Tag: rating the states

Malia Blom, writing in The Hill, notes that the recently passed tax reform legislation may bring the disparity between the states to a head.

Many State governors have recently delivered their “State of the State” addresses. According to the American Legislative Exchange Council (ALEC)   “a number of different trends and priorities regarding economic policy were apparent after a full review of these addresses. Following a similar trend observed in the majority of 2016 State of the State addresses, many governors focused a considerable portion of their addresses on the issue of tax relief. Aside from tax proposals, governors discussed a number of different policy topics which, while less directly related, can still significantly affect state economies. Some of the most important of these issues included pension reform, expanding or shrinking Medicaid, changes to the state’s minimum wage and government efficiency…Overall, most governors conveyed an understanding that lower tax rates and limited government give citizens and businesses a greater incentive to reside and operate in their states relative to others with higher tax rates and more regulations… Generally, states with lower tax rates, fewer regulations and responsible spending habits outperform other states in terms of economic growth. Based on the observations made in reviewing the 2017 State of the State addresses, many governors are following these policies to help their states better compete for residents, jobs and capital.”

The concept of low-tax states succeeding in keeping and attracting population while their opposite numbers lose out is not new.  A 2015 Heritage analysis by Joel Griffith outlined the issue:

“The competition among the states is becoming more intense as businesses become more mobile…In recent years, governors have generally divided into two competing camps, which we call the “red state model” and the “blue state model,” raising the stakes in this interstate competition. The conservative red state model is predicated on low tax rates, right-to-work laws, light regulation, and pro-energy development policies. This policy strategy is now common in most of the Southern states and the more rural and mountain states. [the same states that, for the most part, are gaining population.] Meanwhile, the blue state model is predominantly found in the Northeast, California, Illinois, Minnesota, and, until recently, Michigan and Ohio. The blue states have doubled down on policies that include high levels of government spending, high income tax rates on the rich, generous welfare benefits, forced-union requirements, super-minimum-wage laws, and restrictions on oil and gas drilling…

“The answer is that the states’ policy choices on taxes, regulation, energy policy, labor laws, educational choice, and so forth have a large and in most cases a statistically significant impact on the prosperity of states over each 10-year time frame examined on a rolling basis from 1970 to 2012. There are always exceptions to the rule, but in most cases the red state model is substantially outperforming the blue state model. We find in particular that two policies matter most. Right-to-work states substantially outperform non–right-to-work states, and states with no or low income taxes have a much better economic record than high-income-tax states.

• Americans are voting with their feet to keep more of their income. The nine zero-income-tax states gained an average of 3.7 percent of their population from domestic in-migration from 2003 to 2013, while the highest-income-tax states lost an average of 2.0 percent of their population during the same period. Overall, population growth on an equally weighted basis from 2003 to 2013 was twice as high in the low-income-tax states.[8] In terms of raw population, the nine zero-income-tax states in total gained an average of 830 people per day from domestic migration throughout 2004–2013; meanwhile, the nine highest personal income tax states in total lost an average of 944 people per day from domestic migration.[9] The flow of families from high-tax to low-tax states is unmistakable.
• The jobs growth rate was more than double in the zero-income-tax states than in the high-income-tax states, on an equally weighted basis.[10] Businesses such as Toyota are more likely to set up operations in low-tax states. This kind of business relocation to low-tax states is happening routinely and even accelerating.[11] Of the four largest states, from 1990 to June 2014, the jobs growth rate in red states Florida (46 percent) and Texas (65 percent) has been almost triple the jobs growth of blue states California (24 percent) and New York (9 percent).
• Interstate migration has resulted in the zero-income-tax states gaining more than 14 percent of their 2009/2010 adjusted gross income from the rest of the nation between the tax filing years 1992/1993 and 2009/2010.[12] Meanwhile, the nine highest income tax states lost 8.8 percent of their 2009/2010 adjusted gross income over the same period.[13]

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“Right-to-Work Laws. On the effect of right-to-work laws, the same picture comes into sharp focus. A right-to-work law does not prohibit a union, but empowers individual workers to choose whether to join the union (and pay dues for political purposes). As of January 1, 2013, 23 states were right to work and 27 were forced union.[14] Comparing these states’ economic performance, we find:

