ATLANTA — Tax policies are keeping Georgia and South Carolina from having more vibrant economies, according to a report released Wednesday by the conservative group American Legislative Exchange Council.
ALEC issued its annual ranking of states based on how much growth potential the group thinks local tax policy holds. It also tracks states’ performance, which doesn’t always match predictions in the Rich States-Poor States study.
According to the group’s rankings, Georgia has the 10th best potential even though its actual performance is 33rd. South Carolina’s 27th place potential, though, is only slightly better than its 29th rung on the performance ladder.
“There are a lot of things that affect a state’s economic outlook besides their policy,” said Stephen Moore, one of the study’s authors, the founder of the Club for Growth think tank and now a columnist for The Wall Street Journal.
Energy production is a major factor for the states leading the rankings.
For instance, Utah tops the potential list for the fifth consecutive year, followed by South Dakota, Virginia, Wyoming and North Dakota. While Utah is only 12th in performance, Wyoming tops the list, followed by Texas, Montana, North Dakota and Alaska.
Georgia shows great potential, according to the report, because it has the lowest tax burden based on personal income, no estate tax, a minimum wage as low as the federal floor and makes union membership optional. It doesn’t rank better because it has no limits on state spending, has a high sales tax and workers’ compensation premiums, and its courts favor consumers over businesses.
It should start improving by ending its income tax, the authors said during a teleconference with reporters.
“Georgia kind of has an imperative to get rid of its income tax because it’s surrounded by states that have no income tax,” Moore said, pointing to Tennessee and Florida.
The lead author, economist Arthur Laffer, came to Georgia in 2007 to advise then-House Speaker Glenn Richardson on eliminating a type of tax. Richardson picked the property tax but ultimately failed to win passage in the Senate.
In recent years, two separate tax-reform commissions have looked for ways to end or reduce the state income tax. After the legislature rejected the first one’s recommendation to replace part of it with a sales tax on food, the second commission didn’t even touch the subject.
Laffer said lowering state spending would eliminate the need for the income tax.
“What you’re got in Georgia is a 10th ranking, which shows a lot of potential, but you’ve got to look at tax expenditures,” he said. “I think you’re spending more than you should.”
South Carolina’s tax policies fared poorly in the authors’ eyes for having a high, graduated income-tax rate and loads of state debt. It was also tagged with having courts that aren’t friendly to businesses and high worker’s compensation premiums.