The co-author of a study on state economic competitiveness warned Tuesday that Washington’s economy could tank if voters support a proposed income tax.
Jonathan Williams said states that have adopted the tax over the last few decades have suffered for it. A few, Missouri and Kansas among them, may eliminate the tax, he said.
Williams wrote the recently released third edition of “Rich States, Poor States” with Steven Moore and Arthur Laffer, who is noted for a “curve” that correlates tax rates with tax revenues.
The study, published by the politically conservative American Legislative Exchange Council, assesses states for economic performance based on 15 variables. Washington is ranked 14th for 2010, but the outlook suggests that ranking will slip to 24th.
Idaho is ranked 10th, with a projected move up to seventh.
For Washington, the absence of an income tax offsets one of the highest sales taxes in the United States, an inheritance tax and high minimum wage.
Idaho has a low minimum wage, no inheritance tax and minimal debt service, all good to ALEC. But its sales tax and high marginal income tax rate weigh against the state.
Washington is one of nine states without an income tax, and Williams told attendees at a National Federation of Independent Business meeting in Spokane that a vote to impose one would be dangerous, especially at the rates proposed in Initiative 1098.
“There’s a war between the states today. It’s a war for capital,” he said. “Capital does not go where it is not wanted.”
When New York raised taxes on the rich in 2009, natives like Buffalo Sabres Owner Tom Golisano left, Williams said, adding that one defection cost the state $5 million in revenue.
“You can’t build a fence around your state to keep people in,” he said.
Revenues have increased faster in states without income taxes than in states with the tax, he said.
Almost all the 45 states running deficits would have balanced budgets had they not allowed spending growth to exceed that of the private sector, he said.
Most states are not confronting their biggest fiscal problem: unfunded pension and health care plans, he said.