The Mercatus Center at George Mason University has released their third biennial freedom index ranking, Freedom in the 50 States 2013. The economic freedom component of the index offers some valuable comparisons into the various tax, spending, and regulatory burdens imposed at the state level.
2013 Mercatus Economic Freedom Ranking
1. South Dakota
2. North Dakota
44. Rhode Island
45. West Virginia
7. New Hampshire
48. New Jersey
50. New York
State Specific Highlights Include:
Idaho showed one the greatest improvements in its fiscal policy. Their tax revenues as a percentage of personal income fell by more than 8 percent.
Georgia and New Mexico also scored better, based largely on their substantially lower tax collection as a percentage of personal income.
New Hampshire, while still a leader in economic freedom, declined a bit overall. Some of the freest states have caught up to New Hampshire in recent years. However, the 2011–12 legislature has cut spending significantly in the time since the data cutoff for this edition of the freedom index. This move, along with other freedom-enhancing legislation, is likely to help New Hampshire in its effort to get back to top of the list.
On the negative side, Oregon is one of the states that has fallen most since 2001. A big part of its recent decline has been an increase in state debt, spending, and tax revenue as a percentage of personal income. Oregon also increased health insurance mandates.
Colorado has also fallen precipitously in both absolute and relative terms (its rank fell from 10th to 22nd). This was largely due to a substantial growth in taxes as a percentage of personal income, as well as to increased debt.
Since 2001, New York’s and New Jersey’s fiscal policy positions have deteriorated significantly, with the former losing more than 24 points and the latter declining by a whopping 37 points. The states treaded water both absolutely and relatively with their regulatory policy.
Kansas’ position as one of the states whose overall score declined the most over the last decade may be a bit of a surprise for many readers. It dropped almost 10 points (and went from 2nd to 10th) in regulatory policy, lost 12 points in fiscal policy (and fell from 26th to 37th).
Generally, fiscal policy changes varied across the states. Some of these may have been partly a result of the differing effects of the recent recession and the federal fiscal stimulus. Debt problems, in particular, continued to get worse in many places (California and Arizona, for example). On the regulatory front, it is notable that employment-weighted licensure increased slightly in nearly every state.
The authors found that a state’s regulatory policy is statistically, significantly and positively related to income growth.
State-level health insurance mandates impose direct costs of nearly $9 billion a year.
Tort abuse’s cost to the economy is quite high. The nationwide “tort tax” amounts to $328 billion annually in direct costs and $537 billion annually in indirect costs.