I thought- I could've spent the extra 5% in the economy, the same argument that many Republican governors use to propose cutting the personal income tax in their states. Some Republican governors, such as Sam Brownback of Kansas, Mary Fallin of Oklahoma, and Bobby Jindal of Louisiana, are proposing to slash their state income tax to stimulate job growth and attract businesses.
However, after doing some research, it seems that this logic is flawed and my experiences in Florida seem to agree.
The chart below shows the category of tax revenue on which each state relies. Note that many states without income tax, including Florida, rely heavily on sales tax.
Per-capita economic output in the nine high-rate states (CA, HI, ME, MD, NJ, NY, OH, OR, and VT) increased an average of 10.1% while the average growth rate for states with no income-tax was only 8.7%.
Furthermore, from my perspective, states that rely so heavily on sales tax, such as Florida, aren't as prepared to deal with economic downturns compared to states with higher income tax rates. It is often said in Florida that we were the first state to enter the recession, but will be the last one out. Much of this is probably because of our over-reliance on the tourism industry. Florida, in my opinion, relies too much on tourism, and therefore, the sales tax generated from tourism sales. When the economy takes a dive, sales are going to decrease because people have less discretionary spending.