From 42nd to (at best?) 32nd

The American Legislative Exchange Council has released its fifth annual business climate comparison, Rich States, Poor States.

I call it a business climate comparison. The authors call it a comparison of the states on the basis of their policies, or lack thereof, that “expand free markets, promote economic growth, limit the size of government, and preserve individual liberty.”

I’ll pause now while the lefties scream themselves hoarse over ALEC and its fascist beliefs in economic freedom, prioritizing government spending, reducing corrections spending, free-market environmentalism and better health care reform than ObamaCare.

I’ll pause again while those who still have some voice left complain that you can’t make comparisons from one state to another, and how dare you say bad things about Wisconsin. That viewpoint on a different but related subject was typified by Zach Brandon, former secretary of the late state Department of Commerce, who posted here last week that “Wisconsin could use less scorekeepers and more ‘economic marketers.'”

Brandon is correct on the second count, but economic marketers don’t get any help from state government, the work of which, regardless of which party has been in charge of what, has been derided for decades by the results of every state business climate comparison, regardless of what organization does them, and regardless of their criteria. Wisconsin politicians don’t like business climate comparisons for two reasons. They first demonstrate that the things state and local government does to excess — namely, taxes and regulation — are the sorts of things that make businesses decide to build new facilities or expand elsewhere. (Related is that the state’s quality of life, vaunted by every Wisconsin politician, has less importance than Wisconsin politicians might like, and the state’s education system is overrated, in the sense of student performance, as businesses see it.)

Business climate comparisons also expose the failures of government policy in Wisconsin for the past decades. Indeed, past and present Democrats and past Republicans would love you to not notice that the cumulative results of their efforts have made this state among the worst in the country as a place to do business. That suggests that there haven’t been enough economic scorekeepers — enough people paying attention to the subpar economic performance of this state before the late 2000s recession — not too many.

Rich States, Poor States compares the 50 states on their economic performance over the past decade, based on the past decade’s per capita personal income growth, domestic migration (where a positive number indicates more people moving in than moving out, and a negative number indicates the reverse) and non-farm payroll employment growth.

The economic performance ranking demonstrates the craptacular performance of the governors and legislatures of the 2000s: 42nd. That’s an improvement from last year: 44th.

I don’t know how you can possibly spin these numbers positively. The first and last graphs show that even when the country was doing well, in the mid-2000s, Wisconsin trailed the nation in putting money in Wisconsinites’ pockets and in employment growth. The middle graph shows that since the mid-2000s shows that people who have the ability to leave Wisconsin have been leaving Wisconsin to a much larger extent than people have been moving here.

The next chart, the states’ economic forecast, is based on 15 equally weighted factors, including top marginal personal and corporate income tax rates, property and sales tax burden, “recently legislated tax changes,” debt service as a share of tax revenue, a survey of the state liability system, average worker compensation costs, whether the state is a right-to-work state, and the number of tax expenditure limits in state law.

Wisconsin ranks 32nd, one ranking better than where it ranked in 2008, nine below where it ranked in 2010, and two worse than last year.

Note where Wisconsin ranks in “recently legislated tax changes” during the last year of the epic failure that was the 2009–10 Legislature, and the first year of the supposedly improved 2011–12 Legislature. We have one of the highest corporate income tax rates in a country that now has the highest corporate income tax rate in the world. But could the Legislature be bothered to cut either personal or corporate income taxes? Nope.

There is an inverse relationship between taxes and economic growth. The study places Wisconsin fourth worst in state and local taxes, with, as of 2009, state and local taxes sucking up 11 percent of personal income, 17 percent more than the national average of 9.38 percent of personal income. Not surprisingly, from 2001 to 2010 Wisconsin’s gross state product increased only 35.3 percent, three-fourths of the national average of 46.61 percent. Nonfarm payroll employment growth dropped 2.8 percent, whereas the nation’s grew 0.51 percent.

And for those who think Wisconsin is an outlier, the study’s authors reply:

Not one of the high tax burden states has grown as fast as the average low tax burden states … not one. In fact, there is not one high tax burden state that has grown as fast as the average state in the nation — again not one.

Wisconsin does have the limit on tax revenue growth that applies to school districts and counties, but that hasn’t prevented other taxes from increasing, has it? Wisconsin also does not have spending limits on state government or municipalities (more on that tomorrow), and it has neither required voter approval for tax increases (except for school district building projects or exceeding the revenue limits) nor a legislative supermajority requirement for tax increases.

There is a rationale for not cutting taxes that the report notes:

In 2011, Wisconsin faced a $3.6 billion budget deficit due to overspending, accounting gimmicks, and increases in unfunded pension liabilities. And, after residents and business owners faced years of unfair tax increases, Gov. Scott Walker was in a particularly tough position to either raise taxes again on hardworking taxpayers or find places in government to trim.

Making the decision to put Wisconsin on a path of fiscal accountability, Gov. Walker reined in government worker benefits by proposing a bold, and indeed controversial, plan to pull the state out of debt: Act 10. …

As contentious as Act 10 has been, the results are in and Wisconsin is already reaping the benefits of these legislative changes. As of September 1, 2011, the state had already saved $162 million. Additionally, local school districts have used their new freedom to make decisions locally, saving local taxpayers $300 million. …

These results are truly remarkable, and we commend Gov. Scott Walker for standing up for Wisconsin taxpayers and putting government on the track of fiscal sustainability.

Fine praise, except that Walker’s reforms didn’t go far enough. The “track of fiscal sustainability” does not include increasing spending. Walker’s 2011–13 budget did not cut spending. No definition of “fiscal sustainability” includes balancing the state’s books on a cash basis — the sort of thing you’d expect of a business with $200,000 in sales, not $35 billion in spending — instead of on a GAAP basis. No one in the Legislature is pushing correct budgeting because it must not be politically convenient. Walker’s budget also cut no state employees. He’s not going to get any credit from Da Union for not cutting employees, so he should have gone ahead and slashed the state payroll to fund meaningful tax cuts.

A forecast that Wisconsin will have the 32nd best economic growth in the nation is unacceptable regardless of who is in charge in this state. We know from our experience with the previous governor and Legislature that a return to Democratic control in Madison will make 42nd place look like a good year. But there is a long list of things that still need to be done, including reducing state employee headcount, taking a meat cleaver to the regulation factories in Madison, and cutting state income taxes. And if the recalls in May and June, and then the legitimate elections in November, don’t go the right way, none of that will happen. And it won’t happen anyway unless voters make Govzilla go on a starvation diet.

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