Tax Cuts Haven’t Done Much to Boost Job Growth in Wisconsin or Other Tax-Cutting States
More evidence is piling up that states that made big tax cuts in recent years – including Wisconsin – are failing to keep up with the rest of the country when it comes to job growth.
The idea that cutting taxes could spur economic growth is not new, but advocates for tax cuts overlook several factors that determine the extent to which tax cuts contribute to growth in employment:
- Taxes pay for services that businesses and families need. Excellent schools, a solid transportation network, and safe communities all help establish an economic environment conducive to creating jobs – and all depend on revenue from state and local taxes.
- Other factors are much more important to a state’s economic growth. Trends in the national and regional economies, the level of education of a state’s workforce, population growth, and even a state’s climate can have a bigger impact on the state’s economy than the amount of taxes paid.
- Any economic benefit of cutting taxes is offset by reduced spending by the state, which slows the economy.
Lawmakers have passed nearly $2 billion in tax cuts in Wisconsin since 2011, but those tax cuts haven’t done much to contribute to job growth. Wisconsin’s rate of private sector job creation has consistently ranged between 50% and 75% of the national rate since 2011, as shown in the chart below. That slow rate of job growth has its roots in many economic factors, and cannot be solely traced back to economic policies pursued by Wisconsin lawmakers in recent years. But it’s clear that significant tax cuts in Wisconsin have not led to the hoped-for job growth.
Wisconsin isn’t the only state in which significant tax cuts have done little to spur job growth. Of the five states that that passed especially large tax cuts since 2010 – including Wisconsin – none have seen their economies surge. Job growth in four out of the five states has lagged the nation’s, as shown in the chart.
Kansas, which passed especially large tax cuts in recent years, now faces a budget shortfall of $400 million. Lawmakers are considering whether they should pass a tax package that includes a tax increase that falls more heavily on people with low incomes, or make further cuts in support for Kansas schools and reduce payments to medical professionals who provide services to people with low incomes.
Not only have the tax cuts not created jobs in Wisconsin and other states, they have made it harder for these states to build strong economies, by reducing the revenue needed to invest in schools, transportation, safe communities, and other tried-and-true building blocks of economic growth.