[Politics]

Taxes and Growth: No Correlation

Stats for the wonks: tax burden and economic growth. About it All links to a Census report showing the per capita tax burden by state for 2005. I dug around and found a Bureau of Economic Analysis report for 2004 (.pdf) that shows percentage growth in the gross state product. Liberals and conservatives both think these should have a relationship, right? Well, let's see. (I actually went back to the 2004 Census, so we'd have comparable data.)

Let's look at the top five highest taxing states and the percentage growth in that state's GSP over 2003.

1. Hawaii - 6.0%
2. Wyoming - 3.3%
3. Connecticut - 4.5%
4. Minnesota - 3.9%
5. Delaware - 5.0%

Bottom five (lowest taxes)

46. Alabama - 4.3%
47. New Hampshire - 5.4%
48. Colorado - 3.9%
49. South Dakota - 4.5%
50. Texas - 4.6%

If you eyeball those two lists, you might think they look about the same. In fact, if you total the percentages, you find they're exactly the same. So not a lot of correlation there. If you flip the calculation, and look at the states with the largest and smallest growth, you find a pretty similar story--some fast growing states have low taxes, others high. Some anemically-growing states have high taxes, some low.

I suspect you might begin to find trends if you look at aggregates for several years, but I'll leave that exercise for someone else.