New York ranks last and Utah first in the third edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, released in April by the American Legislative Exchange Council.
The report gives policymakers information on the economic competitiveness of each state—and on what they could do to make their state more competitive. The authors are economists Stephen Moore of The Wall Street Journal, Laffer Associates founder and CEO Arthur Laffer, and ALEC Tax and Fiscal Policy Task Force Director Jonathan Williams.
‘Unprecedented Build Up’
The report examines the toll the recent recession has taken on states, and it highlights where state policies need improvement. The authors point to “an unprecedented build up in the size of state budgets” as the “fundamental cause of why so many state budgets are broken.”
The book also considers the long-term damage of “progressive” policymaking and how the federal government’s policies are affecting the states, takes an in-depth look at Missouri, and presents the competitiveness rankings index.
“Rich States, Poor States has become a tool each one of us legislators can use to analyze what we’ve done in the past that is beneficial and what is detrimental,” said Indiana State Senator Jim Buck (R-Kokomo), chairman of ALEC’s Tax and Fiscal Policy Task Force.
15 Variables in Rankings
“The competitiveness index ranks the states based on 15 variables,” explained Laffer. “Every year we rank states by looking at the basics such as taxes, right to work, inheritance taxes, number of state employees, spending and tax limitation measures, and more.”
Utah maintained its top spot in the rankings from the year before, followed by Colorado, Arizona, South Dakota, and Florida.
For the second year in a row, New York ranked dead last. It is joined at the bottom by Vermont, New Jersey, Illinois, and California.
Soaring State Employee Costs
Only half-jokingly, ALEC’s Williams said, “We may have to rename the project ‘Poor States, Poorer States.’ One of the big drivers is the cost of government employees’ pension and health care costs that will expand into the future. Unfunded liabilities have the ability to totally decimate state budgets in the future.”
Williams said “overspending” is the reason most states are in financial distress.
“If states had implemented good economic policies in 2001, we would not see budget shortfalls,” he said.
Federal policies are also burdening state budgets. Williams noted the report looks at how some of the federal stimulus money to states “will actually make it more difficult for states to balance budgets in the long-term.”
Race to the Bottom
Williams said some states improved their competitiveness ranking by “resisting the urge to raise taxes.” He added, though, “Some states have been going in such a wrong direction that other states improved by doing nothing.”
Williams noted Louisiana has made a big move up in the rankings, going from 24th to 16th during the three years of reports. He said Louisiana “is one of the states with a net reduction in taxes in the [context] of pro-growth policies of Governor [Bobby] Jindal.”
Laffer said, “If you have two locations and raise taxes in B and lower them in A, producers and manufacturers are going to move and people are going to move from B to A. You can look at the migration patterns in rich states. Those states with sound economic policies attract people from all over the nation. People don’t work in order to pay taxes. They don’t save to go bankrupt. They save to augment their [financial] growth.”
This is one reason the authors take a dim view of states that recently have or are considering raising taxes on high-income earners. Such individuals have a greater ability than others to move themselves—and the jobs they support—to new locations.
“Soaking the rich is a disastrous policy formula,” said Williams. “The only thing taxes redistribute is people, not wealth. The point in the book is that tax increases are not free.”
Sarah McIntosh ([email protected]) teaches constitutional law and American politics at Wichita State University in Kansas.
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