Statistics say to avoid tax cuts, but fund schools

In his inaugural address, Gov. Bruce Rauner made it clear that improving the Illinois economy is high on his agenda, averring "We need a booming economy that is pro-growth, pro-business, pro-job creation."

That's hard to argue with. After all, recent data show Illinois ranks among the bottom 10 states in both personal income and employment growth. Truth be told, Illinois has lagged most of the U.S. in percentage state GDP growth for the last 30 years.

Granted, pursuing a pro-economic growth agenda is hardly controversial or partisan. I'm unaware of any Republican or Democrat who has tried to claim the mantle of being the "anti-growth" or "anti-job" candidate. But, correctly identifying initiatives that will actually get the job done has proved difficult.

To date, Gov. Rauner has indicated support for two very different approaches to stimulating the economy. On the one hand, he's suggested that reducing the state's income tax rates will enhance job creation specifically and economic growth generally. On the other, he's backed investing more in education. So what does the evidence say about which approach will most likely pay dividends? As it turns out, plenty.

Start with the suggestion income tax cuts will stimulate job growth. Sure this sounds reasonable enough, but the preponderance of the evidence, and the conclusion reached by the significant majority of peer-reviewed, independent research, indicate otherwise: cutting state income taxes does not effectively encourage job growth. Consider, for instance, the findings of a recent study done by the Center on Budget and Policy Priorities. It reviewed what happened in the six states - Arizona, Louisiana, New Mexico, Ohio, Oklahoma and Rhode Island - that enacted material income tax cuts prior to the Great Recession. It found that the states passing tax cuts "were as likely to lose ground as to gain it."

Then there's Kansas. In 2012, that state's governor, Sam Brownback, successfully pushed passage of major income tax cuts. Brownback claimed Kansas would serve as the test case for demonstrating how cutting taxes would "pave the way to the creation of tens of thousands of new jobs." Well, if Kansas is the test case, the verdict is in and tax cuts failed.

Not only haven't they generated any job growth, but Kansas was one of just five states that lost employment through the first half of 2014. The only thing that has grown in Kansas is the state's deficit - resulting in significant cuts to core services, like education.

Indeed, the vast majority of research on this subject, across a broad ideological spectrum - including the conservative Cato Institute, the pro-business Kaufman Foundation for Entrepreneurship, and the nonpartisan Congressional Budget Office - comes to the same conclusion: there's no statistically meaningful correlation between income tax policy and economic growth.

The research, however, does definitely show that investing more in public education is a highly effective way to enhance a state's long-term economic growth. In fact, a recent report by the Economic Policy Institute concluded that providing a high-quality education is far more likely to improve a state's economy over time than tax cuts. Echoing this conclusion, a University of Massachusetts study found that investing more in education demonstrably raises state GDP, increases employment and bumps personal income. Which should make Governor Rauner's policy choice is clear. If he's serious about growing Illinois' economy, he'll eschew ineffective tax cuts in favor of thoughtful investment in education.

Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank. rmartire@ctbaonline.org​