We hear a lot about business climates from people who are looking for ways to cut taxes. But they usually get it wrong. One example is the Rich States, Poor States analysis produced by the American Legislative Exchange Council, or ALEC, an organization frequently considered a “bill mill” for corporate-friendly legislation.
The centerpiece of Rich States, Poor States is the “Economic Outlook Ranking,” which ranks states on their conformance to ALEC’s preferred policies, with the best state ranked number one. But when we can compare states ranked the best by ALEC with states ranked the worst, it turns out that ALEC’s 20 “best” states have lower per capita income, lower median family income, and a lower median annual wage than the 20 “worst” states. ALEC’s “best” states also have higher poverty rates: 15.3 percent on average from 2007 through 2013, versus 13.7 percent in the “worst” states. The states favored by ALEC include the likes of Utah, South Dakota, and Idaho, whereas ALEC’s “worst” states include New York, California, and Vermont.
*Best and worst states according to the average Economic Outlook Ranking in Rich States, Poor States, 2007-2015. Income measures are an average over the period 2007 to 2014 (2013 for Median Income).
Looking at it another way, the 20 states that performed best on the four measures of income (the actual rich states) actually score much worse on ALEC’s ranking than the 20 states with the lowest income (the actual poor states).
*Average ALEC ranking of the 20 states that performed best on four measures of income — per capita income, median family income, median annual wage, and poverty rate — vs. average ALEC ranking of the 20 poorest states. An ALEC ranking of 1 is best. ALEC ranking is the average of the state’s rank in the first through eighth editions of the Economic Outlook Ranking; rich and poor states are defined on the basis of their average ranking on the four income variables from 2007 through 2013 or 2014.
While Rich States, Poor States purports to provide a recipe for economic growth and “policies that lead to prosperity,” it actually advocates measures to lower wages and reduce opportunity for most Americans. To attain the highest EOR would require a state to have no individual or corporate income tax, no estate or inheritance tax, no state minimum wage, severe tax and expenditure limits, limited public services, and weak labor unions. The evidence and arguments cited to support these policies range from deeply flawed to nonexistent.
We conclude that the actual purpose of Rich States, Poor States is to sell the ALEC-Laffer package of policies — fiscal austerity, taxing lower income people more than the wealthy and wage suppression — in the sheep’s clothing of economic growth. In actuality, the book provides a recipe for economic inequality and declining incomes for most citizens and for depriving state and local governments of the revenue needed to maintain public infrastructure and education systems that are the underpinnings of long- term economic growth.