Policy Documents

Institute Brief - No Income Tax: The Key to Economic Growth

Amy K. Frantz –
September 1, 2008

Seven states in our nation collect no state income tax from their citizens: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Two other states, New Hampshire and Tennessee, tax only dividend and interest income. Is there an economic advantage for states that do not collect an income tax from their citizens?

Studies show that no-income-tax states are more prosperous than states with an income tax. Dr. Richard Vedder published a study comparing the ten states with the highest increase in income tax burden over a forty-year period to the ten states with the lowest increase in income tax burden (or no increase, in the case of states that did not have an income tax).1 Real total income growth for the top ten income-tax-raising states was 191%, while real total income growth for the states with the lowest or no increases in the state income tax was 455% over the forty-year period.

Another study by Dr. Vedder looks at net domestic migration for the 50 states and the District of Columbia, or the number of native-born Americans moving into a state minus the number moving out of a state.3 Vedder’s analysis shows that nearly 3 million persons moved from states with an income tax to states without an income tax between 1990 and 1999.