Earlier this week, the American Legislative Exchange Council (ALEC) released the eleventh annual edition of the Rich States, Poor States study, written by renowned economists Arthur Laffer, Stephen Moore, and Jonathan Williams. Their study examines trends in state economic growth by analyzing fifteen different variables, like tax rates and regulatory burdens, and ranks each state based on their economic performance and economic outlook. The findings highlight the persistent migration of residents from high tax states to low tax ones, and offer further validation of the correlation between strong state economic growth and low, pro-growth tax rates coupled with a fiscally responsible approach to spending.
The main conclusion from the 10th edition is that state tax reform is leading to better economic outcomes. Since the passage of federal tax reform at the end of last year, numerous states have adopted comprehensive changes to their state code and many others are in the late stages of passing reforms as well. Idaho, for example, passed comprehensive tax reform earlier this year that lowered rates and reined in spending, and as a result they jumped from 10th place in 2017 up to 2nd place in 2018. The same is true for Georgia, which improved from 17th to 11th after they dropped rates on personal and corporate tax rates.
In the 11th edition, and for the 10th year in a row, Utah tops the list for economic outlook. The rest of the top ten states are: #2 Idaho, #3 Indiana, #4 North Dakota, #5 Arizona, #6 Florida, #7 North Carolina, #8 Wyoming, #9 South Dakota, and #10 Virginia.
At the bottom of the list is New York, which has never been above the 49th place in any edition. The rest of the bottom ten states are #49 Vermont, #48 Illinois, #47 California, #46 New Jersey, #45 Hawaii, #44 Minnesota, #43 Montana, #42 Maine, and #41 Oregon.
The states at the bottom of the list continue to be plagued by high state income taxes, property taxes, and a complex corporate tax and regulatory system that limits growth potential. Rather than adopt tax changes that benefit their economy, many states like New Jersey, California, and Illinois, are considering additional burdens on taxpayers. Unless positive changes are adopted, more wealth, residents, and businesses will continue to flee for lower-taxed jurisdictions.
Rich States, Poor States is an important tool for state lawmakers interested in increasing economic growth and competitiveness. The evidence, as outlined in the study, proves that lower, simpler tax rates spur economic growth and create jobs. Lawmakers in every state should examine where their state ranks and how they can work to improve their ranking. Even states at the top of the list should not be satisfied with their ranking as there is growing competition for states vying to crack the top 10 list.