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POLICY: Small changes pay big dividends
From the
Bluegrass Institute, an independent
research and educational institution offering free-market solutions
to Kentucky's most pressing problems.
While Massachusetts Gov. Mitt Romney’s proposal to lower his state’s income tax
rate from 5.3 percent to 5 percent may not seem like a big change, it would have
an astounding impact on the state.
Reducing income tax rates by .3 percent means an extra $150 in left in the
paychecks of employees making $50,000 a year. The difference to the state would
be worth millions of dollars.
The Beacon Hill Institute predicts the small tax cut will result in $7.3 million
in new business investments and a $243 million increase in disposable incomes.
Kentucky’s income tax makes Massachusetts’ rate look tame. But Gov. Ernie
Fletcher has proposed lowering Kentucky’s income tax rate from 6 percent to 5.7
percent. This is a good start.
Critics complain that tax cuts diminish the amount of money needed for education
and other important government programs. However, The Beacon Hill Institute
found that Romney’s proposal would bring in an additional $307 million to state
coffers next year.
Lower tax rates will mean more money for the state.
How can a seemingly small tax cut produce such dramatic gains? Taxes raise the
cost of the products or services, which results in people wanting fewer of the
items. But demand increases when taxes, and correspondingly the price of
products, is lowered.
Lower taxes also help create more jobs. The Beacon Hill Institute claims
Romney’s proposal would increase employment in Massachusetts by more than 3,600
workers.
Like Massachusetts, Kentucky’s economy could benefit greatly from even a small
reduction in the income tax rates. Small changes create the kind of big benefits
that our state’s policymakers should not let pass us by.
Sources:
“Romney Seeks Mass. Income Tax Cut, Cites Economic Resurgence” by Scott
Greenberger, The Boston Globe
Cutting the Income Tax to 5%: An Affordable Boost to the Economy, The Beacon
Hill Institute
“Jobs and Opportunity Bipartisan Solutions” by Gov. Ernie Fletcher
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