Economic Outlook for Washington Continues to Slide

April 18, 2014

A new report ranking the economic competitiveness in the 50 states shows that while Washington’s economic performance over the past ten years (2002-2012) has been better than most states, the future looks grim.  

Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index analyzes two sets of state rankings.  The Economic Performance Rank is a backward-looking analysis based on the past 10 years of economic data and takes into consideration income, population, and job growth.  The Economic Outlook Rank is a forward-looking forecast based on states’ standing in 15 important state policy variables that play an important role in a state’s economic prosperity, such as tax rates, regulatory burdens and labor policies.  So the Performance Rank shows how a state has been doing, while the Outlook Rank shows how a state will likely do in the future based on its current policies.

Washington ranks a respectable 6th for economic performance over the past decade, but falls to a dismal 38th for economic outlook in the future.  Even more alarming, our state’s ranking has consistently dropped over the years.  In 2009 Washington’s future outlook was ranked 22nd, in 2011 it slipped to 33rd, and in 2013 it slid to 36th.   Translation—while we have been doing pretty well for the past decade, the future isn’t so rosy as every year our state becomes less competitive relative to other states.  These other states are doing a better job than Washington at fostering a positive business climate, steadily pushing our state the wrong direction in the rankings. 

Utah impressively holds its number one economic outlook rank for the seventh year in a row, while New York maintains its rank of dead last at 50th for the sixth year in a row.   Those results reflect Utah’s commitment to competitive fiscal policies and job creation, and to New York’s business-as-usual political cronyism and job-killing policies.  The moral of the story—states that want a healthy and thriving economy should strive to be more like Utah and less like New York. 

Our neighbor to the east, whose Governor famously declared “Idaho is open for business” in a “love letter” encouraging Washington and Oregon businesses to relocate to the Gem State, maintains its rank of 7th (Idaho has consistently ranked between 5th and 7th in future outlook).

Of the 15 policy variables considered, the study identifies the three most important policies for economic competitiveness as, first, no personal income tax; second, no estate or inheritance taxes; and third, right-to-work laws that protect worker freedom. 

While Utah has a personal income tax, rates are relatively low and are balanced by a strong right-to-work law and the absence of an estate tax.  In contrast, New York imposes the nation’s second highest personal income tax, levies an estate tax and does not provide right-to-work protections.  

Like New York, Washington levies an estate tax and does not provide right-to-work protections.  Like New York, Washington has a much higher overall tax burden and generally less favorable business climate.  That is why Washington ranks so much closer to last place New York than to first place Utah in the economic outlook.  Washington’s saving grace is our state’s lack of a personal income tax, which provides a much-needed rankings boost in two of the 15 categories.  If state leaders were to take that away we would move considerably closer to the wrong end of the ranking spectrum.

Needless to say, efforts to increase the state’s minimum wage (already the highest of any state in the nation), mandate paid sick and vacation leave (only one state mandates paid sick leave and no state mandates paid vacation), and force large employers to provide health coverage to virtually every employee, (going far beyond the requirements of the federal Affordable Care Act), will not improve Washington’s ranking.  What will improve our state’s ranking, and economic future, are common sense policies that will improve the state’s business climate and say Washington is “open for business.”