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Thread: You’re Better Off in a State With a Higher Income Tax

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    Cat-tastic Babba's Avatar
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    You’re Better Off in a State With a Higher Income Tax

    Well, well, well. Looky here. Proof once again that supply-side economics sucks.

    Many lawmakers in Congress and in statehouses around the country peddle the same supply-side theory about income taxes: the lower the tax, the more the economy will grow. But new research from the Institute on Taxation and Economic Policy reveals this economic approach is failing to deliver in the states. In fact, states with higher income taxes outperformed states with no income tax.

    My colleagues and I compared the economic track record of the states that have charted the most radically different courses with their income tax policies, or lack thereof. Specifically, we examined economic growth in the nine states with the highest top income tax rates (averaging 10%), and the nine states with no broad-based personal income tax. What we found undermines claims that income taxes are a drag on growth that must be reduced or eliminated.
    Lowering personal income taxes or forgoing such taxes entirely requires difficult tradeoffs that can come at a high cost to the economy. The states without income taxes, for instance, tend to invest less in education—a direct consequence of the low-tax approach that threatens the long-run quality of these states’ workforces.

    States without income taxes also tend to rely more heavily on sales and excise taxes, which fall disproportionately on moderate-income families. Balancing the budget on the backs of families who lack a stable financial footing is unsustainable in the long run, and it runs the risk of dampening consumer spending that fuels so much of our nation’s economy.
    State Income Tax: The Higher the Better, Says 2017 Study

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    Thought Provocateur NightSwimmer's Avatar
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    State taxes wouldn't need to be quite so high though, had so many federal revenue sharing programs not been sacrificed for the Bush tax cuts back in 2000.
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    Taxes must tax. Its a truism. If you believe that materially higher taxes doesn't impede economic growth -- in fact the taxed money can't be invested by the taxed, by definition. Then naturally you have to ask why varbon taxes would impact behavior or cigarette taxes, tariffs, etc. Taxes impact behavior, get used to it. Taxes reduce the marginal utility/benefit or increase the marginal cost of EVERY behavior taxed.

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    Last edited by publius3; 28th October 2017 at 11:34 AM.
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    Quote Originally Posted by Babba View Post
    Well, well, well. Looky here. Proof once again that supply-side economics sucks.
    It's not "proof" of anything, one way or another. It is looking at two simple variables in association with one another. The multitude of other very important variables are not factored in, thus identifying the article's fully acknowledged limitations:

    "But there are still limitations to this approach. For instance, this framework does not control for differences across states unrelated to taxes such as industry mixes, natural resource endowments, tourism advantages, federal spending patterns, geography, and climate. For this reason, care should be taken not to read too deeply into these state comparisons. Tax policy is not the only factor contributing to differences in economic performance between these groups."

    That's not to say the findings are worthless, it's just that they're not that profoundly informative or conclusive about anything either. It's a somewhat interesting observation to keep in mind.

    Take my state for example. Income taxes have practically zero to do with whether my state grows economically or not. But my state makes the list because there's $0 income tax.

    What opportunists do with this though is argue it whatever way is convenient. For example, the anti-tax ideologues would look at periods of very strong economic growth and attribute it to the zero income tax, and pro-tax ideologues would look at recent economic stagnation and blame it on the zero income tax. What's really going on? We outpace other states in economic growth when energy prices are high, and underperform (to put it gently) when energy prices are obliterated. That's it.

    Other states have gigantic other features that make them anomalous. California and New York are examples. They could be countries unto themselves compared to a U.S. Government outpost state like Alaska. These comparisons are footnote-level interesting, but a far cry from "proof" of anything.
    Last edited by Neomalthusian; 28th October 2017 at 11:32 AM.
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    Junior Member Claudius the God's Avatar
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    Quote Originally Posted by Neomalthusian View Post
    It's not "proof" of anything, one way or another. It is looking at two simple variables in association with one another. The multitude of other very important variables are not factored in, thus identifying the article's fully acknowledged limitations:

    "But there are still limitations to this approach. For instance, this framework does not control for differences across states unrelated to taxes such as industry mixes, natural resource endowments, tourism advantages, federal spending patterns, geography, and climate. For this reason, care should be taken not to read too deeply into these state comparisons. Tax policy is not the only factor contributing to differences in economic performance between these groups."

    That's not to say the findings are worthless, it's just that they're not that profoundly informative or conclusive about anything either. It's a somewhat interesting observation to keep in mind.

    Take my state for example. Income taxes have practically zero to do with whether my state grows economically or not. But my state makes the list because there's $0 income tax.

    What opportunists do with this though is argue it whatever way is convenient. For example, the anti-tax ideologues would look at periods of very strong economic growth and attribute it to the zero income tax, and pro-tax ideologues would look at recent economic stagnation and blame it on the zero income tax. What's really going on? We outpace other states in economic growth when energy prices are high, and underperform (to put it gently) when energy prices are obliterated. That's it.

