Each year the various 50 states are rated in the Alec-Laffer State Economic Competitiveness Index. Information can be found at alec.org. The Economic Outlook Ranking is based on a state’s current standing in 15 different policy variables. These factors measure income tax rates, other tax burdens, recent tax changes, debt service compared to tax revenue, public employees per 10,000 residents, state liability systems, minimum wage, average workers compensation costs, number of tax expenditure limits, and if the state is a right-to-work state. Generally, states that spend less (on income transfer programs) and states that tax less (on productive activities like work and investment) experience higher growth rates than states that tax and spend more money.
The survey also looks backward on each state’s performance in gross domestic product, domestic migration, and non-farm payroll employment. Each of these are influenced greatly by state policy. These are measured and ranked looking at the past ten years. Looking backwards, the top five states are: Texas, Washington, North Dakota, Utah, and Colorado. The states ranking 46-50 are: Illinois, Michigan, Rhode Island, New Jersey, and Connecticut.
The forward looking economic outlook is based upon an equal-weighting of each state’s rank in 15 different policy variables. The top five states are: Utah, Idaho, Indiana, North Dakota, and Arizona. The bottom five are: New Jersey, California, Illinois, Vermont, and New York. Below is a quick view of how the states in the upper plains rank and what factors are strong for growth and which factors are hinderances to growth.
Iowa ranked 18th on the past economic history coming in at 7th in GDP growth, 30th in domestic migration, and 29th in non-farm payroll growth. Future economic outlook has ranked Iowa at 29th among the states. Iowa has a low minimum wage and is a right-to-work state. Negatives are the Hawkeye State ranks 47th in corporate income tax, taxes estates, and ranks 41st in public employees.
Minnesota ranked 22 in economic performance with 19th in GDP growth, 37th in domestic migration, and 18th in non-farm payroll growth. The future looks worse competitively with a ranking of 44. Positives are the state has a good liability system and has enacted some personal income tax cuts in 2016 and 2017. Negatives are the high personal and corporate income taxes, high remaining tax burden, taxes on estates, and North Star State is not a right-to-work state.
Montana ranked 9th in economic growth in the past decade. This was raking 8th in GDP growth, 18th in domestic migration, and 11th in growth in employment. The projection is worse with Big Sky Country coming in one slot higher than Minnesota at number 43. Positives are a no state sales or estate taxes. Negatives are personal income taxes are progressively bad, they have a high tax burden personally, and the state is not a right-to-work state.
Nebraska ranked 13th in the past decade with a 2nd ranking in GDP growth, 29th in domestic migration, and 13th in non-farm payroll growth. Future growth ranks Nebraska at 28th. Positives are that the Cornhusker State is a right-to-work state, the liability system is managed well, and the state has cut personal income taxes. Negatives are Nebraska has one of the higher progressive income taxes, a high number of public employees, and a taxing of estates.
North Dakota emerged as the star of the group with a ranking of 3rd in past decade. They had the highest GDP growth of any state, 16th in domestic migration, and 1st in non-farm payroll employment. The economic outlook ranks the Peace Garden State at 4th for growth. Positives are the state is a right-to-work state, has low workers’ compensation costs, a low minimum wage, implemented a tax cut in 2016 and 2017, and has the second lowest debt service compared to revenue. Negatives are that North Dakota has the 3rd highest sales tax burden and has a high number of public employees per population.
South Dakota ranked 8th in the past decade with a ranking of 4th on the GDP growth, 22nd in domestic migration, and 9th in non-farm payroll growth. The Mount Rushmore State ranks 9th in future growth. The state is a right to work state, has a well-managed liability system, has no estate, personal, or corporate income taxes. The worse negative is the state has the 43rd in terms of sales taxes per $1,000 of personal income.
Wyoming ranked 43rd in the past decade of economic growth with a 47th rank of GDP growth, 21 in domestic migration and dead last at 50 in non-farm payroll growth. The Equality State has an economic outlook ranking 8th among the states. Positives for the future are the 0% corporate, personal, and estate tax rates. Wyoming also has the lowest state debt service at 2% of tax revenues. The state is a right-to-work state and has well managed liability system. Negatives are that Wyoming has the highest proportion of public employees to population and has a higher property tax burden.
The ALEC-Laffer study is viewed with other factors such as demographics by companies who are searching for good growth states that are business friendly. The study is a good read to understand more about how each of the states are their own little experiment of democracy and policy. It will be interesting to see how the various states’ growth progresses in the future.
As we approach the end of the 2018, we extend our gratitude for each of you that we have worked with. Perhaps we helped close a new loan for your institution or maybe you attended one of our classes. Maybe you called with a loan question or used our servicing platform to manage a credit. We appreciate each of you and look forward to serving you in the new year and beyond. My wish is for new successes for you next year and a very merry Christmas in this year. May you know the good news that was first shared with a small group of shepherds long ago, “unto you is born this day in the city of David, a Savior, who is Christ the Lord.”