There is cheerful news for the citizens of Utah to celebrate. For the sixth consecutive year, Utah's economic outlook earned the top ranking in America, according to "Rich States, Poor States: ALEC-Laffer Economic Competitiveness Index." This new edition of the annual study ranks the 50 states on economic competitiveness — including various tax rates, regulatory burdens and labor policies — all of which are influential variables for state growth. There is no question that Utah's economy continues to benefit from sound fiscal policy. It is clear that limited regulation, low taxes, low debt, pension reform and balanced budgets contribute to Utah's success.
One can draw many conclusions from "Rich States, Poor States," but we believe one stands out among the rest. In general, states that value limited government and tax less, particularly productive activities such as working or investing, experience higher growth rates than states that tax and spend more. Through statistical and anecdotal evidence, "Rich States, Poor States" makes a compelling case that pro-growth fiscal policy is what really makes the difference for economic vitality in the states. No state has ever taxed or spent its way into prosperity.
One of the great, understated facts of state policy is that states do not enact policy changes in a vacuum. When a state changes policy, for better or worse, it immediately affects the incentive structure for individuals and businesses alike — and the change in incentives has a direct affect on the state's competitiveness.
The results from the 50 state "laboratories of democracy" are in, and the message is clear: while the national economic performance statistics show a mediocre recovery from the Great Recession, states that embrace low taxes, free market policies and limited government are leading the pack in terms of economic health. The stakes are high: More than $2 trillion in wealth has moved from one state to another in the past 15 years alone. Additionally, every decade, millions of Americans "vote with their feet" and move across state lines for new opportunities. Both investment and human capital are more mobile than ever before in our history.
During the past decade, the nine states without personal income taxes have significantly outperformed the nine states with the highest income taxes in population, job and revenue growth. For instance, the nine states without personal income taxes have, on net, gained 2.9 million new residents from other states over the past decade. On the other hand, the nine states with the highest income tax rates have, on net, lost more than 3.8 million Americans during the same time period. Americans continue to vote strongly against states with high tax rates.
Many on the left bristle at the idea of reducing personal income tax rates. However, let us not forget that many small businesses pay these personal income taxes as subchapter S Corporations, Limited Liability Partnerships and other "pass-through" entities. These small businesses make up more than 90 percent of all businesses, employ more than 50 percent of American workers and pay more than 40 percent of all business taxes.
"Rich States, Poor States" was created to provide every state legislator the tools to benchmark their state's policy environment. Residents of Utah should be proud of earning the top economic outlook ranking for six years running. However, other states are gaining, and some like North Dakota, which ranks second in economic outlook this year, have incredible opportunities to become even more competitive with continued utilization of their natural resources. To retain Utah's advantage, lawmakers will need to continually monitor policies that affect the business climate.
We hope lawmakers from across America will examine the economic success that Utah's sound business climate has created. For the well-being of the other 49 states, we hope more policymakers will work to emulate Utah's approach to policy making and avoid the numerous mistakes of California, Illinois and New York. It is the essence of the American experiment with federalism that each state is allowed to shape its own economic destiny. Based on the results from the 50 laboratories, taxpayers across our nation are best served by policies like those outlined in "Rich States, Poor States," which enhance economic competitiveness and unlock economic opportunity for all citizens, rich and poor alike.
Sen. Wayne Niederhauser serves as president of the Utah State Senate. Jonathan Williams is the director of the American Legislative Exchange Council's Center for State Fiscal Reform.
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