New Study Shows Path to Economic Recovery for States

For the second year in a row, South Carolina’s economic outlook ranked 20th nationally, according to a new report from the American Legislative Exchange Council (ALEC). The second edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index offers a roadmap for economic recovery based on state policies that have a proven impact on growth.

A poor tort liability system and high workers’ compensation costs hurt South Carolina’s economic outlook. Also of particular concern is the state’s rapid accumulation of debt, which ranks 4th worst nationally. On the positive side, the study gives good marks to South Carolina for its recently legislated tax changes and its status as a “right to work” state. Among bordering states, North Carolina’s economic outlook was fairly comparable, with a rank of 21st, while Georgia ranked 8th best nationally.

The report shows how federal stimulus dollars may simply encourage out-of-control state spending, which is up 124 percent over the last 10 years, without requiring states to make the tough decisions needed to bring about financial stability. "States were quick to increase spending and add programs during the good times," said South Carolina State Senator Danny Verdin, a member of ALEC's Tax and Fiscal Policy Task Force. "Now we need to make tough choices to live within our means. The best solution to our budget woes is to control state spending and promote policies that foster economic growth and job creation."

Co-author and renowned economist Dr. Arthur B. Laffer summarized the report's findings when he said, “States cannot tax their way into prosperity.” Rich States, Poor States presents rankings of the 50 states based on the relationship between policies and performance – revealing which states are best positioned to make a recovery, and which are not.

Laffer and his co-authors, Steve Moore, senior economics writer at The Wall Street Journal, and Jonathan Williams, director of the Tax and Fiscal Policy Task Force for ALEC, analyze how economic competitiveness drives income, population and job growth in the states. They found that, “states with a high and rising tax burden are more likely to suffer through economic decline, while those with lower and falling tax burdens are more likely to enjoy robust economic growth.”

“The top performing states keep taxes, spending, and regulatory burdens low, while the biggest losers in the book tend to share similar policies of high tax rates, unsustainable spending and regulation,” said co-author, Jonathan Williams. “State governments that believe they can bring about economic recovery by growing government and increasing taxes are sadly mistaken.”

TOP FIVE STATES BOTTOM FIVE STATES
1. Utah 46. New Jersey
2. Colorado 47. Maine
3. Arizona 48. Rhode Island
4. Virginia 49. Vermont
5. South Dakota 50. New York

To read more about the state-to-state comparisons, see the individual state analysis, and view the full report, download it for free at www.alec.org.