Tuesday, December 17, 2019

An Economic Misery Index for States: Connecticut-Most Misery, Utah-Least Misery

Candidates for the Democrat presidential nomination have almost uniformly argued for reducing income inequality by raising taxes on businesses, and on, yet to be defined, high income earners.  

What is the evidence that such a shift would in fact produce positive outcomes?  In this essay, I combine an a widely accepted measure of income inequality, the Gini Coefficient, and gross domestic product (GDP) to arrive at a Misery Index.  

Those states with high income inequality (high Gini Coefficients) and low GDP growth are awarded a high Misery Index. States with low income inequality (low Gini Coefficients) and high GDP growth are awarded a low Misery Index. I then calculate state and local tax burdens to gauge whether higher taxes are likely to lead to a lower, or higher Misery Index.  

Inequality Misery: The 10 states with greatest 2018 income inequality were: DC (#50, last in nation), New York, Connecticut, Louisiana, California, New Mexico, Florida, Massachusetts, Alabama, and Illinois (#41). The 10 states with the least income inequality for 2018 were: Utah (top state), Alaska, Iowa, North Dakota, South Dakota, Hawaii, Idaho, Vermont, Wisconsin, and Nebraska (#10).

Economic Growth Misery: The 10 states with the poorest 2015-18 GDP growth were: Delaware (#50, last in nation), Wyoming, North Dakota, Alaska, Oklahoma, Connecticut, Rhode Island, Iowa, Louisiana, and South Dakota (#41). The 10 states with the highest 2015-18 GDP growth were: Washington (top state), Oregon, California, Utah, Idaho, Arizona, Nevada, Colorado, Florida, and Georgia (#10).

Overall Misery Index: In terms of the overall Misery Index, from most Misery to least Misery: 51. (Highest Misery Index) Connecticut, 50. Louisiana, 49. New Mexico, 48. Mississippi, 47. New York, 46. Arkansas, 45. Illinois, 44. Oklahoma, 43. Rhode Island, 42. District of Columbia, 41. Delaware, 40. West Virginia, 39. New Jersey, 38. Kentucky, 37. Alabama, 36. Wyoming, 35. Missouri, 34. Pennsylvania, 33. Virginia, 32. North Carolina, 31. Massachusetts, 30. Ohio, 29. Florida, 28. North Dakota, 27. Texas, 26. Alaska, 25. Montana, 24. California, 23. Georgia, 22. Iowa, 21. South Dakota, 20. Tennessee, 19. Vermont, 18. Kansas, 17. Michigan, 16. South Carolina, 15. Nebraska, 14. Indiana, 13. Nevada, 12. Wisconsin, 11. New Hampshire, 10. Minnesota, 9. Maryland, 8. Maine, 7. Arizona, 6. Colorado, 5. Oregon, 4. Hawaii, 3.Washington, 2. Idaho, 1. Utah (Lowest Misery Index).

State and Local Tax Burdens: States with the highest Misery Index had the highest average per capita state and local taxes of $5,092 compared to states with the lowest Misery Index with the lower per capita state and local taxes of $4.580. In terms of states' business tax climate ranking, the highest Misery Index states had a worse business tax climate ranking of 28 compared to 23 for the low Misery Index states (lower ranking connotes a superior business tax climate).

Data support the hypothesis that Misery Indices were higher for high tax states, and lower for lower tax states, underpinning the contention that raising taxes will not reduce economic misery, but may in fact produce more economic misery, or slower economic growth, and higher income inequality 

Ernie Goss

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