Institute for Research in Economic and Fiscal issues

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Fiscal competition
and economic freedom

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Fiscal competition and economic freedom

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American States Are Tax Decrease Laboratories

In a recent post, Nicolas Lecaussin is pointing out that tax consequences can be studied as in a lab: some American States can be observed. Taxes were lowered in thirty States. If they gather only 20% of the US population, they have created 65% of US jobs.

Thirty governors or thirty reformers. The thirty States headed by Republican Governors decided to implement dramatic income tax decrease. In Ohio, the Income Tax was decreased by 20%, the actual rate being 5.9% only. In Nebraska, the Corporate Tax on individual companies was suppressed and the Income Tax rate is at 6.84%. The same trend is found in Indiana where Republican Governor Mike Pence is putting forth a 10% decrease on Income Tax. The lowest Income Tax rates are in Pennsylvania (3.07%), Indiana (3.40%), Michigan (4.25%) and Arizona (4.54%). It must be pointed out that Alaska, Florida, Nevada, South Dakota, Texas, Wyoming and Washington State do not have any Income Taxes.

Tax decrease has positive consequences on employment and job creations. About 65% of job creations in the US occurred in these low tax States. And they only gather 20% of the US population.

Republican Party leaders were inspired by these initiatives and results. Dave Camp, President of the Economic and Tax Committee at the House of Representatives, has announced a program of tax decrease and tax simplification for both individuals and companies. The new system would have only two rates – 25% and 10% - for individuals and small companies and a single rate for big companies. Today, there are 7 tax rates for individuals with a maximum rate at 39.6% and 35% for companies. Even among Democrats, supporters can be found to reform a very unpopular tax system (66% of American are dissatisfied). Such a disatisfaction could prevent Democrats from reelection.

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