Pennsylvania dropped eight places in the last year to become one of 10 states with the worst economic outlooks, according to the annual “Rich States, Poor States” report published by the conservative American Legislative Exchange Council (ALEC).
Based on 15 criteria including individual and corporate tax rates, the eighth annual report ranked Pennsylvania 41 out of 50 states in terms of economic outlook and competitiveness.
Jonathan Williams, co-author of the study and vice president of the Center for State Fiscal Reform at ALEC, said Pennsylvania’s drop in rankings had a few obvious causes.
“Most of that is driven with the recent tax increases, gasoline and diesel taxes going up just in the last couple of years,” Williams said. “Also, Pennsylvania’s business taxes are some of the highest in the country.”
The gasoline taxes were enacted under Gov. Tom Corbett to fund transportation and infrastructure repairs.
Williams said he and his co-authors chose to rank states only on criteria that could be controlled by state lawmakers.
“It’s a little bit different than some of the other reasons why different states are succeeding and other are failing,” Williams said. “Things like weather, natural resources, they certainly do matter as well, but they’re not things that legislators can obviously control very much.”
According to Williams, “Rich States, Poor States” also ranks states in terms of economic performance during the last decade. Pennsylvania placed 39th, showing slow growth between 2003 and 2013.
According to the report, the nine states with no income tax had 25 percent faster economic growth in the last decade than those with an income tax.
Williams said Pennsylvania could improve its economic outlook by lowering corporate and personal income taxes and abolishing the “death tax” on estates and inheritances, as Ohio did in 2013.
“And if Pennsylvania was able to really take a hard look at some of those policy options, I think it could easily not just move out of the bottom ten but become a much more competitive state in our index even next year,” Williams said.
He also said the state would benefit from a “right-to-work” law, similar to those in 25 states, that prevents agreements between employers and unions that require company employees to join a union.
“And we think for business investment, many times companies will say ‘We won’t even consider a state unless it’s a right-to-work state,’” Williams said.
Over the last 15 years, 43 million Americans have moved from one state to another, mostly for economic reasons, Williams said.
“And so, there really is a prize when you get it right, in terms of economic competitiveness, and that prize is human investment capital coming into your state,” Williams said.
