Taxpayers Voting with Their Feet
“The number one reason on census surveys that people give for moving from one state to another is not for better weather. People are not leaving California because the weather is bad. They are leaving California because the state’s policies are messed up.” – Jonathan Williams, ALEC chief economist
2022 Rich States, Poor States Report: ALEC-Laffer State Economic Competitiveness Index
“The number one reason on census surveys that people give for moving from one state to another is not for better weather. People are not leaving California because the weather is bad. They are leaving California because the state’s policies are messed up.” – Jonathan Williams, ALEC chief economist
Dr. Arthur Laffer, economist Stephen Moore and ALEC Chief Economist and Executive Vice President of Public Policy recently held a video conference call with ALEC state directors to discuss highlights of the 2022 Rich States, Poor States Report. Here are top line messages from the call.
Dr. Arthur Laffer:
If you believe incentives matter, and I do, state policies have the effect of changing those incentives at both the state and local levels. Those changes in incentives have consequences. This ranking of states is a tried-and-true formula. I think is a great way of picking winners and giving guidance on how states should be effectively governed.
Stephen Moore:
This study has had a big impact on what state officials, governors and legislators are doing. States seem to be moving in our direction where we’re seeing significant improvements in tax codes and improvements in fixing unfunded liabilities in pension systems. We are making progress in terms of transparency in healthcare costs, something which could really drive down costs. ALEC has really led the charge in all these things. While I don’t like the direction the federal government is going, I sure like the direction so many states are moving in.
This is our 15th annual Rich States, Poor States Report and every year one state has come out on top, Utah. Congratulations to Gov. Cox and previous governors who have done an amazing job. I just got back from Salt Lake City, and it is booming! It’s an incredibly vibrant place and they’ve got the whole formula put together very well there.
Congratulations to North Carolina which made a big move up in the rankings this year. This is a nonpartisan report and the governor in North Carolina is a Democrat and he’s signed a lot of legislation that the Republican legislature passed. The previous governor was good, as well.
Finally, it was a huge mistake for the federal government to spent trillions of dollars during COVID. The federal government can only give money to states by taking money from them. It’s an illusion that somehow the federal government is bailing out the states. This was the states’ money to begin with, and now, for the most part, states have gigantic surpluses. And this is a great time to use those surplus revenues to fix their tax code.
This is a magic moment. It’s a magic moment for school choice because parents want their kids in good schools. It’s a magic moment for tax reform at the state level. I think even in some of these blue states that have been traditionally very liberal, they’re looking at some reforms that could really make their states more prosperous. I think the direction is good, and I think a lot of that direction is a result of the Rich State, Poor State rankings.
Jonathan Williams, ALEC Chief Economist and Executive Vice President of Policy:
Over the years we’ve seen that states can fall behind by simply standing still in the rankings as other states become that much more competitive. North Carolina is a state that has been very aggressive in the past decade in lowering taxes and has moved from being ranked #26 a decade ago to #2 now. Our great ALEC members in the legislature led the way on this. This is huge. North Carolina now wants to phase out their business income tax altogether by the end of the decade. They’re at 2.5% right now in North Carolina, and they’re going to zero.
We’ve been just so pleased to see the governors and legislators leading the way and cutting taxes this year. If we can’t cut taxes in a year like this, when there’s so much money sloshing around in state budgets, we might as well give up the ghost and not even attempt it. This is the year to cut taxes.
We saw Gov. Kim Reynolds of Iowa work with state lawmakers to get their flat tax done. Gov. Reynolds’ response to President Biden’s State of the Union address couldn’t have shown a stronger contrast for how ideas are winning.
In my estimation, since states first began progressive income taxes 110 years ago, only four states moved away from the progressive income down to a flat tax. In contrast, in the last month or so, we’ve seen four more states become flat tax states and go away from progressive income tax.
This is basic economics. This is clearly the what the Founders had in mind from the “laboratories of democracy” and taking the stories of what works comparing them against the stories of what does not work. Sure enough, the rising tide is lifting all boats when it comes to good policy right now.
Dr. Arthur Laffer:
Progressive tax rates kill prosperity.
Stephen Moore:
The trillions of dollars of spending and borrowing mostly at the federal level is obviously a major driver of the high inflation we are seeing. This inflation crisis could lead to a crash landing. I hope it doesn’t. I think the match that lit this forest fire was that trillions of dollars of federal spending. We spent four to five trillion dollars on COVID that we didn’t have.
We’ve done a lot of analysis, looking at the effect of all these government benefits to people who are not working. And the big increase in the unemployment benefits had an extremely negative effect in terms of getting people back into the workforce. Now a lot of those extra benefits have gone away. But we’ve got to get back to work. States need to work on welfare reforms. We’ve got to get people back working. We shouldn’t incentivize them not to work.
Dr. Arthur Laffer:
States can really make a difference by reforming welfare and unemployment benefits. States need to maintain very low payments for being unemployed, making it literally for what it’s supposed to be a temporary bridge to another job and not a permanent situation where they don’t work.
Jonathan Williams:
Let’s stop taxing work. Let’s tax consumption. Let’s not tax people’s livelihoods getting back to the workforce.
Dr. Arthur Laffer:
Let’s reduce all taxes including consumption.
Jonathan Williams:
A huge phenomenon and takeaway from this report is that taxpayers vote with their feet. And it’s one of the key elements of why it’s so important to get things right in Americans. You go down the line of the states that are growing, they are states that are cutting taxes. Doing the right thing leads to a virtuous cycle of attracting businesses attracting individuals. The number one reason on census surveys that people give for moving from one state to another is not for better weather. People are not leaving California because the weather is bad. They are leaving California because the state’s policies are messed up. And so that’s such a key factor in years of our report.