February 2017 Brief: Volume 24, Number 6
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Limited Government Policies Lead to Economic Growth
by John Hendrickson
As the new year begins, policymakers at both the state and federal level will be confronted with a number of crucial issues, especially concerning the economy. The economy, lackluster economic growth, and jobs were some of the central issues in the 2016 election. Many Americans, especially those in the middle-class, believe they are being left behind as they struggle amidst economic uncertainty. The victory of Republican Donald Trump in the presidential election and the numerous Republican victories at the state level demonstrate that voters support a change in economic policy. This means that limited-government policies such as tax, spending, pension, and regulatory reform will be advancing across the nation. These policies are the opposite of the tax, spending, and regulatory policies that emerged from President Barack Obama and many Democrat-led states.
Economist Stephen Moore, writing in The Washington Times, discussed an interesting fact about the characteristics of some of the states that supported Hillary Clinton for president:
The reason for the population loss in these blue states is the liberal economic policies that have dominated them. These blue states, as Moore argues, all have high rates of taxation and regulation, generous welfare benefits, and “environmental extremism.” “The whole left-wing playbook is on display in the Hillary [blue] states . . . So much for liberalism creating a worker’s paradise,” argued Moore. Whether on the federal or state level, the liberal/progressive economic policies of high taxation, more spending, and excessive regulation have had poor economic results.
States that are working towards reducing tax rates, spending, and regulations are not only attracting more residents; they are also growing economically. North Carolina is one example of a state that is working toward lowering tax rates to create economic growth. The North Carolina tax-reform measure reduced the state’s corporate tax rate, abolished the estate tax (16 percent), and created a flat income tax. The corporate tax rate in North Carolina went from 6.9 percent to 4 percent, and it will eventually fall to 3 percent in 2017. In addition, the personal income tax rate was 7.75 percent and is scheduled to be lowered to 5.499 percent in 2017. The Legislature also attempted to amend the state Constitution to establish the income tax rate at 5.5 percent, but the measure failed. North Carolina is ranked second in terms of economic outlook in the American Legislative Exchange Council’s 2016 edition of Rich States, Poor States; it is ranked eighth in terms of economic performance.
Several states that have followed a low-tax policy are leading the way in terms of economic growth and job creation. Moore noted that the “blue states, especially in the northeast, are getting clobbered by their low-tax, smaller-government rivals in the south, southeast, and mountain regions.” “The job gains in the red states carried by the widest margins by Mr. Trump had about twice the job creation rate as blue states carried by Hillary,” argued Moore.
Iowa, which also voted for Trump and voted for Republican control of the Legislature, has an opportunity to follow the example of those states creating economic growth through tax and spending reform. Iowa has one of the highest corporate tax rates at 12 percent, and that rate should be reduced. Reductions in the income tax rate should also be considered, but Legislators must focus on spending as well. As economist Jonathan Williams stated:
States following limited-government policies, such as North Carolina, Wisconsin, and Texas, are leading the way in terms of economic growth. If states continue to lead on this front, along with the possibility of tax, spending, and regulatory reform coming from President Trump and the Republican Congress, the American economy will be revived.
 Stephen Moore, “The blue state depression,” The Washington Times, December 4, 2016, <http://www.washingtontimes.com/news/2016/dec/4/the-blue-state-depression/> accessed on January 9, 2017.
John Hendrickson is a Research Analyst with Public Interest Institute, Muscatine, Iowa. Contact him at Public.Interest.Institute@LimitedGovernment.org.
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