High-tax states headed for bankruptcy as low-tax, liberty-minded states thrive
By J. D. Heyes
August 01, 2015
(NaturalNews) A new study has once again proven that the uniquely American principle of less government leads to more prosperity.
As noted by USA Today, an examination of all 50 states’ economic health by the Mercatus Center at George Mason University has found that there is a dramatic unevenness among them, as well as a trend.
As the Great Recession fades, somewhat, anyway, energy-rich states with high levels of freedom, low taxes and less government are in great financial shape, while high-tax, high regulation states with less freedom are failing economically.
The Mercatus Center, a public policy research group, ranked the 50 states based on how well each state government planned spending in fiscal 2013, the most recent year data was available.
The center found that Alaska, both Dakotas, Nebraska and Florida are in the best shape, while the “progressive” states of New York, Connecticut, Massachusetts, New Jersey and Illinois are at the bottom of the list. The biggest financial drain is massive pension obligations initially approved by lawmakers when states were flush with commerce and far fewer regulations.
Red state, blue state
But in recent decades, globalization cut into American manufacturing capacity, costing the nation millions of jobs and billions of dollars in tax revenue as residents fled in pursuit of jobs.
In addition, lawmakers and policymakers in many of those states adopted scores of new regulations over the same period that made it more difficult for businesses to operate profitably. Some states, like Texas, have pursued the opposite course: Lowering regulatory burdens in a direct effort to attract businesses and industries and by any measure the tactic has worked.
Besides looking at budgeting data, the center also analyzed states’ future financial prospects, including available cash on hand to pay bills and long-term funding for pensions and other benefits. The study also found that of the top five states, the Dakotas, Nebraska and Alaska brought in outsized revenue from natural resources such as oil.
The study, “Ranking the States by Fiscal Condition,”, authored by Eileen Norcross, found that for the time being, most state governments have the cash on hand to pay bills and obligations over the short term. But the future is far less certain and again, pensions were mentioned as one of the most prevalent burdens.
As further reported by USA Today:
The report shows how a single year’s budget might not reflect the true fiscal health of a state. Some states may struggle financially because they used pensions and entitlements to pay general expenses.
Take Illinois, for example. Ranked 50th of all states in the study, the government used funds that had been set aside for future pensions to pay bills that were more pressing. When the state attempted to cut pensions, a state judge ruled it unconstitutional.
Over the course of 20 years in New Jersey, which was ranked 49th, government did not make regular annual payments to the pension system and instead funded it with debt; it now owes about $5 billion in pensions. New Jersey also imposes some of the nation’s highest tax rates on its citizens.
Failed governing model will prevent ailing states from improving
But the larger point is pensions in the bottom-ranked states are in the same predicament as the Social Security Trust Fund, not enough income for the promised amount that must be paid out.
What’s more, the governing formula used in the bottom states, stifling personal liberties and freedom while imposing high taxes and massive regulation, will prevent them from moving up the economic ladder and improving their long-term financial health.
Eventually, then, these states will be forced to declare bankruptcy, which could lead to a federal bailout of state governments, making taxpayers in financially healthy states liable for their failures.
For now, the hardest-hit states are cutting budgets for everything from prison employment to highway repairs to education, but in the end even those cuts won’t be enough.
To truly succeed, the worst-off states must adopt the kind of pro-growth policies of more freedom and less regulation that are the keys to the success of the financially solvent states.