CEOs Favor Pro-Growth, Low-Tax States

This year, it bests its rival in its rating for living environment, but the Lone Star state still runs ahead in the other two categories—tax and regulation and workforce quality.

As Florida continues its transformation beyond tourism, it will chip away at the gap. According to a Wells Fargo Securities report, both the amount of expansion and the growth in construction
payrolls have been significant. The industries expanding the fastest are not directly related to tourism and are some of the best-paid industries in the state. Technology is becoming an increasingly important driver of the state’s growth.

What is most evident in the survey is how four states—Louisiana, Wisconsin, Ohio and Indiana—dramatically transformed themselves over the last six years in the eyes of CEOs. In 2010, Louisiana ranked 40th; now it’s No. 7, demonstrating that even a state with entrenched bureaucracy and a poor tax structure can improve its appeal when determined to change its policies.

In addition to the above four, Michigan is making slow but steady progress. Detroit’s meltdown has overshadowed the muscular economic recovery in this region, driven by a manufacturing and technology renaissance. Many states have come to understand that states don’t just compete with one another for business and jobs. As Gov. John Kasich told The Wall Street Journal last January, “In Ohio, we’re in a contest against Europe, Asia and the rest of the world, so we have to keep our taxes low.”

The common thread among more successful regions is the tax-cutting wave that is sweeping the states. Most governors recognize that states with lower taxes on work, investing and business activity are winning the competition for jobs and businesses.

In his 2014 book, An Inquiry into the Nature and Causes of the Wealth of States,” economist Arthur Laffer (see sidebar, p. 36) studied the 11 states that had instituted an income tax over the last 50 years. Without exception, all declined as a percentage share of GDP. New Jersey (No. 46) is an interesting example. In 1965 it had a balanced budget and neither a sales tax or an income tax. Today, it ranks among the biggest losers, with a cumulative $21 billion loss in personal AGI from 1993 to 2010, as people who leave take their incomes with them.

New Jersey has many natural wonders, including proximity to New York, a highly skilled workforce and above-average educational attainment, but a high-cost, high-tax region cannot stop out- migration. As Laffer says, “high taxes don’t redistribute income; they redistribute people. Americans are more mobile than ever, and as demonstrated throughout the past two decades, not at all averse to moving away from states with oppressive income tax climates and into pro-growth states that offer more attractive economic environments that are beneficial to both businesses and individuals alike.”