Report: Income Taxes Don’t Hurt Economic Growth

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STATE – Gov. Chris Christie will introduce his new state budget proposal next week, which will include a promised income tax cut for all New Jersey taxpayers.

Assemblyman Lou Greenwald, a South Jersey Democrat who chairs the Assembly Budget Committee, said that he’s never had a constituent call him or visit his office to complain about state income tax rates. Democrats note that while someone making $1 million would save $7,200 under the 10 percent reduction proposal Christie spoke of in his State of the State speech last month, someone earning $50,000 would save just $80.

A study released this month by the Institute on Taxation and Economic Policy (ITEP), a non-profit, non-partisan research organization based in Washington, D.C., that focuses on federal and state tax policy, challenges the idea popular among conservative politicians that income taxes impede economic growth.

The ITEP study looked at economic data from nine states without a personal income tax, and nine “high rate” personal income tax states (including New Jersey) from 2001-2010. According to the findings, the “high rate” states outperformed the income tax free states in two economic performance measures.

The “high rate” states experienced 10.1 percent economic growth per capita, compared to 8.7 percent in the states without a personal income tax. While the median family’s income, adjusted for inflation, declined in most states during the past decade, it fell 3.5 percent in the states without an income tax compared to 0.7 percent in the “high rate” states. Both groups experienced an identical 5.7 percent average annual unemployment rate.

The report concludes, “There is no reason for states to expect that reducing or repealing their income taxes will improve the performance of their economies.”

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