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Report: Income tax cuts are a poor strategy for boosting the economy

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Income tax cuts are a poor strategy for producing economic growth, according to a new report from the Budget & Tax Center, despite claims by North Carolina policymakers advocating for deep cuts to the state’s income taxes.

Decades of research and experience at the state and federal level have found no link between state personal income tax levels and economic growth. In fact, income tax cuts – particularly for high-income households – contribute to rising inequality and drain resources from vital state services such as schools, health care, public safety and other building blocks of a strong, vibrant economy.

“Tax reform should support our economy and make our tax system more fair, but the plans being considered do just the opposite by making low- and middle-income taxpayers carry more of the tax load than the wealthy and risking investments in schools, health and public safety,” said Alexandra Forter Sirota, director of the Budget & Tax Center and author of the report. “This would only make things worse in our state, not better.”

The non-partisan Congressional Research Service examined 65 years of federal tax and economic data and found that the top income tax rates and the top capital gains tax rate have had no impact on economic growth. Cuts to the top tax rates have resulted in weak economic expansion, while not producing more savings or investment in the economy.

At the state level, states with low-taxes are more likely to have lower per capita income and employment growth than states with higher taxes. In fact, the nine states with the highest income tax rates in the country have economies as good as or better than the nine states without a personal income tax. Higher state personal income taxes frequently have higher state economic growth because states with adequate income taxes have enough resources to make investments in schools, roads, health care, and other services which contribute to long-term economic growth, according to the report.

Tax cuts that help the wealthy more than others have only increased the income gap between those at the top of the income ladder and everyone else. It further concentrates income among the wealthy, the report said, which in turn harms the economy, weakens the middle class, and lowers demand for goods and services.

Read the full report at this link.

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