Would you vote with your feet?
If economic conditions got bad enough, would you choose to live elsewhere?
That’s a recurring theme in the most recent edition of Rich States, Poor States, the ALEC-Laffer state economic competitiveness index written by Jonathan Williams, vice president of the American Legislative Exchange Council Center for State Fiscal Reform, and White House advisers and economists Arthur Laffer and Stephen Moore.
The report examines trends in economic growth, then ranks the economic outlook of the 50 states using 15 different weighted policy variables, from tax rates to labor policies.
For the 12th year in a row, Utah is ranked first overall, reflecting its commitment to pro-growth policies, including low income tax rates, a low sales tax and a business-friendly approach to labor.
New York, on the other hand, was 50th for the sixth year in a row. The state has a high tax burden, high minimum wage and a high proportion public employees. New York has also lost — in a category called “absolute domestic migration — more than 1.3 million residents over the past 10 years. Illinois, ranked 48th, has lost about 783,000 residents, and California, ranked 47th, has lost more than 800,000.
Utah, in contrast, has gained about 78,000 new residents. In other words, people do vote with their feet. They may not be consciously voting for specific policies, but they go where there is opportunity and prosperity. They go to the “rich states,” which have embraced lower taxes and business-friendly policies.
So what about Hawaii? Are we moving closer to Utah or to New York in the rankings?
This year, Hawaii’s ranking was stagnant. The state’s economic outlook ranking was 45th overall — the same as last year. For the fourth year in a row, the state’s economic policies have left us languishing in the bottom 10. And we have lost almost 52,000 residents over the past 10 years.
Hawaii ranked 50th overall in sales tax burden and 47th in top marginal personal income tax rate. In supplemental materials accompanying the report, Hawaii’s “massive tax rates” were singled out as a reason for the state’s poor performance in the index. Also mentioned were the state’s death tax and labor policies.
The only categories in which Hawaii outperformed Utah were in property tax burden (12th overall, but we in Hawaii know that is offset by high property values) and debt service as a share of tax revenue (2nd overall). In many categories, such as “minimum wage” and “tax burden,” Hawaii might even be on the cusp of dropping further in the rankings. The state Legislature continues to debate minimum-wage and tax bills that would further damage the state’s economic competitiveness.
We know that people vote with their feet. We see it in our continuing series of Facebook posts about “Why I Left Hawaii.” We hear it from legislators who believe they can regulate and tax the state into a better economic outlook.
The truth, however, is right there in the rankings. The states at the bottom, including Hawaii, are the ones being left behind as residents seek “rich states” with better prospects.
If policymakers are serious about wanting to stem our state’s brain drain and keep families in Hawaii, we need to make this a “rich state” not a “poor state.” And that means addressing our tax burden and barriers to business that are stifling Hawaii’s economic outlook.