Wednesday, October 06, 2010

The truth about tax rates

Higher income taxes generate more government revenue and lead to more economic growth, right? Wrong. In fact, that is entirely opposite and Arthur Laffer in the Wall Street Journal has done the research.

In the past decade, the nine states with the highest personal income tax rates have seen gross state product increase by 59.8%, personal income grow by 51%, and population increase by 6.1%. The nine states with no personal income tax have seen gross state product increase by 86.3%, personal income grow by 64.1%, and population increase by 15.5% ...

Each and every state that introduced an income tax saw its share of total U.S. output decline. Some of the states, like Michigan, Pennsylvania and Ohio, have become fiscal basket cases. As the nearby chart shows, even West Virginia, which was poor to begin with, got relatively poorer after adopting a state income tax ...

Over the past decade, the nine states with the highest tax rates have experienced tax revenue growth of 74%--a full 22% less than the states with no income tax.

Come on, the data is clear ... it's non-refutable. If you want to punish the rich for their success and hard work, an income tax rate increase will achieve exactly that: punish people. Punishment is meant to alter your behavior, to "teach" you that your actions were unacceptable. Is that the message we want to send to the producers? I didn't think so. What about those who want to achieve more? They give up trying in that kind of environment.

And not only does it punish the rich, but it punishes everyone, because all our standards of living diminish.


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