States across the U.S. share the common goal of economic prosperity, but they differ vastly in how they set out to achieve it. The latest edition of the American Legislative Exchange Council- Arthur Laffer Rich States, Poor States competitiveness index examines policies that maximize economic growth and assesses which states are on the path to prosperity and which are more likely headed to the poorhouse.
Where does your state rank for #economic outlook in 2015? Find out in our newest #RSPS report, http://t.co/qPWKvd5qfb pic.twitter.com/VHr95ixQU4
— ALEC (@ALEC_states) April 8, 2015
For the eighth consecutive year, Utah has remained #1. Rounding out the top 10 for 2014 are: North Dakota, Indiana, North Carolina, Arizona, Idaho, Georgia, Wyoming, South Dakota and Nevada. At the other end of the spectrum, New York obtained the lowest ranking at #50. Working backward, Vermont ranked 49, preceded by Minnesota, Connecticut, New Jersey, Oregon, California, Montana, Maine, and Pennsylvania.
The rankings are a combination of past economic performance (economic growth, net migration and employment) and forward-looking policy variables such as taxes, debt, and the presence of right-to-work laws.
States at the top earned their rankings by implementing policies that energized their economies, attracted businesses and entrepreneurs, and expanded employment and income. So what are these energizing policies that could help states at the bottom boost their economies? Based on both past and present rankings, low income taxes and right-to-work laws provide the most bang for the buck.
Analysis provided alongside last year’s rankings showed economic growth in the nine states with no personal income tax averaged 62 percent from 2003 to 2013 while the nine highest income tax states grew by an average of only 47 percent. And states with no income tax experienced twice the rate of population growth (14 percent) as the highest income tax states (7 percent).
The growth gap between high-tax and low-tax states translates into more than a $100 billion in lost annual output for big, bottom-ranking states like California (#44) and New York (#50). And while it may seem counterintuitive, tax revenue increased substantially more in the nine states with no income tax than it did in the highest income tax states. Lower taxes produce a larger economic pie, and a larger pie means bigger slices for all—including the state tax revenue.
States with right-to-work laws that prevent workers from being coerced to pay union dues attract more businesses and workers, which in turn grow their economies. Compared to forced-union states, right-to-work states experienced twice the rate of employment growth from 2003–2013, one-quarter higher income growth, and one-third greater output growth. What’s more, right-to-work states experienced a 3 percent increase in net migration, while forced-union states suffered a 1 percent loss in net migration.
Competition is inherent in any ranking, and competition among the states is a good thing. Fortunately for states at the bottom of the rankings, research and analysis such as Rich States, Poor States provides an open playbook for prosperity.