The Bill Gates Income Tax

Bill Gates Sr. has personally contributed $500,000 to promote a state-wide proposition on Washington's November ballot that would impose a brand new 5 per cent tax on individuals earning over $200,000 per year and couples earning over $400,000 per year. An additional 4 per cent surcharge would be levied on individuals and couples earning more than $500,000 and $1 million, respectively.

Doing so would put the state's economy at risk, says Arthur Laffer, chairman of Laffer Associates.

To imagine what such a large soak-the-rich income tax would do to Washington, we need only examine how states with the highest income-tax rates perform relative to their zero-income tax counterparts. Comparing the nine states with the highest tax rates on earned income to the nine states with no income tax shows how high tax rates weaken economic performance.

In the past decade, the nine states with the highest personal income tax rates have seen gross state product increase by 59.8 per cent, personal income grow by 51 per cent and population increase by 6.1 per cent.

The nine states with no personal income tax have seen gross state product increase by 86.3 per cent, personal income grow by 64.1 per cent and population increase by 15.5 per cent.

Over the past 50 years, 11 states have introduced state income taxes exactly as Washington is proposing – and the consequences have been devastating, says Laffer.

Each and every state that introduced an income tax saw its share of total U.S. output decline.

Some of the states, like Michigan, Pennsylvania and Ohio, have become fiscal basket cases.

Even West Virginia, which was poor to begin with, got relatively poorer after adopting a state income tax.

Over the past decade, the nine states with the highest tax rates have experienced tax revenue growth of 74 per cent – a full 22 per cent less than the states with no income tax.

Source: Arthur Laffer, The Bill Gates Income Tax, Wall Street Journal, October 5, 2010.

For text: http://online.wsj.com/article/SB10001424052748703882404575520241519315372.html

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 12 October 2010