No state in America has enacted ideal policy across-the-board, but other states could take a lesson from one state in particular. Hint: It’s not New York, where Bloomberg bans soda from being sold in certain ways. It’s also not D.C., where plastic bags are taxed.
Other states need to model their policy after that of Arizona. According to Freedom in the 50 States (a project of the Mercatus Center at George Mason University), Arizona is the 11th freest state in America. The calculation of freedom used encompasses a variety of components under the categories of fiscal policy, regulatory policy, and personal freedom.
Freedom in the 50 States points out that Arizona’s freedom is on the upswing. In regard to fiscal policy, Arizona has notably low taxes (8.5% of personal income). Furthermore, government spending and employment are better than average. However, the state does have high government debt. Arizona’s regulatory policy is largely conducive to freedom. It even has a law requiring “compensation for regulatory takings.”
The state has recently gone through some substantial eminent domain reform. Arizona is also home to right-to work laws and few price controls on various types of insurance. Its personal freedom rank is heightened by its relaxed gun control, alcohol, and education laws and regulations. However, smokers are disenchanted by high cigarette taxes and stringent smoking bans. Freedom in the 50 States recommends that Arizona reduce its debt, reduce certain educational and licensing requirements, and “reform sentencing policies for nonviolent offenders.”
According to How Money Walks by Travis H. Brown, Arizona is doing incredibly well. People and money are migrating to the Grand Canyon State. Brown’s project uses data from the IRS to explore how and why people and money migrate, to and from where they migrate, and what this means more broadly. Brown suggests “the key to accumulating working wealth for any state is a pro-growth tax policy, and that means not taxing personal income.” The map reflects high rates of migration away from states with crushing taxes and towards those which are conducive to economic prosperity. The positive effect of Arizona’s low income taxes is reflected in the interactive map. Brown also points out a few key facts:
The nine states with no personal income taxes gained $146.2 billion in working wealth. The nine states with the highest personal income tax rates lost $107.4 billion. The 10 states with the lowest per capita state-local tax burdens gained $69.9 billion. The 10 states with the highest per capita state-local tax burdens lost $139 billion.
While each map uses different metrics, there are obvious similarities between the How Money Walks and Freedom in the 50 States maps. In both maps, California, New York, Illinois, New Jersey, and others fare poorly, and states like Texas, Arizona, Florida, and Tennessee fare well. However, it is important to note differences between the maps. The freedom map ranks the states, while the How Money Walks map reflects data, and does not rank the states in order. Furthermore, while personal freedom is beneficial, that particular component does not have as nearly a direct correlation with prosperity as taxes do.
Another organization which understands these concepts and promotes fiscal responsibility is Americans for Tax Reform (ATR). ATR promotes various types of government accountability and transparency as well as fiscal sensibility. The organization adamantly promotes the need for lower taxes. According to the How Money Walks and Freedom in the 50 States maps, and the data reflected, it seems as though ATR has very important mission. Lower taxes leads to prosperity.
There is also an important underlying concept — we know ourselves better than the government ever can. The presumption that government knows how to spend our money better for us is contrary to freedom, and as one can see from the aforementioned data, that such a presumption leads to economic ruin. Some people make compelling arguments for raising taxes, but how much is enough? President Obama calls on the wealthy to pay their “fair share,” meaning well over the percent that other people pay. Is that “fair?” Furthermore, where does this lead us? Over 8,000 French households paid more than 100% income tax in 2012. Yes, you read that right. More than 100% in income taxes — and that is just the beginning. Many other countries are approaching that point as well. If working may cause one to lose money, one will accordingly lose incentive to work at all. Even if one retains a small amount after taxes, much less than what he has earned, he may lose incentive to work or he may just move somewhere where his earnings are not usurped by government. This migration away from crushing taxes towards states conducive to prosperity is reflected in the How Money Walks map.
The data shown means emulating Arizona is the way to go for states unsure of the direction to take their policy. It also means that high taxes — especially on income — lead to economic ruin. States need to lower their taxes and trust that each individual can spend his dollar better than the government ever can — because it’s true. We need government to do some things for us, but we do not need it to tell us we can buy a few cans of soda rather than a large bottle of it. We don’t need government to tax plastic bags, so we will use fewer of them. We need government to allow us to prosper, be free, and spend our earned money as we please.