Jon Sanders

If there were a handbook produced for state lawmakers entitled "Economic Growth: How Best to Stop It Without Making Voters Think That's What You Want," it would promote high progressive tax rates to care for the poor and high regulations on business to protect people. There's no better way for states to rid themselves of the people responsible for the lion's share of state revenues, both directly through paying their taxes and indirectly through growing the state's economy. That is a lesson that resounds in a new study by the American Legislative Exchange Council written by Dr. Arthur B. Laffer and Stephen Moore.

In their study, "Rich States/Poor States: The ALEC-Laffer State Economic Competitiveness Index," Laffer (yes, the Dr. Laffer of Laffer Curve fame and Reagan's supply-side revolution) and Moore (economist and editorial board member of The Wall Street Journal) analyze the fifty states' economic competitiveness against free-market principles and sixteen factors they identify as affecting a state's competitiveness (many different types of taxes, state debt, the quality of the state's legal system, the state's minimum wage, worker's compensation costs, whether it is a right-to-work state, its recent tax policy changes, etc.).

Laffer and Moore also provide a "State Roadmap to Prosperity" in which they show how relatively low taxes and regulations give people more reasons to work, increasing incomes, investment and employment and bringing more people to the state. Of importance in this politically polarized climate, Laffer and Moore show that the issues aren't partisan. They highlight Democrats for growth and tax cuts in Rhode Island (which recently went from the third to 27th highest income tax in the nation), Arizona, Oklahoma, Virginia, and New Mexico, where Gov. Bill Richardon cut income taxes significantly, declaring "businesses move to states where taxes are falling, not rising."

From Adam Smith on, economics have known that the key to economic growth is trade. Economic theory holds that voluntary trade increases wealth, just by the very act of trading. Economic wealth is not a static, or fixed, amount. When individuals enter a trade, each gives up something they value less for something they value more. By doing so, each item in the trade has attained a higher value; wealth has increased.


Jon Sanders

Jon Sanders is associate director of research at the John Locke Foundation in Raleigh, N.C.