A recent report declared that the South’s economy is falling behind because it was unprepared for globalization. Meanwhile, just this week, Mitsubishi Motors announced it would relocate its North American headquarters from high-tax California to low-tax Tennessee. This is another perfect example of how the Southern economy continues to rise because of broadly pro-growth policies, despite what some pundits would have the public believe.
Recent criticisms of the South have curiously omitted Texas and Florida from their calculations. Any reasonable analysis of the South should never ignore these low-tax and high-growth states. But the cherry picking of facts does not end there.
To illustrate how “poor” the South is compared to other regions, some detractors take per-capita income levels by state and compare them to the national average, painting a picture of widespread poverty. This is a flawed metric because it ignores the cost-adjusted standard of living. Another pitfall is looking at levels of per-capita income while ignoring growth in income by state — a much more telling measure.
Living in the South is remarkably cheaper than in the rest of the country, due in part to low taxes. This fact is often ignored by those looking to criticize the South’s economic record. Per-capita income in the United States is roughly $31,000. But in Mississippi, that equals $35,774 in true purchasing power. Even in booming Tennessee and North Carolina, $31,000 equals roughly $34,100 in purchasing power. In contrast, $31,000 only gets you $26,793 in New York purchasing power.
Some might suggest that right-to-work laws and low taxes are to blame for the South’s “poverty” by underfunding education and dampening the power of unions. On education, Southern states do spend less per pupil than other regions. But that does not necessarily mean the South is underinvesting in education. To conclude that, one must assume that there is a dollar-for-dollar link between funding and student outcomes. Such a relationship does not exist.
Some of the most important workforce development takes place at vocational school and higher education institutions. The University of Virginia, University of North Carolina-Chapel Hill, Georgia Tech, University of Florida and The College of William & Mary are all top 10 public universities and all are located in the South. To say the South is underinvested in education while five of the top 10 public universities are Southern ignores reality.
Right-to-work states see increased economic growth, higher long-term wage growth and increased manufacturing employment than forced-union states.
The annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index ranks states based on domestic migration, employment growth and GDP growth. Man Southern states are above the national average in every Rich States, Poor States economic performance variable. In fact, the best performing Southern states also have the most competitive tax systems in the region, and each one of them protects the right to work.
An important way to illustrate the South’s success is by examining the interstate migration trends of the region. Texas is the fastest-growing state in the country with more than 1.3 million new residents in the past decade. Florida and Tennessee have also seen a surge in migration, with 991,542 and 238,182 new residents, respectively. These states have one thing in common—no personal income tax. In fact, Mississippi, Louisiana and Virginia are the only states in the South that have lost residents to other states in the past 10 years. As a region, the South has added 3.6 million new residents over the same period.
It is clear that Americans are continuing to “vote with their feet” away from high-tax and big government states and towards states with lower taxes and more economic opportunity. Since the South is generally comprised of states with lower tax burdens and more economic freedom, it’s not surprising at all to see the region enjoy overwhelmingly positive domestic in-migration
Despite attempts to paint the South as an economically repressed, agricultural backwater beholden to politicians who refuse to offer citizens a decent education, the South is a vibrant, economically diverse region that, in many cases, is creating the renaissance of American manufacturing. Boeing, Toyota, BMW, Honda, Mercedes and General Electric have all opened factories in the South in recent years.
It is precisely because of low taxes and right-to-work protections for employees, among other policy choices, that companies formerly located on the West Coast or in the Northeast have flown south. The South’s economy isn’t “falling behind.” It’s just getting started.
Jonathan Williams is the chief economist at the American Legislative Exchange Council and vice president of its Center for State Fiscal Reform. Follow him on Twitter @taxeconomist. Skip Estes is a research analyst at the Center for State Fiscal Reform