As is so often the case, Winston Churchill put it best when he said, For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
A forthcoming Goldwater Institute study demonstrates the truth in this statement in an analysis of the relationship between tax rates and poverty in the fifty states. Its key finding: States that have higher taxes made less progress in reducing poverty during the 1990s than states with lower taxes. The inverse also holds: states with the lowest tax burdens are more successful in reducing poverty.
Arizona and California are two states that bear out this trend. In 1990, Arizona had the fifth highest state and local tax burden in the nation and almost 16 percent of Arizonans lived below the poverty line. By contrast, that same year California had a much lighter tax burden and a 12.5 percent poverty rates. Over the next ten years, Arizona cut taxes, dropping its tax burden ranking to 25th, while California increased its burden, reaching 7th highest in the nation. Meanwhile, poverty rates in Arizona fell 11 percent. In California, they climbed 13 percent.
Of course, many things contribute to the rise or fall of poverty rates. Tax burdens, however, are clearly a significant factor. When a state has a low tax burden, economic growth is higher. Economic growth delivers more job creation and higher per capita and median family incomes. Economic growth is a powerful means to pull people out of poverty.
To help Arizona's neediest citizens, the Governor and legislature should promote greater economic growth through further tax cuts.
Noah Clarke is an economist with the Goldwater Institute Center for Economic Prosperity.