    Other states have gigantic other features that make them anomalous. California and New York are examples. They could be countries unto themselves compared to a U.S. Government outpost state like Alaska. These comparisons are footnote-level interesting, but a far cry from "proof" of anything.
    Well, you make a compelling case for the argument that modeling economies is not as easy as folks want it to be nor describe out. However, it does imply that when you have a winning hand, paying higher taxes does not change it much. You still have a winning hand. Taken as a national economy with regional variances of a multitude of factors, higher national rates don't alter the dynamic downwards. We have history to prove this point as well as examples of high tax states in Europe and elsewhere. The main issue for me is what do you do with the taxes collected. We simply prefer to invest in war than we do in our own country. SS, Medicare, Medicaid and the federal government sans warfare related expenses are direct investments in each other. Warfare investments are an indirect investment in each other that only provides us with the illusion that we are safer because we spend more than anyone else. We have been at war for most of my 61 years. What exactly do we have to show for it?
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    Quote Originally Posted by publius3 View Post
    Taxes must tax. Its a truism. If you believe that materially higher taxes doesn't impede economic growth -- in fact the taxed money can't be invested by the taxed, by definition. Then naturally you have to ask why varbon taxes would impact behavior or cigarette taxes, tariffs, etc. Taxes impact behavior, get used to it. Taxes reduce the marginal utility/benefit or increase the marginal cost of EVERY behavior taxed.
    Yes, but it appears that's sometimes a good thing. One result (or at least coincidence) of the Reagan-era slashing of taxes at the upper levels and for capital gains was a change in corporate culture. Corporations in the high-tax era of the 1950's and 1960's thought of multiple stakeholders when they made decisions. And CEO (and other upper management) pay was much lower than it is today--particularly relative to everyone else's pay. The hyper competitive world of upper managers today values ONLY shareholder value. That's had a seriously negative effect on lots of things in our society. It is arguably one cause of middle-class stagnation in the face of sharply rising corporate profits.

    I think these two changes are related. As the leaders of companies were separated more and more from everyone else, their efforts were greater, yes, but also destructive to the system as a whole because they worked more and more for the benefit of fewer and fewer people.. Only a serious faith in market economics to solve all problems on its own (a philosophy that cares not one whit for anyone harmed by market forces) can fail to recognize the problems that this trend creates.





    The Economic Engine of America Is...The South | The National Interest Blog

    The South is booming, and the Rust Belt looks like a fucking bomb hit it.

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    Quote Originally Posted by Claudius the God View Post
    Well, you make a compelling case for the argument that modeling economies is not as easy as folks want it to be nor describe out. However, it does imply that when you have a winning hand, paying higher taxes does not change it much. You still have a winning hand.
    That's too simplistic a talking point relative to the actual topic and comparison. This is examining state-level tax policy and economic performance, not stereotyped arguments about how higher income people respond to taxes. The article merely disputes the other side's simplistic arguments that low income taxes necessarily yields economic growth or strength. That is too simplistic on the other side of the spectrum.

    The main issue for me is what do you do with the taxes collected. We simply prefer to invest in war than we do in our own country.
    That doesn't hold up to the actual numbers about our federal spending. And that isn't to say I unquestioningly defend how much defense money we spend or on what in particular, it's just not an objectively true statement to say we prefer war spending over social and other spending. Spending on higher education, for example, has increased over the last 50 years in today's dollars in percentages that dwarf the growth in defense spending. And that's just higher ed, which is peanuts compared to, say, the growth in national spending on health, or the growth in outlays for Social Security and Medicare.

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    Quote Originally Posted by Rasselas View Post
    Yes, but it appears that's sometimes a good thing. One result (or at least coincidence) of the Reagan-era slashing of taxes at the upper levels and for capital gains was a change in corporate culture. Corporations in the high-tax era of the 1950's and 1960's thought of multiple stakeholders when they made decisions. And CEO (and other upper management) pay was much lower than it is today--particularly relative to everyone else's pay. The hyper competitive world of upper managers today values ONLY shareholder value. That's had a seriously negative effect on lots of things in our society. It is arguably one cause of middle-class stagnation in the face of sharply rising corporate profits.
    Not necessarily arguing with the underlying point, but it's not clear why you single out Reagan for this given top CG taxes were slashed under Carter, and 5 years after Reagan's CG tax cut he raised them 8%, and then Clinton slashed them back down again 10 years later, passed Gramm-Leach-Bliley, and then we had a dot-com and stock bubble burst and had major corporate accounting scandals and so on and so forth. What was it about Reagan that made his actions on this issue so bad that it's worth leap-frogging Clinton and ignoring Carter to attack Reagan?
    Last edited by Neomalthusian; 28th October 2017 at 12:05 PM.

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    Quote Originally Posted by Neomalthusian View Post
    Not necessarily arguing with the underlying point, but it's not clear why you single out Reagan for this given top CG taxes were slashed under Carter, and 5 years after Reagan's CG tax cut he raised them 8%, and then Clinton slashed them back down again 10 years later, passed Gramm-Leach-Bliley, and then we had a dot-com and stock bubble burst and had major corporate accounting scandals and so on and so forth. What was it about Reagan that made his actions on this issue so bad that it's worth leap-frogging Clinton and ignoring Carter to attack Reagan?
    When Reagan came into office, the highest marginal tax rate was 70%. When he left it was half that. And it's stayed roughly in the same place (in comparison with earlier eras) since then. We've never seriously considered returning to the 70% or 90% rates that were common through the middle of the 20th century. Reagan made a seemingly permanent change in our attitude about taxes on high earners. Even I'm not arguing for tax rates like we had before Reagan.

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