Job growth in the 27 states with low state and local taxes continues to double the pace of employment gains compared to their high-tax peers. From December 2017, the month President Trump signed the Tax Cuts and Jobs Act into law, through August 2019, the 27 states with the lowest taxes on individuals generated 3.77% more private sector jobs, compared to 1.81% in the higher taxed states, according to data released by the U.S. Bureau of Labor Statistics today.
The Tax Cuts and Jobs Act limited state and local tax (SALT) deductions to $10,000 per filing household, largely ending a long-time federal subsidy for states with taxes. In 2016, the average New York individual income tax filer who itemized deductions claimed $21,779 in state and local tax payments. In 2018 and beyond, that average New York filer would lose $11,779 in deductions, leading to a higher federal income tax liability—though likely offset fully or in part by lower overall federal taxes.
This change to the federal tax code has been heavily criticized by governors from high-tax states, most notably by New York’s Democratic Gov. Andrew Cuomo, who called the limiting of the SALT deduction “…an economic attack on Democratic states.”
Since the 2017 federal tax cut, New York’s private sector job growth has been a lackluster 1.8%.
Among the 10 most-populous low tax states, the fastest private sector job growth since December 2017 is occurring in Washington (5.3%), Arizona (5.0%), Texas (4.7%) and Florida (4.7%). Among all low-tax states, Nevada has the strongest job growth, adding 5.8% more private sector jobs followed closely by Utah, at 5.7%. The slowest growing low-tax state is Louisiana, at 0.9%—showing that, while taxes matter, so too does regulation, property rights, and economic diversification.
Among the high-tax states, Oregon is showing the most job growth, 4.0% since December 2017. Oregon has no state sales tax.
Of note, six of the top 10 states with the strongest job growth—Nevada (1), Utah (2), Washington (3), Arizona (4), Idaho (5) and Oregon (9)—share one attribute: they either border or are regionally close to California, one of America’s most-taxed and regulated states, with tens of thousands of California small business owners and workers moving annually to a nearby state.
The strong job growth for some states comes in the context of a generally strong national employment picture, though one that sent mixed signals in the past month of government data. The U.S. Bureau of Labor Statistics reported earlier this month that total nonfarm payroll employment rose by 130,000 in August. This was less employment growth than expected by many economists, some of whom argued that it presaged a broader slowdown in the economy.
But there are two surveys that measure employment activity. The more watched report is known as the payroll or establishment survey. It is a representative sample of U.S. businesses. The other survey is the household survey. The household survey, as might be expected by its name, doesn’t look at businesses; rather, it is a representative sample of U.S. households that also measures the self-employed and agricultural workers.
Over the longer term, the household survey can pick up important trends that aren’t caught in the establishment survey. Of interest for the August report, the household survey estimated a gain of 590,000 workers, significantly higher than the 130,000 reported in the establishment survey, suggesting that there may be some upward revisions in prior month’s payroll employment estimates.
The bottom line is that the American economy remains robust, with stronger growth generally found in states with lower taxes, such as Florida, Nevada, Texas and Utah.