Budget & Tax

Jonathan Small | November 20, 2015

Free Market Friday: Tax cuts will grow economy

Jonathan Small

Once each quarter or so, voices from Washington announce how well the American economy is doing. But in reality there are 50 state economies, and what goes on in those 50 state capitol buildings sometimes has a greater effect on local prosperity (or the lack of it) than doings in Washington.

An important new book has examined that truth from every possible angle. I commend to your attention An Inquiry into the Nature and Causes of the Wealth of States by Arthur B. Laffer, Stephen Moore, Rex A. Sinquefield and Travis H. Brown.

The authors conclude that state tax policies are one of the most important factors in how a state performs economically. The book is heavily laden with data and statistics all pointing in one direction: Those states with no or low personal income tax rates will outperform the high-tax states every time.

The authors compare the nine states with no personal income taxes (including Texas) with the nine states with the highest tax rates. The performance gap is stunning. From 2002 through 2012, no-tax states added population at more than twice the rate of the high-tax ones (which had a net loss in in-migration).

Employment grew by 8.9 percent in the no-tax states, and only 1.7 percent in the big taxers. The no-tax states also outperformed the high taxers by more than 12 percent in personal income growth and 16 percent in gross state product growth.

In short, by virtually every possible metric, states with no or low personal income taxes are more prosperous than those that impose high tax rates. Oklahoma policymakers should take note, and embark on a plan to responsibly phase out income tax over several years and replace it with nothing.

The authors spend several pages debunking naysayers – liberal think tanks, a tax-funded Oklahoma economist, and others – who have claimed that we’re doing fine with higher taxes.

Specifically, one claim, that Oklahoma actually beat Texas in gross state product growth, is only true for a brief two-year window that – surprise – came right after we first cut our income tax rate.

This is a serious book that takes a serious look at some fundamental truths, among them that lower taxes will help Oklahoma grow.

Jonathan Small President

Jonathan Small


Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.

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