Research Report: September, 2018
Jacob Goss and Chang Liu, University of Wisconsin-Madison
From a panel study of states across the U.S., we find that the individual income tax rate is significantly negatively correlated with per capita personal income growth and contemporaneous state total tax revenue. In particular, a 1% permanent increase in the state individual income tax rate would initially lower per capita personal income growth by about 0.9% and total tax revenue by about 1%-4%. There are no such effects for the corporate income or sales tax, but they are the main sources of tax revenue volatility.