ll attack Critical Race Theory, Antifa, and the Biden-Harris regime, but you won’t see them going after George Soros, Bill Gates, the World Economic Forum, or the Deep State, among others.
The reason is simple. They are beholden to Big Tech, and Big Tech doesn’t allow certain topics to be discussed or they’ll cut you off. Far too many conservative news outlets rely on Google, Facebook, and Twitter for the bulk of their traffic. They depend on big checks from Google ads to keep the sites running. I don’t necessarily hold it against them. We all do what we need to do to survive. I just wish more would do like we have, which is to cut out Big Tech altogether.
We don’t get Google checks. We don’t have Facebook or Twitter buttons on our stories. We don’t have a YouTube Channel (banned), an Instagram profile (never made one), or a TikTok (no thanks, CCP). We’re not perfect, but we’re doing everything we can to not owe anything to anyone… other than our readers. We owe YOU the truth. We owe YOU the facts that others won’t reveal about topics that others won’t tackle. And we owe America, this great land that allows us to take hold of these opportunities.
Like I said, I don’t hold other conservative sites under too much scrutiny over their choices. It’s easy for people to point fingers when we’re not the ones paying their bills or supporting their families. I just wish there were more who would make the bold move. Today, only a handful of other major conservative news outlets have broken free from the Big Tech teat. Of course, we need help.
The best way you can help us grow and continue to bring proper news and opinions to the people is by donating. We appreciate everything, whether a dollar or $10,000. Anything brings us closer to a point of stability when we can hire writers, editors, and support staff to make the America First message louder. Our Giving Fuel page makes it easy to donate one-time or monthly. Alternatively, you can donate through PayPal or Bitcoin as well. Bitcoin: 3A1ELVhGgrwrypwTJhPwnaTVGmuqyQrMB8
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