Monday, April 21, 2014
ALEC Report Revealing!
Weekly Opinion Editorial
ALEC REPORT REVEALING!
by Steve Fair
Last week, the American Legislative Exchange Council (ALEC) released their 2014 report on state economies. The report, entitled Rich States/Poor States, uses fifteen(15) policy areas that have proven, over time, to be the best determinants of economic success in ranking the economies of the fifty states. Each of these factors is influenced directly by state lawmakers through the legislative process. The report is authored by Art Laffer (of Laffer curve fame), Stephen Moore of the Wall Street Journal, and Jonathan Moore, an economist with ALEC. The report, also known as the Laffer State Economic Competitiveness Index, has gained a great deal of creditability in recent years and in its sixth year of publication.
So how did the Sooner state do in the report? In the category of Economic Performance we ranked 12th in the U.S.; in Economic Outlook, we ranked 19th? Why the difference? Currently the Sooner state’s economy is doing well, largely because the energy sector is doing well, but according to the report, that monolithic approach is short sighted. Oklahoma needs to be more diversify in our economy. The report goes on to point out Oklahoma state government has too many employees. There are 566 state employees per 10,000 population in Oklahoma; only 16 other states have more bureaucrats per capita. Oklahoma’s property tax burden and inheritance tax is low, which is a positive, but our state income tax is still high for the region. Oklahoma ranked high in workers comp premiums, even though the legislature passed historical reform last session that should fix that. The ranking for tort didn’t reflect the changes the Oklahoma legislature made in special session to limit reform tort in the state. So what can we learn from the ALEC report?
First, Oklahoma still has work to do in reducing taxes. There have been several proposals to significantly reduce the state income tax, but each year the plans fail to address the spending side of the ledger. The ALEC report highlighted Kansas calling the tax reform spearheaded by Governor Sam Brownback an ‘uprising.’ Brownback and the State House in the Sunshine state reduced the personal income tax and tax on small businesses substantially in just one year. “This is all about making Kansas a more competitive place to do business,” Brownback said. Kansas addressed both sides of the problem. They cut taxes and cut spending in one legislative session. While we still are ahead of Kansas in economic performance, they rank higher than Oklahoma in economic outlook.
Second, Oklahoma’s economy is still largely dependent on energy. Oil and gas are vitally important to the Sooner state, but historically that has been an issue when the energy sector slows down. Oklahoma is a state centrally located, with great human resources and a relatively mild climate. Oklahoma should be the distribution center capitol of the U.S. We are at the crossroads of America with two major interstates intersecting in our state. Every major retailer and wholesaler should have a D.C. in Oklahoma. We should be very attractive to consumer product goods companies for manufacturing facilities? Are state leaders and economic development groups pitching companies like M & M Mars? Mars just built a $270 million dollar plant south of Topeka, Kansas. The 500,000 square foot plant, the first new plant for the company in 35 years, will employ over 200 people. Nestle, the largest consumer products goods company in America, has opened six new facilities across America in the past five years, including a large pet food manufacturing plant in Missouri. Did anyone present Oklahoma to either of those two consumer foods giants? The consumer goods industry is very stable and while it may not be sexy, they provide good paying jobs.
Third, the unfunded pension problem is not going away. Citing a couple of examples of cities in California who declared bankruptcy because of their pension issues, the authors conclude, “ We can expect trends like this to continue if state and local governments refuse to address the public pension problems they are facing.” Oklahoma has over $11 billion dollars in unfunded pension liability. Some progress has been made on the issue, but the reforms necessary to fix this looming issue are being skirted. State legislators can’t just ‘kick the can’ down the road any longer. They have to deal with pension reform and to really fix it will take some iron rail up the shirt tail.
In the preface of the report there are ten(10) Golden Rules of Taxation listed. Every citizen should read them. Consistent with Laffer’s supply side economics theory, the first tenet is, ‘When you tax something more you get less of it, and when you tax something less you get more of it.’ To read the entire report, go to http://alec.org/docs/RSPS-6th-Edition.pdf.