In all 14 editions of ALEC’s ‘Rich States, Poor States’ report, Utah has earned the top economic outlook ranking.
In all 14 editions of ALEC's 'Rich States, Poor States' report, Utah has earned the top economic outlook ranking.
F or the past 14 years, I’ve had the privilege of authoring the annual ALEC publication, Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, alongside economists Arthur Laffer and Stephen Moore. In each edition of our report, we rank the economic outlook of states, measuring their relative economic competitiveness based on 15 influential policy areas, such as taxes, regulations, and labor policies.
Why do we choose these 15? First, it’s because we know, based on the research, that they matter for economic growth. Secondly, and importantly for state-policy discussions, the variables we pick are things that state legislators directly control.
Incredibly, in each edition of our study, Utah has earned our top economic outlook ranking. These rankings are far more than theoretical. The state-by-state unemployment rates showcase a stark difference in policy landscapes and effectiveness in managing the past two years of pandemic responses.
For instance, the states with the lowest unemployment rates as of November 2021 were states with governors who worked to minimize government involvement, such as Nebraska (1.8 percent), Utah (2.1 percent) and Oklahoma (2.5 percent). States with the highest unemployment rates such as New York and New Jersey (tied at 6.6 percent), Nevada (6.8 percent) and California (6.9 percent), were states that took a much heavier-handed approach to pandemic related policies.
Moreover, the U.S. Census Bureau report on state-by-state population changes revealed that Utah was the fastest growing state in America since the census of 2010, with a staggering growth rate of 18.4 percent over the decade. Americans are voting with their feet and moving to states such as Utah that value lower tax burdens and more economic freedom.
As I travel across the 50 states and give presentations to legislators, the business community and taxpayer groups, inevitably the question will be asked: How has Utah been able to hold the top spot for 14 consecutive years?
The answer is really twofold. Major free-market and pro-taxpayer policy reforms in recent years have been essential to the success of Utah. Additionally, the continued commitment by leading policymakers to study Utah’s economic resume and stay ahead of the curve has also been crucial to Utah’s longstanding success.
Utah Senate president and 2021 ALEC national chairman Stuart Adams said, “Ranking as the most competitive state in the nation this many years in a row does not just happen by chance. Years of planning and preparation placed our state in a strong position to recover and succeed even in tough years like 2020.” Senator Adams is absolutely correct.
Just a few of Utah’s many impressive policy achievements include public pension reforms for government workers that began to address unfunded liabilities, the “Truth in Taxation” law that has added needed transparency and accountability to property taxes, and the “Financial Ready Utah” package of legislation that analyzes federal funds and works to protect Utah taxpayers from many of the risks attached to the “free lunch” promised by Washington.
While these reforms have worked to keep Utah at the top in the Rich States, Poor States economic outlook rankings, other states are also making impressive strides. For instance, Florida, a state without a personal income tax, now ranks second best in economic outlook.
North Carolina has dramatically improved and now has the fifth-best outlook, after passing comprehensive tax reform throughout the last decade, a process that continues. In recent weeks, North Carolina just passed significant new tax relief that will further reduce individual income tax rates, provide enhanced school choice for families, and completely eliminate the corporate income tax over a number of years.
Policymakers in Arizona approved a historic state budget that includes a net tax cut of $1.9 billion, reduces personal income tax rates to a flat 2.5 percent for most Arizonans, and caps the rate paid by high earners at 4.5 percent. Given these free-market changes happening in other states, will Utah be able to stay ahead?
While Utah’s personal income tax is relatively low and has a single rate of 4.95 percent — thanks to previous reforms — the state is in a region (broadly defined) that is extremely competitive in this key variable. Wyoming, Nevada, Texas, Washington, and South Dakota all avoid personal income taxes. Recently, Colorado governor Jared Polis, a Democrat, indicated his support for eliminating Colorado’s income tax as a way to enhance economic growth.
All taxes matter for economic competitiveness. However, based on our research, income taxes matter the most. When it comes to state income tax rates, Utah could certainly help ensure it stays ahead of the curve with smart income tax relief ideas, which is even more important given the challenging economic headwinds coming from the federal level in Washington, D.C.