States of the Economy

September 18, 2008 by  

Voters headed to the polls in November are saying the economy should be the top priority for elected officeholders.

As we consider which party and candidates offer viable solutions, we have examples of failing policies and those that are succeeding playing out across the country.

Some aspiring to elected office insist taxes must be increased to (some day) balance the budget while borrowing now to fund ambitious government spending programs; their campaign slogans and literature promising to attract high paying jobs and increase the quality of life.

So, how is that working in other states? And which states are best delivering jobs and paychecks?

Looking at personal income growth from 1990 -2007, the winning states are Texas and Florida (at 89% and 74%, respectively), neither of which have a personal income tax.

Now let’s take a look at states with the highest state income tax rates: New York’s (6.85% tax rate) growth in the same period is 36%, and California (10.3% tax rate) comes in at 48%, which doesn’t sound too bad until compared with the leaders or U.S. average in the same period (51%).

At least all that tax money should be keeping the state coffers full, right? Not exactly; New York’s current budget deficit is $6.4 billon, and projected to hit $26 billion over the next three years. California hasn’t managed to pass a budget yet but they are looking at an assortment of tax increases to fund government spending which has gown by 30% ($41 billion) since 2004.

Rather than being attracted by this heavy public spending, businesses are leaving those states. Texas is now the #1 home for Fortune 500 companies – and about 12 (out of 58) of those companies formerly called California and New York home.

How about job creation. Supposedly “failed” conservative economic and tax policies which have been steadily at work in Texas, Florida and (yes) Arizona have produced 1/3 of all the new jobs in the US economy over the last 10 years.

Obama’s Illinois managed to generate 122,000 jobs – compared to 600,000 in Arizona during the same period. Ohio and Michigan – which have broadly implemented Democrat policies at the state level – lost 62,900 and 318,000 jobs respectively. Texas added 1.7 million new jobs.

Small businesses generate the vast majority of jobs and economic growth across the US and this is where Democrat economic policies are especially onerous. In the name of taxing the rich (small business owners who file as individuals), Mr. Obama would raise the marginal tax to over 50% on millions of businesses that generate 75% – of all new jobs in America, sapping their ability to expand, purchase capital equipment and hire.

How does government spending correlate to success? In the three most successful states (Texas, Florida and Arizona) , state spending averaged $5,519 per capita vs. $6,484 in the least three successful states (Michigan, Ohio, and Illinois). Per capita taxes were $7,063 versus $8,342.

When evaluating the economy this election cycle – individual states have a profound ability to produce economic growth and prosperity, because local taxes and economic policy matter.

We are in a global competitive race for the best jobs, and capital and labor gravitate to where regulatory & tax burdens are smaller and the opportunities greater.

This fall the Democrats say they have solutions to failed policies.  An honest assessment of state economic health and performance indicates their philosophy and ‘solutions’ more closely resemble the failings of New York, California, Michigan, Ohio and Illinois, as opposed to the successes of Texas, Florida, Arizona, Georgia, Alabama, and North Carolina.

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