Economic theory, a growing body of empirical research, and
real world evidence from states such as Connecticut all point to the same
conclusions. High and rising state and local tax burdens can have a severe
detrimental effect on economic growth. Therefore, restraining the overall level
of state and local taxes is of prime importance in maintaining a thriving state
and local economy. However, the specific composition of that tax burden can have
a major influence as well. Theory as well as the preponderance of empirical
evidence suggest strongly that sales taxes have less adverse impact on a state's
economy than do income taxes.
It naturally follows, then, that state and local economic
prosperity in the 1990s can be enhanced by focusing on three factors: 1) strict
overall tax restraint, 2) maintaining tax burdens that are competitive with
geographical neighbors, and 3) reducing the burden of anti-growth state and
local income taxes.