NCPA - National Center for Policy Analysis


December 10, 2007

An economic rating of the 50 states shows that those with the lowest taxes, government spending and regulatory burdens attract the most newcomers, say Arthur Laffer, president of Laffer Associates, and Stephen Moore, senior economics writer for the Wall Street Journal.

According to a study by the American Legislative Exchange Council:

  • Over the past decade, the 10 states with the highest taxes and spending, and the most intrusive regulations, had half the population and job growth, and one-third slower growth in incomes, than the 10 most economically free states.
  • In 2006 alone 1,500 people each day moved to the states with the highest economic competitiveness from the states with the lowest competitiveness.

Of all the policy variables examined, two stand out as perhaps the most important in attracting jobs and capital.  The first is the income tax rate:

  • States with the highest income tax rates -- California and New York, for example -- are significantly outperformed by the nine states with no income tax, such as Texas and Florida.
  • As a study from the Atlanta Federal Reserve Board put it: "Relative marginal tax rates have a statistically significant negative relationship with relative state growth."

The other factor for attracting jobs and capital is right-to-work laws:

  • States that permit workers to be compelled to join unions have much lower rates of employment growth than states that don't.
  • Many companies say they will not even consider locating a factory in a state that does not have a right-to-work law.

The study also finds that states with antigrowth tax and spending policies don't just lose people.  Noncompetitive states like New York, Michigan, Pennsylvania, Illinois and New Jersey are plagued by falling housing values, a shrinking tax base, business outmigration, capital flight and high unemployment rates, and less money for schools, roads and aging infrastructure.  These factors of decline hurt the poor the most.

Source: Arthur Laffer and Stephen Moore, "The (Tax) War Between the States," Wall Street Journal, December 10, 2007.

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