New Study: Higher Taxes, New Spending and More Debt Hurt Economic Growth

NEW ORLEANS, La. – A new critique of states’ reactions to the economic crisis, by the American Legislative Exchange Council and Dr. Arthur Laffer, claims that states with a high and rising tax burden are driving away individuals and businesses. Correspondingly, those with lower and falling tax burdens are attracting businesses and spurring job growth.

“Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index” found states that responded to the economic crisis with higher taxes, new spending, and more debt to be even deeper in a financial hole.

The study provided two lead rankings: economic outlook and economic performance.

Economic outlook takes into account 15 state policy variables – pictured right – for which Louisiana improved from 24th in 2008 to 16th in 2011.

California, Illinois, New Jersey, Vermont, and New York were the lowest five in the rankings for economic outlook – in that order – while Utah achieved the highest score, followed by Colorado, Arizona, South Dakota, and Florida.

The second, a ranking of economic performance, measures a state’s personal income per capita growth, absolute domestic migration, and non-farm payroll employment growth. Louisiana ranks 34th, up from 43rd in 2008.

For economic performance, Wyoming, Montana Texas, Virginia and New Mexico topped the rankings, while Connecticut, Pennsylvania, Indiana, Ohio and Michigan were ranked last.

The Pelican State is hurting most in categories such as domestic migration and non-farm payroll employment growth – for which it ranked 43rd and 45th. The post-Katrina diaspora partially accounts for the weak population, but the state was already falling behind the rest prior to that point.

Dr. Arthur Laffer, whose claim to fame is the Laffer Curve, summarized the report’s findings by stating, “Tax and economic policies are essential to the competitiveness of our states. Most actions being taken in state capitals today—and practically all actions from Washington, D.C. today—are flat-out wrong.”

Co-author Stephen Moore, senior economist at the Wall Street Journal, claims Washington D.C. is exacerbating problems for states with its tax-and-spend attitude.

“Once the federal stimulus dollars dry up, only federal requirements will remain—and states will be left with bloated programs they are no longer able to afford.”

Jonathan Williams, director of ALEC’s Tax and Fiscal Policy Task Force, claims the correlation between poor policy and poor economic results is indisputable.

“Our research shows that states with responsible spending and competitive tax rates enjoy the best economic outlook. States do not enact changes in a vacuum – every time they increase the cost of doing business in their state, their state brand immediately loses value.”

 

Robert Ross is a researcher and social media strategist with the Pelican Institute for Public Policy. He can be contacted at rross@pelicanpolicy.org, and you can follow him on twitter.

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