By Dean Stansel
Recently released census figures showed that the state of New York lost population for the first time in a decade. This should not be a shock. New York’s level of economic freedom is also the worst in the country, according to the new Economic Freedom of North America (EFNA) report, which ranks states according to their levels of economic freedom.
States that have seen the fastest economic growth, like Texas and Florida, tend to have a strategy that differs from the national trend: maximize economic freedom. They attract new businesses and residents by keeping the burden of taxes, spending and regulations low. In contrast, states like New York and California, which take the opposite approach, have seen much less economic prosperity.
Understandably, residents and businesses have been voting with their feet in favor of economic freedom. Over the last three years, population in Texas and Florida has grown nearly four times faster than it has in New York and California. Employment and income have also grown faster in those two states.
Not surprisingly, Texas and Florida were at the top of EFNA’s list for economic freedom among the largest states. New York and California were at the bottom again, ranking 50th and 49th, respectively.
What’s going on in places like New York should be of great concern. Most of the scholarly literature finds that economically free areas tend to have positive outcomes, such as a prosperous economy.
One reason is that high levels of taxes, spending and regulations make it harder for entrepreneurs to succeed. When businesses can’t expand and hire new workers, it hurts everyone.
The good news for New York is that there are many ways it can become more economically free. It could, for example, lower taxes. Its top personal income tax rate of 8.82 percent is nearly three times higher than neighbor Pennsylvania’s. Nine states don’t even tax wage and salary income, including nearby New Hampshire. That puts New York at a huge competitive disadvantage.
Finally, New York has 43 different targeted business incentive programs. In addition to squandering tax dollars, such cronyism creates an uneven playing field that makes it harder for entrepreneurs to be successful. Eliminating these corporate welfare programs would make it easier for businesses to expand and hire new workers, which would be beneficial to all.
Politicians in Albany and at the local level should reduce excessive spending, especially on corporate welfare that puts small businesses at a disadvantage. They should also cut the state’s income taxes, which are the highest in the nation, and scale back burdensome regulations. Doing so would help put the Empire State on the path to economic prosperity.
Dean Stansel is an economist at the O’Neil Center for Global Markets and Freedom in Southern Methodist University’s Cox School of Business and the primary author of the annual Economic Freedom of North America report.