What is the ideal role of government? From the Federalists and Anti-federalists of the Revolutionary era to Republicans and Democrats today, this question has been at the center of political debate in the U.S. for centuries. Unfortunately, the passage of time has not brought American any closer to a consensus, with Gallup polls finding public opinion to be split between growing government or shrinking it.
However, the debate should not be as complex as it is. Especially in our modern age with statistical tools at hand, it has never been easier to measure the relative effectiveness of government policies. I did just that, having compiled a spreadsheet aggregating government data to compare states’ growth on measures like gross domestic product (GDP), personal income, population, and total employment. A quick glimpse at the numbers is enough to see a clear theme emerge. Namely, low taxes and spending is the right formula for economic growth.
On taxes, the nonpartisan Tax Foundation ranks states on how low and simple their taxes are in a list called the State Business Tax Climate Index. Comparing the ten states with the best tax codes on the list (Wyoming, South Dakota, Nevada, Alaska, Florida, Washington, Montana, New Hampshire, Utah, Indiana) to the ten with the worst (Maryland, Connecticut, Wisconsin, North Carolina, Vermont, Rhode Island, Minnesota, California, New Jersey, New York) paints a clear picture on which type of policies are best for growth.
From 2002 to 2012 (the last year full data has been released), the top ten’s GDP grew by 22 percent and personal income by 25 percent after adjusting for inflation. Meanwhile, their population grew by 14 percent and total employment by 9 percent. By contrast, the bottom ten’s GDP fell behind on all four measures at 15 percent for GDP, 16 percent for personal income, 7 percent for population, and 2 percent for employment. That’s right, high tax states creates less than a quarter of the jobs low-tax states did.
On spending, the same theme can be seen. When comparing the ten states with the highest debt per capita in 2012 (Alaska, Connecticut, Delaware, Hawaii, New Hampshire, New Jersey, New York, Rhode Island, Vermont) to the ten states with the lowest (Alabama, Arkansas, Arizona, Florida, Georgia, Iowa, Nebraska, Nevada, North Carolina, Texas), the low-debt states consistently outperform their high-debt counterparts.
From 2002 to 2012, the ten low-debt states grew by 20 percent in GDP, 22 percent in personal income, 15 percent in population, and 6 percent in total employment. Meanwhile, the ten high-debt states lagged behind at 14 percent for GDP, 16 percent for personal income, 6 percent for population, and 3 percent for total employment. That’s right, high debt states created half as many jobs as low-debt states.
Supporters of tax-and-spend policies may try to downplay these stark facts, pointing out that many bigger government states like New York enjoy larger populations and higher average family incomes than smaller government states like Nevada. While this is true, the New York’s of America also have higher costs of living than the Nevada’s of America, rendering an absolute comparison useless. Instead, growth is the fairest way to measure policy success since the measurement is relative to the size and wealth of each state.
While it’s easy to get lost in a sea of statistics, it’s important to remember that behind each number are living, breathing human beings whose livelihood are largely influenced by the governments they pay taxes to. With this fact in mind, policy makers should be weary to embrace higher taxes and greater spending since every dollar taken out of a taxpayer’s wallet is one less dollar that could be used in the private sector fueling the markets’ engine of prosperity. The proof is in the numbers.