• People are moving to right-to-work states. Population growth as an equal-weighted average from 2002 to 2012 was 12.6 percent over the past decade in RTW states and only 6.5 percent in non-RTW states.[15] Over the same decade, the equal-weighted average net domestic in-migration to RTW states was 3 percent, while forced-unionization states realized an equal-weighted loss of 0.9 percent.[16] No doubt much of this population transfer occurred as people moved to where jobs are.
• The right-to-work states enjoyed a jobs growth rate more than three times that of the forced-union states. Job growth was up 6.8 percent in RTW states and only 1.9 percent in non-RTW states.[17]

“We have examined this same data set for the past four decades, and regardless of the time period measured, the results show the same directional change in favor of right-to-work and no-income-tax states with only some variation in the magnitude of the change.”

How is your state doing?  Check out ALEC’s ratings https://www.alec.org/publication/rich-states-poor-states-10th-edition/

In 1932, U.S. Supreme Court Justice Louis Brandeis called the individual states “Laboratories of Democracy.” He might well have added that they, and many cities as well, also serve as testing grounds for contrasting approaches to economics and taxation.

Traditional high tax, high regulation states continue to be places that citizens flee. According to a United Van Lines report  “The Northeast continues to experience a moving deficit with New Jersey (63 percent outbound), New York (61 percent) and Connecticut (57 percent) making the list of top outbound states for the third consecutive year. Massachusetts (56 percent) also joined the top outbound list….”

Regionally, the Mountain West and the South continue to attract movers.  Alabama, Oregon, Idaho, Nevada, South Dakota, Washington, South Carolina, North Carolina, Colorado, and Vermont all gained.

California, once a great attractor of Americans on the move, now joins the cold Northeast for outmigration. A Redfin study notes that “The San Francisco Bay Area topped the list of places with the largest net outflow, followed by New York and Los Angeles…At the state level, California had the largest net outflow of users last quarter.⁴ As the Bay Area residents of Northern California looked north to the booming tech hubs of Seattle and Portland, Southern Californians went east to the more affordable places in the Southwest, like Las Vegas and Phoenix—which saw their populations grow immensely in 2016. These and other southern metros took in large inflows of people from the East Coast as well.”

The Tax Foundation’s State Business Tax Climate Index rates state tax systems. Its ranks, in order, the ten best states: Wyoming, South Dakota, Alaska, Florida, Nevada, Montana, New Hampshire, Indiana, Utah, and  Oregon. “The absence of a major tax is a common factor among many of the top ten states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Wyoming, Nevada, and South Dakota have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire, Montana, and Oregon have no sales tax. This does not mean, however, that a state cannot rank in the top ten while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases.”
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The Tax Foundation ranked these as the 10 lowest ranked, or worst, states: Louisiana, Maryland, Connecticut, Rhode Island, Ohio, Minnesota, Vermont, California, New York, and New Jersey. “The states in the bottom 10 tend to have a number of shortcomings in common: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance tax and an estate tax, and maintains some of the worst-structured individual income taxes in the country.”

An Investors.com report by John Merline was quite blunt in its assessment, noting that the “Best run states are low-tax Republican,” while the “Worst run are high tax Democratic.” The assessment was based on its analysis of the Mercatus Center’s State Fiscal Rankings.

The Mercatus study states that the twelve top-rated states for fiscal condition are Florida, North Dakota, South Dakota, Utah and Wyoming, Nebraska, Oklahoma, Tennessee, Idaho, and Montana., Missouri, and Alabama. The twelve worst were New Jersey, Illinois, Massachusetts, Kentucky, Maryland, Pennsylvania, Louisiana, California, West Virginia, New Mexico, Vermont, New York and Rhode Island. The Mercatus study cited factors such as higher levels of cash, low unfunded pensions, and strong operating positions as reasons for success, while low amounts of cash, large debt obligations, and long-term drivers of debt are indications of failure.

In a Washington Times article, Stephen Moore noted that California, Massachusetts, Vermont, Hawaii, Maryland, New York, Illinois, Rhode Island, New Jersey, and Connecticut lost domestic population (excluding immigration) in the ten year period from 2004-14. “Nearly 2.75 million more Americans left California and New York than entered these states…They are all progressive. High taxes rates. High welfare benefits. Heavy regulation. Environmental extremism. Super minimum wages. Most outlaw energy drilling.”

The Report Concludes Tomorrow.