The Economic Perspective: “State Income Tax Policies”

I’m Mary Walden with economist MW, welcoming you to the economic perspective.  Today’s program looks state income tax policies.  Mike, North Carolina has significantly decreased income tax rates in recent years.  This has generated a debate between those who argue lower tax rates create stronger economic growth, and those who say the lower rates starve the state of needed tax revenues.  I understand we have some new research from California that provides new evidence on this issue.

  • Research is from the NBER, a nonpartisan think tank staffed by academic economists of the highest reputation
  • California has gone in the opposite direction of NC by significantly increasing income tax rates
  • Using data that tracks the location of individual tax payers, the researchers found that higher income tax rates in California motivated a significant number of households to leave California for lower taxed states
  • Estimated that almost 1% of taxpayers in the highest tax bracket left because of the higher rates
  • Still, the higher rates did generate more revenue for California, although the gain was only half as much as it would have been if so many households had not left
  • I’m MW

Mary:  And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.