By Patrick B. McGuigan
OKLAHOMA CITY – Is Oklahoma in the midst of good times, headed for better?
Or, is the state more accurately characterized as having a strong economy, while standing on the verge of retrograde motion in competitiveness?
In the seventh annual assessment of economic competitiveness from the American Legislative Exchange Council (ALEC), released today (Tuesday) the state garners a good ranking of ninth best state in the nation.
However, the state’s “economic outlook rank” is eroding in the analysis, dropping from 14th best in 2012 (http://www.capitolbeatok.com/reports/alec-study-lists-oklahoma-15th-best-in-economic-outlook-fallin-writes-introduction-group-defends-its) to 21st in the new ALEC report.
“These rankings reveal that policymakers have significant work to do to make sure that Oklahoma is best positioned to diversify its economy and compete for the location of entrepreneurs and job creators,” said Jonathan Small, policy vice president at the Oklahoma Council of Public Affairs.
The higher ranking for present performance comes from a blend of three equally-weighted factors in the ALEC assessment, guided by economist Arthur Laffer (http://www.capitolbeatok.com/reports/where-the-twain-does-not-meet-dr-laffer-vs-dr-hepner), state gross domestic product, absolute domestic migration and non-farm payroll employment.
Jonathan Williams, director of tax and fiscal policy for ALEC and one of the authors, briefed Watchdog.org reporters on the new analysis, entitled “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.”
Stephen Moore, chief economist at the Heritage Foundation in Washington, D.C., editorial board member for The Wall Street Journal and Founder of the Club for Growth, is co-author of the report.
The “outlook” rank, where Oklahoma comparatively declined in 2013, is derived from a blend of 15 variables.
The Sooner State continues to score a first-place ranking for three variables: keeping the state minimum wage at the federal floor, for the absence of a state estate/inheritance tax and as a right-to-work state.
The state also gets high marks for its low property tax burden (second) and tax expenditure limits (third).
Oklahoma falls into the broad middle of the spectrum on income tax progressivity (27th), marginal personal income tax rate (22nd), tax burden other than income, property and sales (16th), recent tax changes (29th) and debt service as a share of tax revenue (at 6.9 percent, ranking 14th best in the nation).
Oklahoma comes in number 35 for the number of full-time equivalent public employees per 10,000 of population (56.3).
Furthermore, Oklahoma’s sales tax burden yields a poor ranking of 36th, historic tort liability costs kept Oklahoma at a low ranking of 42nd, and workers compensation costs (at $2.77 per $100 of payroll) led to an abysmal rank of 45th out of the fifty states.
Small cautioned, in his interview with Oklahoma Watchdog:
“Oklahoma’s outlook has slipped because other than very recent workers’ compensation reform, Oklahoma policy makers have been distracted with the usual outcries for more spending from Oklahoma tax consumers.
“Oklahoma’s abysmal ranking for public employees and top personal income tax rank hold the state back and limit opportunities for Oklahoma citizens. The public employee ranking is not surprising given Oklahoma trails the nation when comparing the share of state private sector income to total state income.”
Both the workers’ comp ranking might improve in the next analysis, in wake of reforms enacted last year (and so far upheld in litigation).
Other developments that could raise the state’s ranking in the ALEC/Laffer/Moore analysis include the proposal to trim the top personal income tax rate from 5.25 percent to 5 percent in 2016, and pending legislation to nip the corporate income tax from 6 percent to 5 percent.
On the other hand, the state could slip if an oil and gas industry drilling incentive that has helped fuel the state’s energy-driven economy lapses next year.
Small commented, “Oklahoma’s abysmal ranking for public employees and top personal income tax rank hold the state back and limit opportunities for Oklahoma citizens. The public employee ranking is not surprising given Oklahoma trails the nation when comparing the share of state private sector income to total state income.”
OCPA, where Small is a ranking analyst, is the state’s largest free-market think tank.
The 2014 edition of “Rich States, Poor States” can be downloaded here (www.alec.org/rsps).