States with lower tax rates are creating more jobs than states with higher tax rates. The economic principle holds true: the more you tax something, the less you get.
The Tax Cuts and Jobs Act has been a shot of adrenaline for job creation. This is especially true for states that have lower tax rates. Low tax states are seeing a 77 percent increase in job growth compared to high tax states. The reason for this is that lower tax rates at both the federal and state level have allowed small businesses to expand and it has created a positive environment for entrepreneurs. Therefore, the rate reductions under the federal Tax Cuts and Jobs Act must be made permanent or it will result in a massive tax increase that will reverse the positive economic gains.
“As a result, in 2018 the U.S. enjoyed its fastest rate of growth since 2005, and unemployment is at record lows. Wages are finally starting to increase after long stagnation,” wrote Representative Kevin Brady (R-TX) and economist Lawrence B. Lindsey.
The Tax Cuts and Jobs Act is creating opportunities for economic growth and Iowa can help further these opportunities by improving the state tax climate. Iowa’s unemployment rate of 2.4 percent remains one of the lowest in the nation and a primary concern for businesses across the state is a need for workers.
The Tax Foundation ranks Iowa as one of the top ten states with the worst business tax climate. In 2018 the legislature enacted a tax reform measure that will begin the process of lowering rates but even once the reforms are fully implemented, Iowa’s income tax code will require more work. Iowa’s individual income tax rate will be lowered from 8.53 percent to 6.5 percent and the corporate tax rate will be lowered from 12 percent to 9.8 percent. When those rates are combined with Iowa’s high property tax burden, a huge opportunity to reform the Hawkeye State’s tax code to maximize economic growth will still remain.
Whether considering private sector job growth or population trends, the evidence is clear that states with low tax rates are leading. Iowa can improve the economic climate of the state by lowering rates, making Iowa more competitive. “The data is clear: restraining state spending while cutting taxes encourages job creation,” wrote Chuck DeVore, who serves as Vice President of National Initiatives at the Texas Public Policy Foundation.