The U.S. Bureau of Labor Statistics recently reported some good news: unemployment rates have dropped in 46 states from January 2011 to January 2012. There were four exceptions:
- Illinois, which in January 2011 enacted a 67% increase in individual income taxes and a 30% increase in its corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. . While applauded by progressives at the time, the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases are increasingly viewed across the spectrum as having severely harmed the state’s business climate. A series of hearings and high-profile targeted tax incentive packages to retain jobs led to some modest changes that mostly nibble around the edges. Illinois’s sharp rise in unemployment (+0.8%), while most of the country and all of their neighbors saw drops, suggests that the tax increases are a contributing factor.
- Hawaii, which in 2009 raised income taxes with three new brackets. Their 11% rate on income over $200,000 is now tied for highest among the states. Unemployment rose +0.3% over the past year.
- Mississippi, which also rose +0.3%. A tax commission in 2008 considered a number of ambitious changes (including some submitted by us) but ultimately did nothing except raise the cigarette tax.
- North Carolina, which rose +0.1% and in 2009 raised income and sales taxes. The income tax increase expired at the end of 2010 and the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. increase during 2011, although Gov. Bev Perdue (D) has said she wants to re-raise the sales tax. (She also announced this morning that she will not seek re-election this year.)
The Illinois Policy Institute has a neat page to look at how states fared over the past year in unemployment rate changes. 
More on state tax policy here.