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PunditFact: Are states without an income tax doing better than ones with one?

Truth-O-Meter for PolitiFact with a Half True ruling.

Truth-O-Meter for PolitiFact with a Half True ruling.

The states that are doing "better" are the ones that have no state income tax.

Conservative journalist Jamie Weinstein, July 18, in comments on HBO's Real Time With Bill Maher

The ruling

Weinstein told us he was referring to a study from the Laffer Center for Supply-Side Economics authored by Arthur Laffer, the so-called "father of supply-side economics," and Stephen Moore, another pre-eminent supply-side economist.

Laffer and Moore analyzed nine "no-tax" states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, Tennessee and New Hampshire) and compared them to nine "high-tax" states (California, Hawaii, Maine, Maryland, New Jersey, New York, Ohio, Oregon and Vermont).

Laffer and Moore look at the average growth from 2001 to 2010 for each set of states in four factors: population, gross state product, employment, and state and local tax revenue. And by each of these four measures, the nine states without an income tax outperform the high-tax states.

But that's not the entire story.

Dick Lavine, a senior fiscal analyst at the left-leaning Center for Public Policy Priorities, said Laffer's measures are not what economists usually use to judge a state's success. "The trouble with Laffer's study is that fast-growing states look good by his measure mainly because of population growth, not because of any excellence in the economy."

The Institute on Taxation and Economic Policy — a research group that partners with Citizens for Tax Justice, which advocates for the tax interests of middle- and lower-class families — responded to Laffer's research with its own study, " 'High rate' Income Tax States are Outperforming No-Tax States."

The results, as you might imagine, are 100 percent opposite of the Laffer analysis.

Whereas the Laffer Center study looks at raw totals, the Institute on Taxation and Economic Policy looked at three per capita statistics that Ralph Martire, executive director of the Center for Tax and Budget Accountability, called "the three major economic indicators."

"The nine states with the highest individual income tax rates had better change in median wage (-0.7 percent to -3.5 percent) and significantly better growth in state GSP per capita (10.1 percent to 8.7 percent)," Martire said, while "no-tax states had marginally better unemployment."

The bottom line: The choices you use to define "better" impact the results.

Our ruling

Weinstein claimed on Real Time With Bill Maher, defending Kansas' tax cuts, that the states that are doing "better" are the ones that have no income state tax.

Weinstein is accurately citing a study by the Laffer Center that compares states on their growth in population, GSP, total jobs, and total state and local tax revenue. To Laffer, no-tax states are besting high-tax states.

But we found another study that concluded the exact opposite, by using a different set of measurements.

In the end, measuring "better" ultimately is in the eye of the beholder, and we're not going to settle this economics debate. But Weinstein isn't going to either. We rate his claim Half True.

Edited for print. Read the full version at PunditFact.com.

PunditFact: Are states without an income tax doing better than ones with one? 08/01/14 [Last modified: Friday, August 1, 2014 6:06pm]
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