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National report gives Nevada good grades for tax policy, ability to rebound from recession

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By Sean Whaley, Nevada News Bureau: Nevada has crafted the proper policies of low taxes and small government that has helped it weather the current recession, and these same policies have positioned the state to respond favorably when the economic recovery takes hold, according to a report released today by the American Legislative Exchange Council.

Called “Rich States, Poor States”, the third edition of the report ranks the states based on their economic policies and examines which states took the right corrective actions and which states took the wrong ones in the current economic downturn.

One of the report’s co-authors, economist Dr. Arthur Laffer, described as the father of supply side economics, said Nevada is suffering from the recession just like all other states. But the policies adopted by state policy makers, including no personal or corporate income taxes, put Nevada in a good position going forward, he said.

“I would not change very much at all,” Laffer said.

In the report, Nevada ranks 13th among the states for its historical performance in three areas: personal income growth per capita, domestic migration to the state and growth in non-farm payroll employment.

Nevada ranks 11th in its economic outlook based on 15 factors, most having to do with tax burdens and the remainder dealing with related factors. Nevada earned a No. 1 ranking for five of the factors: No personal income tax, no corporate income tax, no inheritance tax, a low ratio of public employees to the overall population and the fact that Nevada is a right to work state not requiring workers to join unions.

Nevada ranked less well for its high sales tax burden, high state minimum wage, average workers’ compensation costs and the tax burden on its residents from all other taxes combined.

In a conference call to discuss the report, Laffer and the other authors, Stephen Moore of the Wall Street Journal and Jonathan Williams, director of ALEC’s tax and fiscal policy task force, offered their thoughts on which states are making the right choices and those that are heading down the wrong path.

Laffer said the 50 states and District of Columbia, all of which have created their own tax and government policies, show how economics plays a critical role in response to those policies. Simply put, people will migrate to states with low taxes and leave those with high taxes, he said.

“Location economics is critical,” Laffer said.

Moore said the two variables used in the report that matter most for new job creation is the income tax rate levied by the states that have such a tax, and whether a state is a right to work state.

He called raising income taxes to balance state budgets, which has occurred in several states, “a very dysfunctional way to deal with a state fiscal crisis.” The evidence is “fairly strong” that these states will lose business and workers, Moore said.

States that require union membership like Michigan and Ohio have lost auto manufacturing jobs to states without such requirements such as Tennessee and South Carolina, he said.

Williams said the report also highlights challenges facing all states: the overly generous public employee benefits, including pensions, that have lead to an unfunded liability crisis across the country, and the impending loss of federal stimulus funds that will make next year’s budget challenges even tougher for states.

Williams called the federal response to the recession the “do something disease” where Congress tried to help but only made state budget problems even worse.

Also commenting was state Sen. Jim Buck of Indiana, chairman of ALEC’s tax and fiscal policy task force. He said the report will clearly demonstrate to state officials and residents which states are on the right track. Learning from successful states will lead to prosperity for those states that choose to adopt the right policies, Buck said.

The report shows residents what state Legislatures are “doing for them or to them,” he said.

Moore called the public pension crisis the No. 1 fiscal issue for states to address. Unfunded liabilities for health insurance and retirement benefits have been estimated at $2 trillion nationwide, he said.

States must do something to reduce the costs of their “ludicrously generous pension and health care benefits,” Moore said. “The good news is some states are starting to do something about it.”

The Nevada Legislature made two changes to reduce the cost of its public employee pension plan in 2009, but Gov. Jim Gibbons and the two other Republican candidates for governor, retired federal judge Brian Sandoval, and former North Las Vegas Mayor Mike Montandon, have all called for a major change to a “defined contribution” retirement plan.

The top five states in the report are: Utah, Colorado, South Dakota and Florida. The bottom five are: New York, Vermont, New Jersey, Illinois and California.

ALEC is the largest nonpartisan organization of state Legislatures, focusing on the principles of low taxes, limited government, individual liberty and federalism.

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