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Tuesday, May 17, 2005

Do high-tax states kill jobs?

Posted by: Hammer / 12:12 PM

Minnesota Politics asks and answers that question:
Do high-tax states kill off jobs? I figure that a good way to measure this is to take a look at a state's increase in Gross State Product, or GSP. After all, if a state is growing its GSP, it has to be creating jobs. ...

Then, I went here, the census page showing per capita tax rates. In his article, Pawlenty talked about using census data, and this table shows Minnesota in fourth place for all taxes, which his article also cites, so I am assuming that this is the table he's talking about.

I then arranged the GSP data in order according to tax rank, and found the average GSP growth for the top ten tax states, as well as the bottom ten tax rates. To nobody's surprise, the top ten tax states beat out the bottom ten tax states in terms of GSP growth by over half a percentage point, 5.03% per year to 4.47% per year. This isn't a lot, but by Pawlenty's logic, the top ten tax states should be seeing lower growth due to a lack of jobs, so any amount of growth over and above the lower tax states is proof that he is dead wrong.

It's a good analysis, but if Pawlenty is really relying on per capita taxation, he's more dishonest than I thought. Per capita taxation is meaningless.
Fictional StatePer capita taxPer capita incomeTax burden
Where do you want to live? Where you net $9,000 a year or $3,500 a year? Where your tax burden is 10% of your income or 12.5% of your income. Per capita tax rates are meaningless, because they don't account for differences in income.

For example, Minnesota is ranked 4th in per capita taxation. Texas is ranked 50th. But the median income for a 4 person household is $72,000 in Minnesota and only $51,000 in Texas. The median Minnesota family would net $60,400 a year. The median Texas family would net $45,500. According to Pawlenty, the Texas family is far better off.


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