Report: Low-tax states grow at faster pace than high-tax states

by Casey Harper, The Center Square, April 18, 2022

(The Center Square) – A newly released report examines the tax burden and economic climate of all 50 states and ranks them, with Utah coming in first and New York coming in last.

The report, released by the American Legislative Exchange Council (ALEC), says that “cutting taxes, paying down debt and maintaining free market policies have significantly helped states attract new residents.”

“Americans continue to vote with their feet toward states that have lower tax burdens and value economic competitiveness,” said Jonathan Williams, ALEC Chief Economist and Executive VP of Policy. “Rich States, Poor States teaches us that states with lower taxes, especially those that avoid personal income taxes, have seen significantly better rates of in-migration than states with high income tax rates.”

The report ranked the states for their economic outlook based on a range of variables, including tax burden, the legal system, the minimum wage, the size of government, the role of labor unions, and public debt.

“Generally speaking, states that spend less – especially on income transfer programs – and states that tax less – particularly on productive activities such as working or investing – experience higher growth rates than states that tax and spend more,” the report said.

Utah, which has a flat personal income tax, topped the list, followed by North Carolina, then Arizona, Oklahoma and Idaho. After that, Nevada, Indiana, Florida, North Dakota and Wyoming filled the 6-10 spots, respectively.

“If you believe incentives matter, and I do, state policies have the effect of changing those incentives at both the state and local levels,” economist Arthur Laffer said. “Those changes in incentives have consequences. This ranking of states is a tried-and-true formula. I think it is a great way of picking winners and giving guidance on how states should be effectively governed.”

New York fell at the very bottom of the list, with New Jersey ranked 49th and California 48th. The report ranked Vermont 47th, Minnesota 46th, Illinois 45th, Maine 44th, Hawaii 43rd, Maryland 42nd, and Oregon 41st.

“This study has had a big impact on what state officials, governors and legislators are doing,” economic expert Stephen Moore said. “This is 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 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.”

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