Forget Kansas, look at South Dakota
There’s a lot of media attention on the “supply-side policies” of Governor Brownbeck in Kansas, which have not been successful. But when you take a closer look, it’s actually South Dakota, not Kansas, which is the true supply-side story. Kansas cut its top income tax rate to 4.6%, but that’s only slightly below Massachusetts’s top rate. Biotech firms are not going to relocate from Cambridge to Topeka. In contrast, South Dakota has no state income tax. I did a long post on this state a few months ago, and today Tyler Cowen linked to a WSJ story on the booming economy in Sioux Falls. Nowhere does the WSJ mention the lack of a state income tax.
States with no state income tax tend to have faster population growth than their closest neighbors. Not always, but most of the time. Unfortunately, there aren’t many states with no income tax, and many of them are “unusual” in some way, such as Alaska, Nevada, Texas and Florida. I put more weight on states like South Dakota and Tennessee, which are otherwise quite unremarkable. They’ve also done relatively well.