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The Leaflet: The Road to Prosperity Is Paved With Free-Market Policies

February 8, 2019

States with tax-and-spend policies continually fall at the bottom of economic outlook and performance rankings.

Why do some states prosper while others languish? According to the most recent edition of Rich States, Poor States, the answer is quite simple: “Bad ideas have consequences.”

Authored by renowned economists Arthur Laffer, Stephen Moore, and Johnathan Williams, Rich States, Poor States (RSPS) ranks the 50 states on their economic performance and outlook. The economic performance ranking is based on three backward-looking variables: state gross domestic product, absolute domestic migration, and non-farm payroll employment. The economic outlook ranking is based on 15 current variables, including personal and corporate income tax rates, property and sales tax burdens, state minimum wages, and workers’ compensation costs.

As expected, the states that have implemented spending and tax cuts and deregulation enjoy the most robust economies. The five states with the best economic outlook are Utah, Idaho, Indiana, North Dakota, and Arizona. The top five states for economic performance are Texas, Washington, North Dakota, Utah, and Colorado. Utah has been number-one on the economic outlook ranking for eight years in a row.

Not surprisingly, all of these states, except Indiana, had the highest population influxes on a percentage basis from 2010 to 2017. Americans vote with their feet. U.S. Census Bureau migration data reveal millions of Americans are moving their families and businesses to states that offer business-friendly environments and affordable living costs. Florida and Texas—two states with no personal income tax—experienced the highest domestic migration inflows from 2005 to 2016.

Not coincidentally, the exact opposite trend occurred in states at the bottom of the economic outlook and performance rankings. California, Illinois, and New York suffered a net population loss of more than a million residents over the same 11-year timeframe. In 2018, Illinois endured the largest population exodus of any state and is on track to lose two congressional seats in 2020. Rhode Island is set to lose one of its two congressional seats, and Connecticut is in the midst of a decade-long population drain. Unfortunately, this trend is likely to continue. Polls show 43 percent of Connecticut’s residents are looking to leave within a couple of years.

As can be expected, high taxes, unfunded public pension liabilities, rampant corruption, and lack of jobs plague these states more than others. However, lawmakers in these states have nobody to blame but themselves. Their anti-growth policies have driven out high earners and job creators (and those who can afford to move)—leaving behind an underclass bearing more and more of a growing tax burden.

Fortunately, these policies can be reversed. Legislators in any state can promote and pass legislation that can spur an economic renaissance and population resurgence. In other words, if bad ideas have bad consequences, then good ideas spark good consequences.

 

What We’re Working On
 

Energy & Environment
Carbon-Dioxide Tax Would Be Bad For Maine
In this Research & Commentary, Policy Analyst Tim Benson writes about a proposal to establish a carbon-dioxide tax in Maine. The tax would begin at $5 a ton in fiscal year 2020–21 and would increase by $5 per ton each fiscal year until reaching a cap of $40 in 2027–28. Revenue raised by this tax would be allocated to a Carbon Content Assessment Fund, which would then be disbursed to “transmission and distribution utilities” in the state in an effort to reduce the rates of customers in a “manner that is equitable.” Benson writes that this rebate is necessary because carbon-dioxide taxes are inherently regressive and disproportionally harm low-income families.

Education
Education Choice Reforms in 2019
In this episode of the Heartland Daily Podcast, State Government Relations Manager Lindsey Stroud is joined by Vicki Alger, senior fellow at the Independent Women’s Forum, to discuss her efforts on education reform, what options are available for parents and lawmakers, and what we can expect from the states in 2019. Alger discusses the key role of parents in education and the various education choice programs including vouchers, education savings accounts, tax credit scholarships, and child safety accounts.

Health Care
The Myth of Cuba’s “Successful” Health Care System
In this episode of the Heartland Daily Podcast, libertarian economist Dan Mitchell exposes the myth of Cuba's “successful” health care system, how that relates to what’s happening in Venezuela, and what U.S. legislators with a penchant for socialism should learn from the island’s economic fiasco.

Budget & Tax
Many Paths for Tax Conformity are Available for Arizona
In this Research & Commentary, Senior Policy Analyst Matthew Glans discusses the debate over tax conformity in Arizona and how the state can and should proceed with conforming state tax laws to the new federal tax changes.

From Our Free-Market Friends
Looking for housing in all the wrong places
Keli'i Akina, president of the Grassroot Institute of Hawaii, agrees with lawmakers that the Aloha State has a housing crisis but disagrees with them about the solution. Hawaii lawmakers too often rely on big government to solve problems. For this “crisis,” they are proposing home vouchers for teachers, building teacher housing projects, and enshrining into the state constitution an amendment giving every Hawaii resident the “right” to housing. Akina argues that lawmakers should loosen zoning restrictions for urban housing and reduce regulatory barriers to increase the supply of housing and, subsequently, lower costs.

 

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Author
Arianna Wilkerson works in government relations at The Heartland Institute.
awilkerson@heartland.org