Annual Rich States, Poor States Report: Winners, Losers Fall Along Red State/Blue State Divide

Red and Blue Markers on US Map
AP Photo/Carolyn Kaster

The American Legislative Exchange Council (ALEC) released on Wednesday its 14th annual Rich States, Poor States report, which reveals once again states with the lowest taxes, fewer regulations, and more worker freedom offer a better standard of living for those who reside there.

The three authors of the study — Jonathan Williams, Arthur B. Laffer, and Stephen Moore — noted on a conference call with reporters on Tuesday that the winners and losers fall along the blue state/red state divide.

The introduction for the 14th edition summarizes the findings:

The new edition finds that even through the pandemic, states with policies such as low or no income taxes and worker freedom are more economically competitive and better positioned for wage growth, job creation and domestic in-migration compared to states with higher taxes and government spending. The new rankings also reveal that, as proven by new 2020 Census data, Americans “vote with their feet” by moving from high-tax to low-tax states.

Williams, ALEC chief economist, said in the introduction to the repor:

Utah, at the top of the rankings for the 14th year in a row, solidified its well-deserved first place spot this year by prioritizing sound economic policy. Utah has an incredibly strong track record of pro-taxpayer reforms in recent years, including the adoption of a flat personal income tax rate, pension reform for its previously endangered system, and the state’s innovative approach to property tax reform. The success of Utah’s ‘truth in taxation’ policy for local property taxes, has been noticed by other states.

Truth in taxation has already passed nearly unanimously in Kansas this session, and is being considered in Nebraska. It is a great development to see states follow the lead of competitive state policy, which brings with it job creation and shared economic success for all.

The report spells out how it rated states:

The Economic Outlook Ranking is a forecast based on a state’s current standing in 15 state policy vari- ables. Each of these factors is influenced directly by state lawmakers through the legislative process. 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 Economic Performance Ranking is a backward-looking measure based on a state’s performance on three important variables: State Gross Domestic Product, Absolute Domestic Migration and Non-Farm Payroll Employment — all of which are highly influenced by state policy. This ranking details states’ individual performances over the past 10 years based on this economic data.

The Top 10 most prosperous states are, in order: Utah, Florida, Oklahoma, Wyoming, North Carolina, Indiana, Nevada, North Dakota, Texas, and South Dakota.

Only two of those states —Nevada and North Carolina — have Democrat governors.

Laffer discussed the bottom 10 states on the call:

“Look at those guys, New York, Vermont, New Jersey, Illinois, Minnesota, California, Oregon, Maine, Hawaii Rhode Island, Maryland, Connecticut,” Laffer said. “Look at what their policies are, and flip the ledger over and do the exact opposite.” 

“You’ll have a great state,” Laffer said.

Of the bottom 10 states only two — Vermont and Maryland — have Republican governors.

Moore said competition between states rather than federal control is the key to economic success:

Unfortunately the Biden administration has wanted to do is reduce a lot of those competitive factors in between states. They want to federalize a lot of these activities, whether it’s on healthcare or education or a blue state bailout, or bringing back the state and local tax deduction, which I think is a terrible idea.

“I think New York and California should have the right to raise taxes on their citizens if they want to, but they shouldn’t be able to export those taxes to people in other states. So we need to preserve the federalism system.”

“It works fantastically and it rewards states for doing the right things and, frankly, it punishes states for doing a lot of things,” Moore said

The report drills down on economic policies in all 50 states, including:

• Top Marginal Personal Income Tax Rate

• Top Marginal Corporate Income Tax Rate

• Personal Income Tax Progressivity (change in tax liability per $1,000 of income)

• Property Tax Burden

(per $1,000 of personal income)

• Sales Tax Burden

(per $1,000 of personal income)

Estate/Inheritance Tax Levied?

• Public Employees Per 10,000

of Population (full-time equivalent)

• State Minimum Wage (federal floor is $7.25)

• Right-to-Work State?

(option to join or support a union)

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