Over the years, there has been substantial empirical research, testing economic theories of the effects of taxation on economic growth. And, though earlier work said otherwise, there is now a growing body of empirical research that suggests that high and rising tax burdens--especially taxes on personal income--do significantly inhibit state economic growth. Unfortunately, few of these studies have examined the relative effect of sales taxes on economic growth. (This paucity of research likely stems, in part, from the breadth of theoretical agreement as to what those relative effects are.)
One of the earliest studies that found the personal income tax to be a drag on economic growth was done in 1981 by Professor Richard Vedder of Ohio University. Vedder compared the tax policies in the 16 states that saw the fastest growth in income from 1970 to 1979 with those in the states that saw the slowest growth in income. He found that the low-growth states had 1970 state and local personal income tax burdens (expressed as a share of personal income) that were more than double the income tax burdens in the high-growth states. Furthermore, from 1970 to 1979 the income tax burden went up one and two-third times as much in the low-growth states as in the high-growth states. Vedder surmised, "Income taxes levied on individuals and corporations are particularly detrimental to growth, more so than consumption-based taxes or user charges that do not reduce the incentives to work or form capital."
A 1987 study by the Iowa Tax Education Foundation (ITEF) attempted to determine why lowans were fleeing the state in record numbers. (It was widely reported that some 80,000 residents left the state between 1980 and 1987.) By surveying hundreds of former lowans, ITEF found that the state's inordinately high personal income tax rates (their 1980 top marginal rate of 13% remained in place until 1988 when it was lowered to 10%) were a major factor in the decision to leave the state.
A 1992 study by Thomas Dye examined the growth rates of personal income in the eight most recent states to adopt a personal income tax (excluding Connecticut which did so in 1991). Dye found that six of the eight states suffered a significant slowdown in the rate of growth of personal income after enactment of the tax. (Additionally, six experienced a sharp increase in state government spending after enactment.)