Over the protests of farmers, retirees, and even right-wing economists, Gov. Kasich wants to raise the sales tax, CAT tax, and property tax to finance cuts to high-end income taxes. It’s an article of faith on the Right that this will make us more like fast-growing states, and the Dispatch dutifully parrots the talking point that raising income taxes is “harmful to growth”.
This seems counterintuitive for anybody with a memory longer than a decade. Ohio’s relative GDP growth before the 2005 tax cuts was 43rd in the nation; since the tax cuts, it’s been 48th in the nation. Oregon, who raised their income tax in 2010, jumped from number 12 in growth to number 5 in growth.
There is a weak correlation to low state income taxes and GDP growth since 2000:
The fast-growing outlier is North Dakota; the slow-growing outlier is Michigan. Note how Michigan’s tax rate is lower than North Dakota’s.
We see here that state with higher income taxes tend to have slightly less economic growth, with a ton of deviation. But what about sales taxes?
Sales taxes have an almost identical correlation to GDP growth. The same evidence that says we should cut our income tax also says we shouldn’t raise our sales tax.
Of course, these correlations are incredibly weak. Neither New Hampshire nor Montana has a sales tax, but Montana grew at 7.3% since 2000 while New Hampshire grew at 3.9%. Florida and Wyoming both have no income tax, but Florida has grown at 2% in the past 7 years while Wyoming has grown at 6.3%. North Dakota has the fastest economic growth, but it’s in the middle of the pack for both taxes.
What should be obvious from that paragraph–and what should be obvious to Gov. Kasich–is that the fast-growing states are all oil states.
The states fall much closer to the curve on this graph. North Dakota and Wyoming are literally off the charts, with fracking1 contributing 36% and 11%, respectively.
They’re growing more rapidly than the rest of the country because the energy sector rebounded more quickly than the rest of the economy. De facto, states where energy takes up a larger share of the economy will have faster growth at the moment. At the moment.
That doesn’t mean that cutting Ohio’s income tax will make oil appear in Ohio, or that it would even be good to have even more fracking than we do, or that oil-rich states grow faster in the long run. After all, the price of oil can go down, too–and none of these states grew particularly quickly from 1990-2005. That’s why they call them “booms”.
Nobody can offer evidence that this tax plan will lead to economic growth in Ohio, they can only offer platitudes. That won’t stop the Republicans from blindly raising our taxes to send money to Kasich’s rich out-of-state donors.
1 This is defined as “advances… such as horizontal drilling with multiple stage horizontal fracturing… since 2007.” So, fracking. Given that this number was given by a pro-fracking propaganda group, take that with a grain of salt.
I would’ve preferred to compare GDP to “energy sector as a share of state economy”, but I couldn’t find that anywhere.
No related stories.