Jobs are flocking to low-tax states for a reason.

Voters will elect governors in 36 states this year. And as they decide who to send to the governor's mansion, they will also be shaping the economic future of their state. On taxes, the gubernatorial candidates fall into one of two camps. Either they believe that the best way to close a budget gap is to raise taxes. Or, like Ronald Reagan and George W. Bush have done from the Oval Office, they believe in raising revenue by growing the state's economy with tax cuts.

Now new data is out and it shows that the states that embraced supply-side tax cuts are not only financially more sound and enjoy stronger economies, but they are draining residents away from the states that opted for high taxes. The Pacific Research Institute has crunched the tax numbers in all 50 states and published the "U.S. Economic Freedom Index" ranking all states according to how friendly or unfriendly their policies were toward free enterprise and consumer choice in 2004--the most recent year that comparative data is available for each state. It's clear that the economic policies of 2004 determined where each state fell in the rankings, and shaped 2005 economic performance.

It isn't just fun to pinpoint which states are getting it wrong. Where a state falls on the U.S. Economic Freedom Index also indicates how likely it is to experience real economic growth over the long term. Individuals looking to open a new business, expand operations or market new products weigh the comparative costs and benefits of different locations. They evaluate local universities, transportation networks, labor skills, market size and even the weather. They also assess the policy climate. Economic freedom--a favorable state tax, regulatory, and legal climate--attracts entrepreneurs and capital, thereby increasing jobs and wages.

In 2005, per capita personal income grew 31% faster in the 15 most economically free states than it did in the 15 states at the bottom of the list. And employment growth was a staggering 216% higher in the most free states. It hasn't been a "jobless recovery" in states that have adopted pro-growth tax and regulatory policies.

Compared to the rest of the world, the U.S. has a uniformly pro-growth economic climate. But policies vary dramatically from state to state and the biggest single policy states have to get right to out-compete the other states for jobs and high-skilled workers is taxes. Taxpayers paid 14% less in "effective tax rates" in 2005 in the most economically free states than did the taxpayers in the least free states. Effective tax rates are based on what people actually pay after deductions, exemptions and credits. This helps explain why entrepreneurs are attracted to more free states and why personal income and jobs are growing so much faster there.

Though typically tax cuts are opposed with the argument that slashing rates will force state revenue to fall, new data from the Nelson Rockefeller Institute shatters the myth that budget deficits are caused by supply-side policies. In 2005, the 15 states with the most economic freedom saw their general fund tax revenues grow at a rate more than 6% higher than the 15 least free states, despite their lower effective tax rate. Instead of blowing a hole in state budgets, lower tax rates rewarded productivity and risk-taking and allowed the economy to grow. As the economy expanded it also generated more revenue for the state Treasury as capital and people flowed in. Census data shows an astounding 245% difference in net state-to-state migration rates in 2005 between the freest states (net inflow) and least-free states (net outflow). "Live Free or Move" is fast becoming the national motto.

California, Connecticut, Illinois, Massachusetts, New York, Ohio, Pennsylvania, and Wisconsin all elect governors this year. And all languish near the bottom in terms of economic freedom. They have all also struggled with significant budget deficits. Candidates from California and Ohio highlight the stark differences on taxation.

California gubernatorial candidate Phil Angelides vows, if elected, to raise the upper tax rate on individuals to 12% from 10.3%, in part to close California's $7 billion deficit. But this high rate, the nation's highest, has not prevented California from suffering a multi-billion-dollar budget gap. What the 2005 fiscal facts show is that raising it even higher will likely make the problem worse in the long term. When Gov. Pete Wilson raised taxes in the early 1990s, hoping to close a budget gap, revenues actually fell and deficits lingered. The 2005 numbers foretell the same outcome with Angelides's tax-hike scheme.

On the other hand, Ohio gubernatorial candidate Ken Blackwell vows, if elected, to cut taxes and to support a tax-and-expenditure limit to curb the growth of state spending. The 2005 numbers clearly support his approach to economic prosperity. Low taxes expand economic opportunities and lift a state's personal income, employment, and tax revenues. It's a lot easier to close a budget gap when the economy is growing and more money is flowing into the state's coffers (assuming the legislature doesn't spend the new revenue faster than it comes in).

Voters might want to keep some of these facts in mind and reject the flawed tax-hike approach when they head to the polls for the primaries in the coming months and the general election in November. Supporting candidates and policies that promote economic opportunity through cutting taxes is the best way to fiscal health for both taxpayers and states. Lower taxes, less burdensome regulations and a reasonable civil-justice system rejuvenate economies, lift incomes and even fatten state revenues.