Earnings tax data shows “dampening effect”

Ducks and Economics is a really great blog if you haven’t wandered across it in your (tireless, I’m sure) search for economic analysis of the taxes we pay in Missouri.

Today the blog takes up the earnings tax debate in Missouri by looking at data from MSAs (Metro Statistical Areas) that levy an earnings tax and how they are growing.

There ended up being 57 MSAs listed in the population data that I identified as having earning taxes. They range from Flint, Michigan with a -1.12% growth rate in 2008-2009, to Denver, Colorado, who experienced a 2.1% growth rate over the same period. Of these 57 MSAs, 45 are in the bottom half of cities ranked by population grown (the average MSA in 2008-2009 had a population growth rate of roughly .87%) and 9 were in the upper 50%.

This of course is not the whole story. The data only gives us an incomplete glimpse into what’s happening at a specific moment in time and doesn’t give us any information about trends. I would assume that young cities with high rates of growth might implement an earnings tax but that the tipping point isn’t reached for a while, but without controlling for how long each of these earning taxes have been in place I can’t make that conclusion. There are also many other idiosyncratic determinants of population growth that the data doesn’t allow me to engage. There is also a substantial risk that my data selection is incomplete. Regardless, it is suggestive that close to 90% of identified MSAs with earnings taxes are below the average MSA population growth rate; it suggests that earnings taxes has a dampening if not negative effect on population growth, particularly in cities hit hard by the recession.

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