The report, “The Economic Impact of State Income Tax Elimination“, prepared by the Council of Economic Advisers, analyzes the economic effects of states phasing out personal income taxes and replacing that revenue primarily with broader sales taxes, with or without limits on government spending growth. It finds that states without income taxes have historically seen higher GDP growth and strong net migration, suggesting economic benefits from eliminating income taxes. Under modeled scenarios, phasing out the income tax could raise state GDP by 1%–1.6%, boost new business startups by 16%–19%, increase average wages by about $4,000, and attract more high‑income taxpayers, while requiring average sales tax rates below 8%. The analysis also highlights that income taxes tend to be more damaging to economic growth than sales or property taxes, contributing to outmigration, reduced innovation, and revenue volatility, and that combining tax elimination with spending limits could maintain services while enhancing growth.
