Gov. Sam Brownback is either a sinner or a saint, depending on what you think of his proposal to eliminate Kansas’ income tax and replace it with an expanded consumption tax. Yet in my home state of North Carolina, there’s no need to wonder what effects such a tax reform would have on the state’s citizens – we already have the answer.
In short: It’s a good idea.
Of course, every claim needs support. But as it just so happens, the numbers back up this assertion. A new report (“More Jobs, Bigger Paychecks”) released by the Raleigh-based John W. Pope Civitas Institute shows exactly what North Carolina can expect by passing this kind of reform. The list of benefits is long, but it’s one that everyone – including Kansans – should consider as they debate whether to support the governor’s tax reform.
The biggest benefit that people can expect is in their paychecks. In my state, eliminating personal and corporate taxes would lead to higher annual paycheck growth averaging between 0.38 and 0.66 percent per year.
These numbers don’t seem so small when you put them in dollars and cents. Over the past 10 years, a reform like this would have meant an additional $14.4 billion to $25 billion in total personal income. That’s $1,500 to $2,600 per worker – not exactly chump change in a state where per capita income registers at $25,256.
Then there’s the overall economic growth rate. States without personal income taxes enjoy average annual growth rates that are 0.5 percent higher than other states. In states without corporate income taxes, this number jumps as high as a full percentage point each year.
Those numbers also bode well for job creation. In North Carolina, this type of reform would have directly led to an additional 217,000 to 378,000 jobs over the past decade. Kansas’ unemployment rate may only be 5.4 percent, but ours is at a staggering 9.2 percent – fifth highest in the nation.
In both states there are plenty of people looking for work – work that they would have a better chance of finding if businesses and individuals were freed from the burden of income taxes.
The Civitas report deals primarily with North Carolina. Yet the lessons drawn from the study’s conclusions can be easily applied to other states. Although the numbers will vary on a state-by-state basis, the general conclusion will always be the same: Replacing the income tax with a consumption tax will boost a state’s economy and grow people’s paychecks.
In addition to Brownback, Govs. Bobby Jindal in Louisiana and Dave Heineman in Nebraska want in on this economic action. With that many states possibly passing this kind of tax reform, the only question that remains is who will get there first – or rather, which state’s citizens will get a head start.