For the seventh consecutive year, Utah has been ranked as the state with the best economic outlook by the authors of Rich States, Poor States, published by the American Legislative Exchange Council. New York was ranked 50th, with the nation’s worst economic outlook.
Rounding out the top 10 for best economic outlook are South Dakota (2), Indiana (3), North Dakota (4), Idaho (5), North Carolina (6), Arizona (7) , Nevada (8), Georgia (9) and Wyoming (10).
Rounding out the bottom 10 for worst economic outlook are Vermont (49), Illinois, (48), California (47), Minnesota (46), New Jersey (45), Connecticut (44), Montana (43), Oregon (42), and Rhode Island (41).
This is the seventh year ALEC has published the report, which evaluates states based on 15 variables including taxes, labor policies and regulations.
“We’ve wanted to be focusing on areas legislators could influence and change in a relatively short time,” said ALEC economist and report coauthor Jonathan Williams. The evaluation criteria have remained the same throughout the seven editions cowritten by Williams, economist Stephen Moore of the Heritage Foundation, and economist Arthur Laffer of Laffer Associates.
‘Historic Reforms’ in North Carolina
Quick changes for the better or worse can be seen in this year’s rankings. Williams noted North Carolina moved up from 22nd place for economic outlook in the 2013 edition to 6th place this year. He cited “historic tax reform to cut rates across the board” as a big reason. The state “is much more competitive.”
Among other things, North Carolina moved from a “progressive” income tax with multiple tax rates that rose as incomes rose to a flat tax, meaning everyone pays the same tax rate. Furthermore, the flat tax rate is lower than any of the rates under the progressive income tax, “meaning everyone saw a tax cut,” Williams said. The state also eliminated its estate tax and reduced corporate taxes.
Indiana climbed from 14th to 3rd place, the result of tax and other reforms that were started under Gov. Mitch Daniels continuing under Gov. Mike Pence, Williams said.
Importance of Right-to-Work Law
He noted his home state of Michigan climbed from 20th to 12th place, “mostly because of a right-to-work law that was enacted one year ago.” Under right-to-work, employees cannot be forced to join a labor union as a condition of employment. Approval of right-to-work in Michigan is all the more remarkable considering the state is home to the United Auto Workers, he said.
On the other hand, Florida dropped seven spots from 9th to 16th place in economic outlook, followed by Colorado, New Jersey, Virginia and Wyoming, each of which dropped six spots. Most of the drops were because of tax increases or spending problems, such as pension underfunding, or rises in the state minimum wage, which increases the cost of labor.
Moore said several factors stand out to him when assessing states’ economic outlooks.
“Right-to-work law is extremely important in terms of where jobs and people will move. It’s maybe the most important factor aside from income tax rates,” Moore said. He noted the ranking of his home state of Virginia “has fallen under a Republican governor” who raised taxes.
Spending Fears Returning
Spending control is also important.
“There’s no doubt states are turning on the spending spigot again,” said Williams. “As long as we have this quasi-recovery, will states spend dollars and end up awash in red ink when the next crash hits? Or will they control spending?
“North Dakota has been spending like a drunken sailor. It may overcome the fracking boom” that has oil revenue pouring into state coffers, Williams said.