Tuesday, May 16, 2006

Low-tax states are growing

States that have made supply-side tax cuts are growing the fastest. The Wall Street Journal reports:
Now new data is out and it shows that the states that embraced supply-side tax cuts are not only financially more sound and enjoy stronger economies, but they are draining residents away from the states that opted for high taxes. The Pacific Research Institute has crunched the tax numbers in all 50 states and published the "U.S. Economic Freedom Index" ranking all states according to how friendly or unfriendly their policies were toward free enterprise and consumer choice in 2004--the most recent year that comparative data is available for each state. It's clear that the economic policies of 2004 determined where each state fell in the rankings, and shaped 2005 economic performance.
Businesses look for a business-friendly place to locate.
They evaluate local universities, transportation networks, labor skills, market size and even the weather. They also assess the policy climate. Economic freedom--a favorable state tax, regulatory, and legal climate--attracts entrepreneurs and capital, thereby increasing jobs and wages. In 2005, per capita personal income grew 31% faster in the 15 most economically free states than it did in the 15 states at the bottom of the list. And employment growth was a staggering 216% higher in the most free states. It hasn't been a "jobless recovery" in states that have adopted pro-growth tax and regulatory policies. ... In 2005, the 15 states with the most economic freedom saw their general fund tax revenues grow at a rate more than 6% higher than the 15 least free states, despite their lower effective tax rate. Instead of blowing a hole in state budgets, lower tax rates rewarded productivity and risk-taking and allowed the economy to grow. As the economy expanded it also generated more revenue for the state Treasury as capital and people flowed in. Census data shows an astounding 245% difference in net state-to-state migration rates in 2005 between the freest states (net inflow) and least-free states (net outflow). "Live Free or Move" is fast becoming the national motto.
Read the "U.S. Economic Freedom Index" yourself.

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