Lawmakers need to come to grips with our subpar economic performance and enact reforms to jumpstart growth. Real annual economic growth between 1960 and 1999 was 3.5%. Since 2000, it has been 2.2%. As a result, we are 15% poorer than we would have been if growth had remained steady. That means more poverty and budget problems in state capitals and Washington.

Flattening our tax code to eliminate complexities and spur productivity should be a top priority to get that done. A true pro-growth approach would impose the lowest tax rate on the widest tax base to spur the productivity and savings needed to spark growth. While Washington is merely in the beginning stages of debating such necessary reforms, states are already champing at the bit to reform their tax codes to lure new jobs and investment.

Low loopholes

Because state sales taxes generally have fewer loopholes and lower rates — and therefore have a lesser impact on growth and employment — pro-growth policies should favor sales over income taxes where possible. True reform should include addressing the online sales tax loophole.

A move towards e-fairness would give states an opportunity to use additional online sales tax revenues to lower rates on more burdensome taxes, such as the personal income tax. This would create a more efficient tax system and correct a fundamental distortion of the retail marketplace, where traditional retailers must collect the sales tax and their online competitors don't.

In a new study I've conducted with my colleague Donna Arduin released Thursday, "Pro-Growth Tax Reform and E-Fairness," we find that the impact of collecting Internet and remote sales taxes and using additional revenues wisely would be profound.

Gross state product would increase from 1.2% in Alaska to 4.6% in Washington state over 10 years. States would see jobs created, anywhere from about 2,000 in Vermont to more than 180,000 in California. Gross domestic product would grow by more than $563 billion, creating 1.5 million jobs nationwide. But in order to capitalize on this opportunity, Congress must first pass legislation allowing states to act. The study was funded by a business group called the Marketplace Fairness Coalition, which backs the legislation.

E-sales taxes already due

Despite widespread misinformation, online sales are already subject to sales taxes. That they go largely uncollected, because of a pre-Internet Supreme Court ruling, does not make them any less due. Not collecting sales taxes, which in 2012 trimmed state revenues by more than $23 billion, results in a smaller sales tax base and an inefficient system that stifles job creation and economic growth. Instead of cutting spending in reaction to decreasing sales tax revenues, many states have raised tax rates, compounding the problem.

To prosper as a nation, we need to return to the robust growth that we enjoyed a decade ago. One step is giving states the power to require online-only retailers to collect sales taxes as part of a transition to a more pro-growth tax structure, allowing for revenue-neutral income tax reductions. It's worth noting that under the leadership of Gov. Scott Walker, Wisconsin has already passed legislation that would dedicate e-fairness revenues to a state income tax cut. Wisconsin is poised to be a beacon for pro-growth policies in the Midwest.

Arthur B. Laffer is the chairman of Laffer Associates.