JLF’s John Hood writes today about a comparison of policy approaches designed to achieve economic prosperity. The results are clear, leaving little doubt about which policy prescriptions our state should follow.
After carefully adjusting for non-policy factors, the NBER researchers found that the productivity indexes preferred by the Left exhibit no relationship to state performance in employment, wages, or economic growth. It is the cost-of-doing-business indexes favored by the Right that mattered, particularly in the areas of corporate taxation and welfare spending.
That is, states with simpler tax codes – fewer targeted exemptions and credits, flat rates, etc. – posted better economic performance. So did states that kept spending on Medicaid and other public assistance spending below the national average.
Dismayed liberals should remember that we are talking about marginal differences across states. No one is suggesting that a modern American state without interstate-quality highways or an educated workforce would still prosper as long as it kept its tax rates low. The point is that on the margin, the modest economic benefits that states derive from spending more tax dollars on roads and schools do not offset the economic cost of the required taxes.
Similarly, the modest benefits that states might receive from tight health and safety regulations do not attract enough people or jobs to compensate for the economic cost of those regulations.
