Yesterday, the American Legislative Exchange Council released the fourth annual edition of Rich States, Poor States, by esteemed economists Arthur Laffer, Stephen Moore, and Jonathan Williams. The hallmark of the annual edition is updated state-by-state rankings of economic performance and outlook, as well as a detailed page on the last decade in economic performance statistics and policy in each state.
Other than the new rankings, the bulk of the fourth edition is made up of various articles and case studies, from how “The False Promise of Green Jobs” and cap-and-trade is sending jobs away from California, to “The Wealth of States: People (and Businesses) Vote with their Feet”, as made increasingly evident by recent census data. It also has a summary of highlights and lowlights of legislation passed in the last year, such as ballot initiatives in Indiana and Missouri that cap property taxes and prevent cities from enacting income taxes, respectively.
Page after page of the report gives evidence proving that lower, flatter tax rates spur economic growth and create jobs. Starting in the preface, it gives “10 Golden Rules for Effective Taxation”, such as Rule #8: “An economically efficient tax system has a sensible, broad tax base and a low tax rate”. A chapter on “The State of the States” gives academic statistics from the Mercatus Center on the importance of saying no to spending and concludes stating that “The overall level of taxation has an inverse relationship to economic growth in a state”. The second chapter, with highlights and lowlights of the past year’s legislation, gives a convincing table of research on high income tax rates damaging economies, with the next chapter giving four guiding principles on creating prosperity, as a result of their research.
Tax policies have a strong effect on a state’s economic outlook, with various tax measures making up ten of the fifteen variables that ALEC used to determine their outlook rankings. For instance, California ranks lower than Texas in four of the ten tax variables; California’s outlook is 47th, while Texas’ is 18th. Beyond taxes, states can improve their outlook by implementing other free-market measures, such as becoming a right-to-work state and lowering the number of public employees as a proportion of the population.