By Jackson Brainerd
Can tax cuts spur economic growth?
Economists Cynthia Rogers and Scott Drenkard discussed that question during NCSL’s Western States Fiscal Leaders Meeting in Incline Village, Nev., on the north shore of Lake Tahoe.
The seminar, made possible through the support of The Pew Charitable Trusts, brought together more than 40 state legislators and policy specialists from 12 states and Washington, D.C., to discuss critical fiscal issues facing Western states.
The meeting covered a wide range of pressing fiscal issues, including the general economic outlook for Western states, how states can improve their credit quality and use of big data, and the higher education funding relationship between states and the federal government.
Arturo Perez, NCSL’s Fiscal Affairs Program director, and Barb Rosewicz, The Pew Charitable Trusts’ research director, led a state budget and tax roundtable discussion. Participants reviewed the fiscal implications of trends such as lower energy prices, Medicaid expansion, marijuana legalization and unexpected increases in personal income tax collections.
Rogers, of the University of Oklahoma, and the Tax Foundation’s Drenkard examined the effect the personal income tax on economic growth, which has become the crux of many tax policy debates.
The two butted horns when it came to interpreting existing research and evidence on the subject.
Rogers maintained that study-to-study variations in the use of tax and growth measures, time periods, sample states and control variables can result in apples to oranges comparisons. Drenkard disputed that the literature on tax cuts and growth was inconclusive and went on to compare the growth in states that had cut tax rates to the growth in neighboring states that had not.
Both agreed that well-crafted policy and careful administration are more important than simply enacting tax cuts, citing the practicality of stable revenue streams and the need to couple rate reductions with spending cuts.
NCSL’s next invitation-only meeting for legislative fiscal specialists will be the Midwest States Fiscal Leaders Meeting, Oct. 28-30 in Chicago.
Jackson Brainerd is a research analyst in NCSL's fiscal program.
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