Businesses and families vote with their feet and a new study of the states with the brightest economic futures suggests lower taxes and less regulation are a prescription for sustained growth, while heavy burdens from government lead to decline.
In the 2018 edition of “Rich States, Poor States,” published by the American Legislative Exchange Council, economists Jonathan Williams, Stephen Moore, and Arthur Laffer, say it’s clear which states are thriving and which ones are floundering.
For the eleventh consecutive year, Utah tops the list of states with the brightest outlooks. Idaho, Indiana, North Dakota, Arizona, Florida, North Carolina, Wyoming, South Dakota, and Virginia round out the top ten.
New York finished dead last in the study. Vermont, Illinois, California, New Jersey, Hawaii, Minnesota, Montana, Maine, and Oregon make up the remainder of the lowest ten states.
Williams says the ranking is simply a compilation of the most important economic measuring sticks.
“We look at things that matter for economic growth,” he said. “We look at the 15 economic policy variables that Dr. Laffer, my co-author and Reagan economic adviser, came up with years ago that really do matter for economic growth.
“Also, they’re things directly controlled by state lawmakers: tax rates, regulation, labor policy. Those are really the three broad categories. In essence, what we have is an economic competitiveness ranking that predicts future growth,” said Williams vice president at the American Legislative Exchange Council..
But Williams says the factors that determine future growth are already producing results, especially for those states at the top of the list.
“It’s where people are voting with their feet and going towards. It’s where businesses are moving from high tax states to low tax states. They’re going to states like Utah. They’re going to states like Indiana, Arizona, Florida, Texas – that whole list of states that are competitive.
And of course they’re flocking to those states from states like New York, Illinois, California, New Jersey – the states that are perennially in the bottom of the index,” said Williams.
He says the number one reason people move is for economic opportunity and the same is true for businesses.
“When the Hertz Corporation leaves New Jersey and relocates and opens in Florida, or when Toyota USA leaves California and goes to Texas, or you see these massive movements of job creators going from high tax states with limited economic opportunity and high cost of doing business to states that value competition and free market environments, you absolutely see the natural connection when people then vote with their feet and go towards those job opportunities,” said Williams.
Williams suspects all states will see their economies improve in the near term, thanks to the federal tax cuts.
“The untold story of the success of federal tax reform is what it’s meant for state budgets. When states come back and are analyzing what tax reform means for their state budget, they’re seeing, in many cases, hundreds of millions of dollars – if not billions of dollars – in unexpected revenue – coming in at the state level. That’s because state tax codes link to the federal tax code,” said Williams.
He says two states rocketed up the list this year for taking steps to make the benefits of the federal tax cuts even sweeter.
“Idaho and Georgia were two of the states that utilized that the best this year by cutting their own state tax rates with that unexpected revenue. Instead of allowing it to be a tax increase at the state level, they’re using it to reduce their tax rates and become more competitive,” said Williams.
Idaho shot up from number ten to number two as a result of those moves. Georgia jumped from seventeenth to eleventh. And Williams says many other states are moving up the list because they are embracing freedom.
“Rewind the clock a few years ago and states like North Carolina and Indiana were in the middle of the pack. Both of those states are in the top ten this year for economic outlook because of great fiscal policy and reforms, tax cuts, pension reform, Indiana of course going right to work.
“States like Wisconsin have made huge movements over the years. My home state of Michigan (has as well). New Hampshire, the ‘Live Free or Die” state, moved up to it’s all-time best of number seventeen this year.
“While the states in the bottom of the index have basically been stuck for most of the ten or eleven years (of doing the survey), we’ve seen some great upward mobility of states getting it right and being able to crack through to that upper echelon of rankings,” said Williams.
While some might quibble with the methodology, Williams says you can’t argue with what is actually happening in the states.
“The proof is in the pudding. The data is very clear that there’s a big growth premium associated with being a competitive state economy,” said Williams.
