For the most recent version of “Rich States, Poor States” see Rich States, Poor States 2012 edition released.
This week the American Legislative Exchange Council released the fourth edition of Rich States, Poor States: The ALEC-Laffer Economic Competitiveness Index. This is an important study by authors Arthur B. Laffer, Stephen Moore, and Jonathan Williams that identifies states that use “best practices to enable states to drive economic growth, create jobs, and improve the standard of living for their citizens.”
Kansas Governor Sam Brownback provided the forward for this year’s edition. In it, he wrote: “It is true that lowering taxes can be politically difficult: even fiscal conservatives start losing their enthusiasm for cutting taxes when special interest groups that consume a state’s tax dollars warn them that tax cuts will have dire consequences. But the consequences of being caught in a spiral of increased taxes and a decreasing rate of return on the tax base are much more dangerous.”
On the state of states’ finances, the authors write: “it is clear a vast majority of states set themselves up to fail by spending beyond their means and hoping the market will keep up with their spending sprees.” This has been the case in Kansas, as illustrated in Why the Kansas budget is in trouble. In years of rapidly rising tax revenue, the legislature also increased spending just as fast. Instead, Kansas should have saved some tax revenue in a rainy day fund, lowered tax rates, or rebated excess tax revenue back to citizens.
“Rich States, Poor States” evaluates states on two scales. The first, the Economic Performance Rank, is a “backward looking measure based on a state’s income per capita, absolute domestic migration, and nonfarm payroll employment — each of which is highly influenced by state policy. This ranking details states’ individual performances over the past 10 years based on the economic data.”
The second measure, the Economic Outlook Rank, is a “forecast based on a state’s current standing in 15 policy variables, each of which is influenced directly by state lawmakers through the legislative process. Generally, 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.”
For this year, in the “Overall Economic Outlook Rank,” Kansas comes in at number 27. The year before Kansas was number 25, and before that 24 and 29.
For the “Economic Performance” rank over the years 1999 to 2009, Kansas is number 34. That’s up from number 40 the year before, which covered 1998 to 2008.
What is it that hurts states? According to the report: “The policy blunders that hurt growth prospects the most are high income tax rates, forced union work rules, heavy regulation, an excessive state workforce, unfunded public pensions and health plans, poorly performing schools, and a litigation system that invites expensive and frivolous lawsuits.” Kansas ranks particularly poorly on two of these factors. We have a very large number of government employees compared to our population, and KPERS, the Kansas Public Employees Retirement System is grossly underfunded.
Additionally, Kansas needs to fear the rush towards the false promise of “green energy” as economic growth. Some states are implementing new policies in this area that will harm their rankings. One, state based cap-and-trade taxes to address climate change, is not on the radar in Kansas. The other, renewable energy standards (RES) which force utilities to generate a certain level of power from “green energy” methods such as wind, is. As a U.S. Senator, Sam Brownback was in favor of RES, and said so during his campaign for governor. It seems that he has de-emphasized this talk since taking office, however.
The report mentions several southern states that may soon phase out or eliminate their income tax, and Missouri, too, which would be a severe competitive blow to Kansas.
Of interest to Kansans, the report notes the passage in one chamber of important tax-related legislation: “Hoping to keep pace with their neighbors to the south, legislators in Kansas recently passed important pro-growth legislation that would automatically phase down personal and corporate income tax rates. Under the proposal — the March to Economic Growth Act — which passed the House but stalled in the Senate, taxpayers would enjoy reduced income tax rates on personal and corporate taxes when state revenue grows.” This is another reminder that there was an election last year for House members and the governor, but not for senators.