Conservatives in favor of low taxes and business-friendly laws are pleased with their progress at the state level.
“The world is moving in our direction,” said Heritage Foundation economist Stephen Moore Tuesday, discussing the eighth edition of the state competitiveness index published by the American Legislative Exchange Council, an advocacy group that promotes pro-business policies among states.
The Rich States, Poor States index, set to be released Wednesday, shows that more states are lowering tax rates than raising them, and more are implementing right-to-work legislation than pro-union laws, Moore said.
The evidence is “overwhelming” that fiscally-conservative policies are successful for states, Moore claimed, calling out liberal critics such as New York Times columnist and economist Paul Krugman.
“How do you explain the huge exodus out of California?” Moore asked rhetorically, referring to the state’s ranking of seventh to last in the index. “They didn’t move because of the weather.”
The index predominantly favors red states, with Utah maintaining its top spot thanks to its low taxes, small public workforce, pro-business legal system and right-to-work law. North Dakota, Indiana, North Carolina and Arizona round out the top five, followed by other conservative-leaning states.
High-tax, high-spending, union-friendly blue states dominate the bottom of the list, with New York coming in dead last.
In the years of its publication, the American Legislative Exchange Council’s list has drawn criticism from detractors who say the index is no more than a wish list of businesses’ priorities. The council, which receives funding from businesses, also has drawn concerted pushback and scrutiny from liberal groups.
The Center for Media and Democracy, a nonprofit liberal advocacy group in Madison, Wisc., said ahead of Wednesday’s release that the index is a “lobbyist scorecard ranking states on the adoption of extreme ALEC policies that have little or nothing to do with good economic outcomes.”
Speaking ahead of the index’s release Tuesday, its authors argued that low taxes lead to higher economic growth.
The nine states with no income taxes had 26 percent higher growth in the gross state product over the past 10 years than the nine highest-tax states and 110 percent higher job growth, said Jonathan Williams, vice president of the American Legislative Exchange Council’s Center for State Fiscal Reform.
No-income-tax states have gained 371,000 residents, while the nine highest income-tax states have lost a “huge amount” of population, he added.
Moore suggested comparing two large “blue” states, New York and California, to two large “red” states, Texas and Florida. Over the last 15 years, Texas and Florida have created three jobs for every one created by New York and California, he said.
It is possible for states to overhaul their laws and become more growth-friendly, Williams said. “We’ve seen some significant movement and it’s not just … conservatives’ states,” he said, citing big moves up the rankings by Kentucky, Illinois, Oklahoma and other states.
Illinois, regarded as a fiscal basket case by conservatives, moved up the rankings because of the expiration of a temporary tax. Moore said the new Republican governor, Bruce Rauner, was doing some “amazing things.”
But it’s not just Republicans moving toward lower taxes and regulations in search of growth, said Arthur Laffer, another of the report’s co-authors and a former adviser to President Ronald Reagan famous for the creation of the “Laffer Curve.”
“Economics is not partisan, economics is economics,” Laffer said.
