a c t F i n d e r
F
Do Higher Taxes Chase Away People, Wealth, and Jobs?
Myth
Higher taxes won’t hurt Illinois’s economic competitiveness.
Fact
Low-tax states outperform high-tax states in attracting people, wealth,
and jobs.
Budget & Tax Brief
Introduction
Illinois is losing the race for people, wealth,
and jobs. According to the ALEC-Laffer State
Economic Competitiveness Index, between
1999 and 2008 the state ranked 48th in net out-
migration, 38th in personal income growth, and
48th in job growth.1 This poor performance
record begs a review of the policy decisions
that help shape Illinois’s economy.
One suggestion for “fixing” Illinois’s budget
woes is the passage of significant tax increases.
As revenue growth ultimately depends on
how well the underlying economy performs,
legislators must ask the following question:
Would increasing Illinois’s tax burden help or hurt the
effort to attract people, build wealth, and grow jobs?
Highest-Taxed States vs. Lowest-
Taxed States
Nationwide data indicate that high tax burdens
hurt economic growth. From 1998 to 2008,
the ten lowest-taxed states economically
outperformed the ten highest-taxed states on
the following key measures (see Graphic 1 on
page 2):
• People. The ten lowest-taxed states had a
220 percent faster population growth rate
than the ten highest-taxed states;
• Wealth. The ten lowest-taxed states had a
15 percent faster personal income growth
rate than the ten highest-taxed states; and
• Jobs. The ten lowest-taxed states had a
Kristina Rasmussen is the Executive Vice President at the Illinois Policy Institute. The Illinois Policy Institute’s
Fact Finder series aims to debunk myths about public policy issues that affect Illinois.
58 percent faster employment growth rate
than the ten highest-taxed states.
High taxes discourage productive behavior. Tax
policy analyst Scott Moody notes that taxation
comes with unseen costs, known as deadweight
loss:
“Deadweight loss” is a term used by
economists to describe economic activity
forgone by consumers and producers
because of the higher relative price of
goods as a result of the tax. Taxpayers
may respond to the proposed higher
tax rates by reducing their work effort,
lowering their consumption, or even
leaving the state in order to avoid the
higher tax bill. In other words, the very
process of transferring resources from
the private to the public sector results in
a permanent loss of current and future
economic output.2
Conclusion
Illinois needs more people, wealth, and jobs
in order to turn the state’s economy around.
Nationwide data from the last ten years show
states that limit their tax burdens economically
outperform those that don’t.
Approving large tax increases would drive
people, wealth, and jobs from the state at a
time when Illinois can least afford it. Instead,
lawmakers should look to emulate the low-tax,
business-friendly policies of high-growth states.
 Page 2 of 2

Graphic 1. Ten Lowest-Taxed States Economically Outperform Ten

Highest-Taxed States
State Fiscal Years Between 1998 and 2008
Lowest-Taxed Highest-
Advantages to National
Category States Growth Taxed States
Low-Tax States Average
Rate Growth Rate
Average State and Local
32.2% Lower Tax
Taxes as a Percent of 9.4% 13.9% 11.0%
Burden
Personal Income
220% Faster Population
Population Growth 14.9% 4.7% 10.5%
Growth Rate
15% Faster Personal
Personal Income Growth 72.8% 63.5% 66.1%
Income Growth Rate
58% Faster
Private Employment
11.6% 7.4% Employment Growth 8.1%
Growth (Calendar Years)
Rate

Source: U.S. Department of Commerce: Census Bureau and Bureau of Economic Analysis and Illinois Policy
Institute.

Note: The lowest-taxed states (2008 state and local taxes as a percentage of personal income) include
Oklahoma, Texas, South Carolina, Colorado, Missouri, Oregon, Alabama, Tennessee, New Hampshire, and South
Dakota. The highest-taxed states include Alaska, New York, Wyoming, North Dakota, Hawaii, Maine,Vermont,
New Jersey, New Mexico, and Connecticut. Illinois ranks 23rd-highest.

Endnotes
1 Arthur B. Laffer, Stephen Moore and Jonathan
Williams, “Rich States, Poor States: ALEC-Laffer
State Economic Competitiveness Index, Third Edi-
tion,” (Illinois), American Legislative Exchange Coun-
cil, 2010, http://tinyurl.com/2ctyzd6.

2 Scott Moody, “The Tax That Keeps on Taking,”

Illinois Policy Institute, March 24, 2009, http://
tinyurl.com/moodydeadweight.