Former Supreme Court Justice Louis Brandeis called the states America's "laboratories of democracy," and the Mercatus Center's new state fiscal condition rankings demonstrate that the experiment of limited government has worked best, while high taxes and reckless spending has failed.
The annual report ranks states on their overall financial health, and then assesses each in a variety of categories regarding states' ability to pay their bills. The rankings provide more evidence that economic freedom works, and bigger government means bigger trouble.
The top five states for overall fiscal solvency are Alaska, North Dakota, South Dakota, Nebraska, and Florida. Alaska, South Dakota, and Florida each have no state income tax.
Other low-tax states that lead the way in tax climate also scored well on fiscal solvency. Wyoming has no income tax and ranked number one in state business tax climate, and also ranked 6th in fiscal solvency. Similarly, Tennessee has no individual income tax and ranked 8th in fiscal solvency. The trend of low-tax states demonstrating strong fiscal solvency is apparent throughout.
On the other hand, the usual suspects found themselves at the bottom of the rankings once again. The worst states for overall fiscal solvency are Illinois, New Jersey, Massachusetts, Connecticut, and New York. These states are defined by reckless government spending, high taxes, billions in unfunded liabilities — and also rampant out-migration of people leaving for greener pastures.
So where does Pennsylvania show up on this ranking? According to Mercatus, you can place PA in the same category as the worst five performing state, ranking 41st overall. As lawmakers in Harrisburg continue to hash out our budget, they should take note of the public policy decisions that impact the state's long-term health. For example, like Pennsylvania, the vast majority of states continue to have massive oncoming crises in the form of unfunded liabilities.
Wisconsin is one exception, whose strong trust fund solvency can be attributed to recent reforms enacted under Governor Scott Walker. "Act 10," the controversial budget repair bill from 2011, significantly reformed state spending and strengthened long-term fiscal health by essentially ending the influence of government employee unions. Wisconsin now has the best-funded pension system in the country.
Meanwhile, their neighbor to the south, Illinois, has perhaps the worst oncoming fiscal crises in the country in the form of unfunded liabilities, a result of decades of reckless spending and overly generous public employee benefit guarantees arranged by powerful government unions.
Other policy decisions that have and will continue to affect state fiscal health are energy and healthcare. States that have benefited from fracking and the American energy revolution have enjoyed seen economic growth and thus greater fiscal health, without raising taxes. On the other hand, states that accepted Obamacare's Medicaid expansion may find themselves with much larger bills to pay for the program in the future, when billions of dollars in federal funding is trimmed.
The message from the new report is clear. States that maintain low competitive tax rates and responsibly low levels of government spending are best equipped to pay their bills. These states attract more businesses and thus more people, creating greater economic growth and tax revenue.
The no-tax budget adopted by the legislature is a good first step. Governor Wolf's veto of the budget to demand nearly $5 B in more taxes is the wrong path for Pennsylvania and will cement our spot at the bottom of the barrel when it comes to our fiscal health. As the report confirms, low tax states do better.
I'm Beth Anne Mumford, state director of AFP —PA. Join our effort to create more opportunity and a brighter future at www.stopthewolftax.com.