New “Rich States, Poor States” Report Looks at Tax and Spending Policy

This week, the American Legislative Exchange Council released their 5th edition of the annual Rich States, Poor States report, which ranks states according to a variety of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities., spending, and regulatory policies.

Some of the report’s insights on taxes echo observations that we have made in our State Business Tax Climate Index. For example, in our Index, one of the things that top-scoring states have in common is that they are able to run their state without collecting one of the five major taxes. Rich States, Poor States praises such states, citing that limited taxes make for better economic indicators:

“Over the last decade, the nine states without an income tax have outperformed the nine states with the highest income tax, by every measure. Low tax states beat the national average, and high tax states fail to live up to it.”

Below are the top and bottom ten ranked states in Rich States, Poor States:

What’s interesting to see is that even though Rich States, Poor States looks at a wide variety of policy issues, many of the states that rank poorly on their metric also rank in the bottom ten in the State Business Tax Climate Index. Minnesota, Rhode Island, Vermont, New York and New Jersey are in the bottom ten of both indices. Wyoming, South Dakota and Utah rank in the top ten in both. In seems as though states with poor tax policy tend to have trouble in other aspects of economic competition as well.

For our apples-to-apples measure of tax costs between the states, you can also check out Location Matters, which calculates tax bills for seven model firms in each of the fifty states.

Follow Scott Drenkard on Twitter @ScottDrenkard.