Do High Tax States Grow Faster?

A Democratic state senator suggested in a committee hearing this week that Michigan should not lower its income tax rate because higher-taxed states are experiencing faster economic growth.

According to the Gongwer news service:

“Sen. Steve Bieda, D-Warren, questioned whether the comparisons to non-income tax states and their growth was fair. He cornered [a conservative speaker] on states like Illinois and California that he said were ‘high-growth states’ but still had an income tax, for example. ‘It's almost an unfair comparison’ to non-income tax states, Mr. Bieda said.”

ForTheRecord says: According to the U.S. Census Bureau, population growth in California is 17th out of the 50 states, and a disproportionate share of new residents coming from other countries. Illinois is 49th in population growth, beating only West Virginia, and is one of just three states that has gone down in population since 2010.

In terms of net domestic out-migration – the number of residents moving out of a state compared to the number moving in – Illinois had the second-highest outflow, and California the fourth-highest.

In the most recent year measured, Illinois had by far the worst growth in the Midwest. Its recent out-migration is the worst-ever recorded.

According to the U.S. Congress Joint Economic Committee, California has exceeded the nation in both employment and income growth since 2010. Illinois, meanwhile, has lagged the nation in both categories.

Both states have higher unemployment than the national average. Overall, the committee report paints a picture of states with the lowest tax rates tending to have the fastest growth in jobs and income. Migration patterns, employment growth and income growth are all considered strong indicators of economic well-being for families and small businesses.