'Jobs tax' debunked
Study of Illinois, neighboring states finds no connection between jobs, tax rate
By Ted Cox
A fresh academic study debunks the conservative notion that a progressive tax is a “jobs tax.”
“Comparing State Income Tax Rates and Total State Employment in Six Midwestern States” is a project finished this week by Elizabeth Austin, a policy and communications consultant who is completing a master’s degree at the University of Chicago’s Harris School of Public Policy. It’s exactly what it says it is, comparing the jobs rates in Illinois and its Midwest neighbors in 2010, 2013, and 2018 against their various tax systems.
The first thing that should be noted is Illinois is the only state with a purely flat tax rate. The other five — Indiana, Iowa, Minnesota, Missouri, and Wisconsin — all have various forms of a graduated income tax. Indiana has a flat state income tax, but its counties also impose various levels of income taxes.
Illinois is the largest state and enjoyed the largest growth in employment over that eight-year time frame — about a half-million jobs. But as a percentage of overall employment it was more in the middle of the pack. In fact, its 8.37 increase in jobs was almost exactly that of Missouri, at 8.36.
Illinois’s job growth was consistent, even as its flat tax rate went from 3 percent in 2010 to 4.95 percent in 2013, back down to 3.75 percent in an attempt to appease the incoming Rauner administration in 2015, then back up to 4.95 in the impasse-breaking budget agreement passed over Bruce Rauner’s veto in 2017. Missouri, meanwhile, had a consistent progressive tax with a lowest rate under 2 percent and a highest rate of 6 percent, cut very slightly in 2018, but not to the extent that Kansas did in its budget-busting attempt at tax reform. Still, for all their differences, the two states grew jobs at almost exactly the same percentage.
The states with the largest job growth, by percentage, were Minnesota, at 11.91 percent, and Indiana, at 11.86 percent. Indiana has a flat state tax, but when its various county income taxes are taken into account, its lowest rates were just over 4 percent and its highest rates were just over 6 percent throughout. Minnesota, meanwhile, had a low rate steady at about 5 percent and a high rate just under 8 percent, jumping to just under 10 percent in 2018. Yet it grew more jobs by percentage than Indiana.
Iowa has the largest gap between its lowest tax rate, negligible under 1 percent, and its top rate, just under 9 percent. It also produced the smallest job growth, 7.2 percent. Wisconsin trimmed its lowest rate from just over 4 percent to 4 percent in 2018, while its top rate remained set at just under 8 percent. It produced 9.2 percent job growth.
Austin determines: “If state income tax rates played a significant role in job creation or reduction, we would see an inverse relationship between changes in tax rates and employment numbers, with greater increases in employment in lower-tax states. However, no such relationship is apparent.”
No surprise there, really. The Better Government Association already ruled last month that the attempts to label Gov. Pritzker’s proposed “fair tax” as a “jobs tax” by the dark-money group Ideas Illinois were patently “false.” But that hasn’t stopped Republicans and other conservatives from persisting in trying to call it a “jobs tax” in what really amounts to a disinformation campaign.
It’s no coincidence that just this week the BGA re-examined the last move to raise Illinois’s flat tax. While Republicans fought it, claiming it would drive “job creators” from the state, the BGA found that the rich actually prospered and stayed put, while middle-income residents and the poor were more likely to feel the pinch, paying a higher percentage of their income to taxes, and were therefore more likely to flee the state and move elsewhere.
Austin’s analysis suggests, on top of that, that the tax rate had little if any effect on the overall growth of the job market. That’s simply a fact, yet another that anti-tax propagandists will have to ignore.