"At bottom, NTU's theory seems to be that the adoption of income taxes by seven states between 1967 and 1971 caused the national economy to go into a tailspin in the seventies," said ITEP analyst Tyson Slocum. "That's a preposterous allegation."

NTU Compares Apples to Oranges to Turn Economic Facts on Their Head

• NTU compares apples to oranges. It argues that states that adopted income taxes around 1970 hurt their economies because in 6 of 7 cases their personal income growth rates declined thereafter compared to growth over the previous two decades. But the same misleading comparison would make most other states' economic performances look bad, too, since overall national growth declined markedly in the early seventies (due to the oil crisis and other factors).
• A more meaningful question would be whether states that adopted income taxes did better or worse than other states thereafter. And in fact, of the nine states that have adopted broad-based income taxes since 1967, six have seen higher growth in per capita personal income than the national average from the time they adopted their income taxes through 1998.
• Some of the high-performing income-tax-adopting states include: Connecticut, whose annual growth rate in per-capita personal income since adoption of its income tax has risen by almost half compared to the five years before (a growth rate ranking up from 7^th in the nation to 4^th); New Jersey, whose per-capita personal income growth rate since adoption of its income tax in 1976 has outpaced every state without an income tax except one (New Hampshire); and Nebraska, whose per-capita personal income grew from only 87 percent of the national average before adoption of its income tax to 94 percent by 1998.
• In contrast, of the nine states that still do not have broad-based income taxes, four saw lower growth in per-capita personal income from 1991 to 1998 than the national average, while five saw higher growth. Notably, six of the nine states with no income tax had per-capita personal incomes below the national average in 1998 (compared to five that were below average in 1991).

NTU's Allegations About State Spending Misrepresent Reality

NTU also alleges that the experience of other states proves that adoption of a New Hampshire income tax would cause big increases in state spending. But NTU's "analysis" is meaningless because NTU fails to include local spending in its calculations. Many states that enacted income taxes did so expressly to reduce local property taxes. Thus, the real issue is total state and local spending. By leaving out local outlays, NTU fails to present an accurate picture.

• In fact, when total state and local spending is included, the data show no pattern at all. For example, compare the nine no income-tax states with the nine states that adopted income taxes since 1967. In each group, five states saw total state and local spending per capita rise faster than the national average in the 1990s, while four had slower growth.

"Adopting a personal income tax is unlikely to change New Hampshire's low-public-spending culture," noted Slocum. "Whether New Hampshire's citizens will choose to always be the nation's lowest spending state as a share of personal income remains to be seen. But the experience of other states shows that this choice will be independent of whether or not New Hampshire enacts an income tax."

"It's hard enough for lawmakers to make good tax policy with accurate data," Slocum concluded. "NTU's latest misleading report is not only unhelpful, but it subtracts from the sum total of human knowledge."

The Institute on Taxation and Economic Policy is a non-profit, non-partisan tax policy research group based in Washington, D.C., with two decades of experience analyzing state tax systems.

Back To ITEP Home