Study shows reason for caution in tax cutting

Posted on December 29, 2014

(WJBC file photo)

By Jim Anderson/Illinois Radio Network

CHICAGO – An expert on the state budget cautions us not to expect too much from tax cuts.
 
The state income tax drops from 5 percent to 3.75 on New Year’s Day. The governor-elect believes that will produce economic growth to pay for education, corrections, construction and conservation. At the Center for Tax and Budget Accountability, director Ralph Martire says a study from the University of Missouri shows he’s wrong.
 
“What they found was there’s no correlation between tax policy and economic growth. High taxes, low taxes, there was no statistically meaningful correlation. There was, however, damage done to the economy every time state governments cut spending,” he said.
 
That’s because government spending is part of the economy, and cutting it slows the economy.
 
Also, cutting isn’t as simple as it sounds, Martire says: The big money the state spends now is for pensions, making up for the short funding of the past, and debt service.

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