Economy & Jobs

States With No Income Tax Achieve Higher Growth, The Heritage Foundation Finds

By  | 

A recent report for The Heritage Foundation, 1,000 People a Day: Why Red States Are Getting Richer and Blue States Poorer, reveals that states with no income tax and with right-to-work (RTW) laws experience dramatically higher growth.

In- and Out-Migration

Let’s start by looking at the nine states that don’t have an earned income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire, and Tennessee) compared with the nine states that charge the highest income taxes (Kentucky, Minnesota, Maryland, Vermont, New Jersey, Oregon, Hawaii, New York, and California). From 2003 to 2013, population growth on an equally weighted basis was twice as high in the no-income-tax states. Even more stunning is that domestic out-migration averaged at negative 2 percent of the population over the same period. “Leading” the way was New York, which lost 7.5 percent of its population to other states. Meanwhile, Nevada gained 9.1 percent.

Overall, the no-income-tax states have gained more than 800 people per day from in-migration (2004 to 2013), while the high-income-tax states have lost more than 900.

Right-to-Work Jobs Growth

Jobs growth in the no-income-tax states was 9.9 percent (equally weighted) from 2003 to 2013, and the employment ranks swelled by almost 20 percent in Texas! In the high-tax states, jobs growth was less than half as strong, at 4.3 percent. New Jersey lost jobs during the decade.

Right-to-work laws are strongly related to growth because they empower individual workers to choose whether to join a union, be bound by its contractual arrangements, and pay dues for political purposes. From 2002 to 2012, population growth in RTW states was 12.6 percent on an equally weighted basis—nearly twice the growth of states with forced unionization during this time (6.5 percent). Jobs growth in RTW states, at 6.8 percent (equally weighted), trounced the barely there 1.9 percent jobs growth in forced-unionization states.

Perhaps the Midwest most clearly illustrates the differences in growth linked to RTW policies. From 2002 to 2012, the five Midwestern states with RTW laws during this time (North and South Dakota, Iowa, Nebraska, and Kansas) experienced jobs growth averaging 11.1 percent, while the seven forced-unionization states (Illinois, Indiana, Michigan, Ohio, Wisconsin, Minnesota, and Missouri) lost 1.9 percent on average.

Going Where the Opportunity Is

Businesses and people migrate to where conditions best foster growth and opportunity. Limiting government intrusion into the economy, allowing people to keep more of what they earn, and refusing to cave to special interests (such as Big Labor or Big Green) enables economic expansion.

But the economy not a zero-sum game; all of society benefits as more is produced. And it’s a misconception that there are fewer government services in states with no income tax. As explained more fully in the book “Wealth of States,” Texas actually employs more police, schoolteachers, and firefighters per capita than California (p. 198–9), despite its much lower tax burden.

This pro-growth formula is demonstrably achieving favorable results across a large swath of the country. Unfortunately, certain lawmakers resistant to relinquishing control and embracing change are holding progress hostage. It’s time the rest of the nation is given the opportunity to enjoy a rising standard of living and a booming jobs market.