This New York Times article today explains how states can respond to the recession by either raising taxes or cutting spending. They pick Maryland and Kansas as exemplars of each respective strategy. They assert that there is great confusion as to how well each strategy works. Kansas Governor Sam Brownback apparently did some of his own data analysis:
Gov. Sam Brownback of Kansas, who sought the Republican nomination for president four years ago, said he was persuaded that his state needed to cut its income taxes and taxes on small businesses significantly when he studied data from the Internal Revenue Service that showed that Kansas was losing residents to states with lower taxes.
Another interesting quote:
The effects of state taxes are hotly debated. This spring, when the George W. Bush Institute held a conference in New York on how to promote economic growth, panelist after panelist asserted that cutting state taxes would jolt the economy; Governor Brownback told the conference that his small-business tax cuts would be “like shooting adrenaline into the heart of growing the economy.”
But the Institute on Taxation and Economic Policy, a nonprofit research organization in Washington associated with Citizens for Tax Justice, which advocates a more progressive tax code, issued a report this year that found that the states with high income tax rates had outperformed those with no income tax over the past decade when it came to economic growth per capita and median family income.
The choices made by Kansas and Maryland could provide something of a real-time test of the prevailing political theories of taxing and spending — though it could be years before the results are in.