The Cato Institute

New Cato Institute Report Grades Governors on Fiscal Restraint

Policymakers in every state should adopt the fiscal approaches of this year’s top-scoring governors…

Today, the Cato Institute released its biennial Fiscal Policy Report Card on America’s Governors, produced by Chris Edwards, director of tax policy studies and editor of www.DownsizingGovernment.org. The report uses statistical data to grade the governors on their taxing and spending records from a limited-government perspective.

Five governors received the highest grade of “A”: Susana Martinez of New Mexico, Henry McMaster of South Carolina, Doug Burgum of North Dakota, Paul LePage of Maine, andGreg Abbott of Texas.

Eight governors received the lowest grade of “F”: Roy Cooper of North Carolina, John Bel Edwards of Louisiana, Tom Wolf of Pennsylvania, Jim Justice of West Virginia, David Ige of Hawaii, Dennis Daugaard of South Dakota, Kate Brown of Oregon, and Jay Insleeof Washington. 

The report card looks at data since 2016 for each state and awards an objective grade based on spending variables, a revenue variable, and tax rate variables. Governors who have cut taxes and spending the most receive the highest grades, while those who have increased taxes and spending the most receive the lowest grades.

Susana Martinez receives the highest score in this year’s report due to her spending restraint, tax cuts, and steadfast opposition to tax increases. New Mexico’s budget has remained roughly flat in recent years, and Martinez has repeatedly vetoed wasteful spending. She has pursued reforms to make New Mexico more competitive, including cutting the corporate tax rate. With revenues from energy production stagnant in recent years, balancing New Mexico’s budget has been a challenge. But Martinez has held firm against tax increases proposed by the legislature, including vetoing $350 million worth of tax increases last year.

Jay Inslee is the worst-scoring governor this year. The report argues that his “appetite for tax and spending increases has been insatiable.” Though he originally campaigned on a promise not to raise taxes, Inslee has pushed many hikes over the years, including increases in business taxes, capital gains taxes, cigarette taxes, sales taxes, and a huge new carbon tax. Inslee has also been spendthrift— the current biennial budget in Washington state is up 17 percent over the prior budget.

In this year’s report, Edwards discusses how the federal Tax Cuts and Jobs Act of 2017 is affecting state fiscal environments. He also examines revenues from marijuana legalization and recent Supreme Court decisions on online sales taxes and public-sector labor unions.

Edwards notes, “The 2017 federal tax act has ushered in a new era of state tax competition. Governors need to lead efforts to deliver better services at lower costs, else risk losing residents to other states. Policymakers in every state should adopt the fiscal approaches of this year’s top-scoring governors.”

Read the report, then join the conversation on Twitter with #GovReportCard…

How Free Is Your State?

Florida is the freest state, while New York is, by far, the least free in the nation…

The latest edition of Freedom in the 50 States — authored by William Ruger and Jason Sorens — looks at state and local government intervention across a range of more than 230 policy variables — from taxation to debt, eminent domain laws to occupational licensing, and drug policy to educational choice — and ranks each U.S. state by how its public policies promote freedom in the fiscal, regulatory, and personal freedom spheres. 

Ruger and Sorens score all 50 states on their overall respect for individual freedom, and also on their respect for three separate dimensions of freedom: fiscal policy and regulatory policy (which are combined to create the economic freedom score) and personal freedom. In the 2018 edition, Florida, New Hampshire, Indiana, Colorado, and Nevada sit at the top of the rankings. New York again has the dishonor of being the least free state, preceded by Hawaii, California, New Jersey, and Vermont. 

In addition to providing the latest rankings for 2016, this edition for the first time provides freedom scores for all years since 2000. The ability to sift through 17 years of data, enables Ruger and Sorens to identify the causes and consequences of changes in freedom. For instance, over the 2000-2016 period, Oklahoma is the most improved state, while over the 2015-2016 two-year period, New Hampshire has risen the most.

Ruger and Sorens find that the average state has seen increases in economic freedom since 2011 because of rapidly improving state fiscal policies and average improvement in regulatory policy. However, the authors discover that when federalized policies are accounted for in the economic freedom rankings, the average state score in 2016 falls below its score in 2000. 

Since 2010, states have also experienced substantial increases in personal freedom. This is largely the result of ballot initiatives loosening cannabis regulations; the spread of legal gambling; and legislative criminal justice and asset forfeiture reforms. Unlike economic freedom, when federalized policies are included in personal freedom scores, states scores improve even more dramatically. The authors argue that this improvement is a result of judicial engagement on personal freedoms, such as the freedom to marry.

Although not always the case, conservative states tend to score better on economic freedom overall. In reviewing this relationship over time, the authors find that this correlation was weaker in 2000 than it is now. By contrast, personal freedom tends to be higher in progressive states. However, this connection is noisier and more uncertain than that between partisanship and economic freedom. When economic and personal freedom scores are combined conservative and moderate states fare much better in the rankings than strongly left ones.

There is strong evidence that states with more economic freedom attract more residents. The authors find a solid correlation between both lighter fiscal and regulatory impact of government policy and net migration, although evidence also suggests that personal freedom plays a role in attracting residents. For example, New York, the least free state, has lost more than 14% of its 2000 population in net migration to other states, while Florida, which ranks at the top, has attracted net in-migration from other states equal to more than 13% of its 2000 population. In fact, Florida is the second-most popular destination for fleeing New Yorkers, and the five-year age group most likely to move from New York to Florida is individuals who are 20–24 years old.

An in-depth comparison of New York to Florida reveals in greater detail why many may be flocking to the Sunshine State. While #50 New York has the highest tax burden in the country along with rent control, pro-union labor laws, and no restrictions on eminent domain for private benefit, #1 Florida has no individual income tax and has right-to-work, the toughest restrictions on eminent domain for private benefit in the country, and a panoply of school-choice programs for parents. Although every state has room to improve, Florida manages to be better than average in fiscal policy, regulatory policy, and personal freedom, while New York is below average in all three dimensions.

Measuring freedom is important because freedom is valuable to people. State and local governments ought to respect basic rights and liberties, such as the right to practice an honest trade or the right to make lifetime partnership contracts, whether or not respecting these rights ‘maximizes utility.’ Even minor infringements on freedom can erode the respect for fundamental principles that underlie our liberties. This index measures the extent to which states respect or disrespect these basic rights and liberties; in doing so, it captures a range of policies that threaten to chip away at the liberties we enjoy.

Learn more, then share your thoughts on Twitter with #FreeStates…