Many states are countering the big-government policies of D.C. with their own fiscally responsible reforms.
With smart tax policy and fiscal responsibility, states can improve lives for their residents even if Washington continues its recklessness.
I nflation was up 8.3 percent in April over the preceding twelve months. From groceries to gasoline, Americans are feeling the squeeze. Meanwhile, some leaders in Washington are calling for higher taxes — despite raking in a record $2.1 trillion in tax revenue in the first half of the fiscal year.
This tax-and-spend habit in Washington is one of the culprits for the higher levels of inflation, and our national debt recently surpassed $30 trillion. Fortunately, many states are countering the big-government policies of D.C. with their own fiscally responsible reforms.
These states are highlighted in the newly released 15th edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. The 15 economic-policy variables used to rank the economic outlook of states have proven over time to be influential for state competitiveness and growth. Since 2007, our research has documented how cutting taxes, paying down debt, and maintaining free-market policies have significantly helped states attract new residents.
Currently, the top five states in economic outlook are Utah, North Carolina, Arizona, Oklahoma, and Idaho, while the least competitive states are Minnesota, Vermont, California, and New Jersey — with New York dead last.
For 15 years in a row, Utah has earned the top ranking, thanks to its pro-taxpayer policies. In recent years, the Beehive State has adopted a flat personal-income tax rate of less than 5 percent and reformed its public pension system to the benefit of both workers and taxpayers. With its Truth-in-Taxation law, Utah has also taken an innovative approach to property taxes that has kept burdens low. States like Kansas and Nebraska have taken note, implementing versions of Utah’s law in the past year.
Down south, North Carolina achieved its best ranking to date at No. 2 overall for economic outlook. Since ranking 26th in 2011, North Carolina has become a case study on how to control spending and lower tax burdens. The passage of historic tax reform in 2013, which significantly lowered and flattened income taxes, ensured state taxpayers kept more of their hard-earned paychecks. Since then, North Carolina has continued to lower tax rates, spend wisely, pad its rainy-day fund, and attract new residents — more than half a million in the past decade. As a result of the recently signed budget, North Carolina will soon phase out its business income tax altogether.
On the other end of the spectrum is New York, which has ranked 50th in all but two editions of Rich States, Poor States. Thanks to its punishing tax burdens, overspending, and heavy-handed regulatory policies, New York has hemorrhaged residents faster than any other state in the past decade. According to recent Census data, the Empire State lost nearly 320,000 residents on net between July 2020 and July 2021.
New Jersey reached a new low of 49th overall this year, thanks to its crippling tax burdens. In addition to its high property tax bills, the Garden State maintains a progressive income-tax structure with some of the highest top rates in the country. Instead of easing these rates, New Jersey did the opposite during the pandemic, passing a new tax on millionaires in 2020. In contrast to North Carolina, New Jersey has lost more than half a million residents since 2011.
If the federal government and states like New York and New Jersey have taught us anything, it’s that higher taxes and record spending levels do not lead to prosperity. As Rich States, Poor States illustrates, it’s places such as Utah and North Carolina — where responsible spending makes lower tax rates possible — that are ready for a rainy day and ensuring their residents can thrive economically. With this report, state policymakers have a reliable tool to help guide them toward stronger state economies and mitigate the damage done to the national economy by Washington.
Jonathan Williams is the executive vice president of policy and chief economist at the American Legislative Exchange Council (ALEC). Lee Schalk is vice president of policy and directs the Tax and Fiscal Policy Task Force at ALEC.