Arthur Laffer’s Rich States, Poor States Is More Wish List Than Analysis

Arthur Laffer and the American Legislative Exchange Council (ALEC) have just released the 5th edition of their Rich States, Poor States report.  If you’ve fallen behind on your Laffer reading, Rich States, Poor States is mostly a collection of Laffer’s other reports from throughout the year, copy-pasted into one convenient location.

The centerpiece of this “new” report is the “ALEC-Laffer State Economic Competitiveness Index,” which is essentially a 15-item wish list of policies that Laffer and ALEC would like to see enacted in every state.  Over half the items in the Index are related to low or regressive taxes, while the others are mostly related to labor issues.

As we’ve pointed out before, the most laughable thing about the Index is the way it claims to provide a look at the important “policy variables” under the control of state lawmakers, but then ignores the ones that actually matter. For instance, few people would argue that good schools or basic infrastructure (power, transit, roads) are unimportant to states’ economic performance.  But the ALEC-Laffer rankings give states no credit for either of these outcomes. On the contrary, adequately funding any public service actually reduces states’ rankings since Laffer assumes that tax revenue is detrimental to economic growth (all research from ITEP and academic economists to the contrary).

Rich States, Poor States also attempts to rebut recent research from the Institute on Taxation and Economic Policy (ITEP) that we’d be remiss not to mention here.  According to ALEC and Laffer, “In its latest study, ITEP reaches a pro-tax conclusion by deliberately manipulating the data. It focuses on per-capita income instead of absolute income, which hides the economic losses of high tax states.”

ITEP explains in detail its reasons for using per-capita income growth as a measure of state economic performance in the report cited by Laffer. Indeed, while Rich States, Poor States is perhaps best known for the 15-item wish list, every edition of the report (first published in 2008) has also contained a section ranking states based on their actual, measurable economic performance.  And that ranking has always been based on what Laffer calls “three important variables:” absolute domestic migration, non-farm payroll employment, and per-capita personal income growth.

What’s more, ever since the first edition, Rich States, Poor States has included a set of state-specific fact sheets at the end of the report, the top of each being – that’s right – a graph of the state’s per-capita personal income growth.

The fact that this variable appears in the evidence-based section of Rich States, Poor States suggests they think it’s a reliable variable; the fact that Laffer et al characterize the variable as manipulative in the fiction-based portion of their report suggests that if there’s any deliberate manipulation going on, it’s being done by these so-called experts.

Photo of Art Laffer via  Republican Conference Creative Commons Attribution License 2.0