Missing step: Control spending

Wisconsin received more evidence this week that its taxes are too high.

This time the evidence arrived in a study suggesting that Wisconsin may be just a few tax cuts away from becoming one of the nation’s economic hot spots.

The study, from the Pacific Research Institute in association with Forbes magazine, should give state and local policymakers new incentive to control spending so that taxes can be reduced.

The study of all 50 states, called the economic freedom index report, considered a variety of factors from tax levels to justice systems to make conclusions about how much economic freedom each state allows.

The goal was to forecast which states offer the freedom that should lead to prosperity in years to come.

The study showed that Wisconsin made the biggest leap forward among all states since a similar study was completed in 2004.

Wisconsin now ranks 18th in the index.

Four years ago Wisconsin ranked 38th.

The leap forward indicates that Wisconsin is headed in the right direction to attract business development and skilled workers.

But there is a snag.

Wisconsin’s lone glaring weakness is on taxes. Measured by tax rates and recent tax revenues, the state ranks 49th. Its tax burden is second only to New Jersey’s.

There are reasons to be suspicious of some of the study’s assumptions about what contributes to prosperity.

New York ranks dead last in the study’s index, and South Dakota ranks first. Yet New York’s economic growth rate last year was 4.4 percent while South Dakota’s was 2.3 percent, measured by the value of goods and services produced.

Nonetheless, the economic index has proved to be a good predictor of which states are emerging as high-growth areas. The 15 states that ranked highest on the 2004 index grew 6 percent faster the following year than the 15 states that ranked lowest, with growth based on general fund tax revenues.

Moreover, the economic index joins several other studies in showing that Wisconsin’s taxes are out of line with those of other states.

Wisconsin should beware that prosperity requires public investment in the seeds of growth, including education. But the study re-enforces the importance of eliminating unwise spending.

State and local policymakers face tough decisions as they prepare the next round of government budgets. They should redouble their efforts to rein in spending so that tax cuts will become possible. That’s a missing step in Wisconsin’s climb to a better economy.

How Wisconsin’s economic prospects rank

1. South Dakota
2. Idaho
3. Colorado
18. Wisconsin
22. Iowa
26. Minnesota
27. Illinois
43. Michigan
50. New York

Source: Economic Freedom Index, measuring tax and regulatory burden, justice system, size of government and welfare spending. Developed by the Pacific Research Institute in association with Forbes magazine.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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