January 2017

What Can Iowa Do to Improve Our Economic Freedom?

By Amy K. Frantz

The Fraser Institute, an independent, non-partisan Canadian public policy think tank, has recently released a report, Economic Freedom of North America 2016.  The report evaluates the economic freedom of and ranks the 50 states and also takes a look at economic freedom in the 10 Canadian provinces and 32 Mexican states.  Public Interest Institute is a co-publisher of the report.

The report states, “The freest economies operate with minimal government interference, relying upon personal choice and markets to answer basic economic questions such as what is to be produced, how it is to be produced, how much is produced, and for whom production is intended. As government imposes restrictions on these choices, there is less economic freedom.”

New Hampshire is ranked number one among the 50 states in the report, followed by Florida, Texas, South Dakota, and Tennessee in the top five.  The bottom five states are New York, California, Alaska, New Mexico, and Hawaii.  Iowa is tied for 27th place.

“In the most-free states, the average per capita income in 2014 was 4.7 per cent above the national average compared to roughly 3.3 per cent below the national average in the least-free states,” according to the report’s findings.

“The link between economic freedom and prosperity is clear — people who live in states that support low taxation, limited government, and flexible labor markets have higher living standards and greater economic opportunity,” said Fred McMahon, the Dr. Michael A. Walker Research Chair in Economic Freedom at the Fraser Institute and report co-author.  Dean Stansel, economics professor at Southern Methodist University, and José Torra co-authored the report with McMahon.

The Economic Freedom of North America report looks at criteria in the areas of government spending, taxes, and regulation.  In its overall score, Iowa ranks in the middle of the pack, tied for 27.  But if you look at the individual scores for Iowa, the two lowest scores Iowa received were “Income and Payroll Tax Revenue as a Percentage of Income” and “Government Employment as a Percentage of Total State/Provincial Employment.”  These scores highlight the need for Iowa to reform its tax system and to reduce the number of government employees as compared to total employment in the state.

The report’s authors indicated that “North Carolina vaulted up the rankings from 25th to 13th after a large income-tax cut.”  Iowa should take steps to improve in these two areas and improve our overall rankings, and our economic freedom, before the next Fraser Institute report is published.

Amy K. Frantz is Vice President of Public Interest Institute. 

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.