Texas remains the leader among the 50 states in terms of economic vitality — for the moment. But a heavy debt load and high property and sales taxes imperil its future growth, according a new survey by the American Legislative Exchange Council.
And the state with the best overall economic outlook? Utah.
ALEC’s ninth “Rich States, Poor States” report, published Tuesday, analyzes each state’s economic performance using 15 distinct policy variables. With the second-highest non-farm payroll and the highest absolute domestic migration, the Lone Star state has jobs and plenty of people willing to move there to take them.
The most successful states are the ones that make every effort to be economically competitive, says report co-author and former Reagan administration economist Arthur Laffer. States that cut taxes and encourage investment see greater job growth and lower unemployment.
Topping the ALEC-Laffer State Economic Performance rankings based on economic performance over the decade between 2004 and 2014 are Texas, Washington, Utah, North Dakota and Oklahoma.
But according to the ALEC-Laffer Economic Outlook rankings, which project future performance, Utah tops the list and Texas drops to 12th place behind Oklahoma and South Dakota. Texas’s debt service as a share of tax revenue, a variable that can indicate possible financial struggles ahead, is the second-worst in the country. And although Texas has no state income tax, the property tax and sales tax burdens are notably high.
By contrast, Utah boasts generally friendly tax rates across the board. As a right-to-work state with a relatively low number of public employees, Utah is also better prepared than any other state to experience economic growth in the years ahead.
Minnesota, California, Connecticut, New Jersey, Vermont, and New York rank at the bottom of ALEC’s future economic outlook. No surprise there: those states have high tax rates and debt loads — including unfunded pension liabilities — and are generally hostile to businesses.
The states that hold the bottom spots on the Economic Performance rankings may be a bit more surprising. Rhode Island, Ohio, and Michigan have all struggled in recent years. Michigan, in large part due to the recession and collapsing auto industry, has the worst cumulative gross domestic product growth over the last 10 years of any state.
Ohio has had consistent negative migration and low employment growth. The Buckeye State ranks 45th in gross domestic product growth.
So which policies help a state to succeed? ALEC has consistently found that the most promising states make it easy for businesses to start and grow. They allow people to keep the rewards of their hard work, and in doing so, incentivize risk-taking and investment without being bogged down by excessive regulation and public spending.
Fortunately, states are starting to realize that implementing these policies can translate into direct economic results. “As states compete with each other for much-needed human and financial capital, there is a clear trend in favor of taxpayer-friendly, market-oriented reforms,” said Jonathan Williams, vice president of ALEC’s Center for State Fiscal Reform and co-author of the report along with Laffer and Heritage Foundation distinguished fellow Stephen Moore.