Taxes and state income growth

Taxes flowing to the capitol

If Kansas wants to experience growth in income, it’s important that the legislature finish the session without raising taxes. The paper The Robust Relationship between Taxes and U.S. State Income Growth by W. Robert Reed, published in National Tax Journal, establishes a link between high taxes and negative effects on income growth. The abstract of the research report explains:

I estimate the relationship between taxes and income growth using data from 1970 to 1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into “five-year” periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state-specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship.

As Kansas must produce a balanced budget each year, reducing taxes means reducing spending. Therefore, Kansas needs to get serious about reducing government spending. Some ideas may be found in the article In Kansas, there are ways to reduce the cost of government.

(Although the state must balance its budget each year, Kansas has managed to accumulate over $16 billion in debt, about $5,591 for each person. See Kansas Total Indebtedness Exceeds $16 Billion.)

The full article is on taxation and income growth is The Robust Relationship between Taxes and U.S. State Income Growth.

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