Do taxes and tax burdens matter?

Reading Winthrop Quigley’s column today in the Albuquerque Journal about the conflicting best and worst states in terms of taxation is a less-than-enlightening exercise. The article notes New Mexico’s relatively good performance on a Kiplinger’s report on taxes and compares it with our performance on a separate report by Tax Foundation.

For starters, focusing on taxes alone is somewhat misguided if you are trying to understand economic growth. Overall economic freedom which includes regulations and overall property rights is a far better measure of a state’s likely economic prowess.

Secondly, as Richard Anklam notes, methodology and priorities are important. I can’t really figure out what Kiplinger’s is measuring and Quigley fails to mention that the Tax Foundation report measures business taxation, not overall taxes. According to the Federation of Tax Administrators report on tax burdens as a percent of income, New Mexico is 14th.

Lastly, what you tax matters. If you want more of something, tax it less, if you want less of something, tax it more. New Mexico needs more people working and building private sector businesses, and fewer receiving government benefits. As Art Laffer and Stephen Moore pointed out in a Rio Grande Foundation report, states that refrain from taxing personal income experience much faster growth than those that heavily tax work.

Need more evidence? Just look at the economic growth taking place in Texas!