All indications, except for the precarious feel of the China trade war, seem to show that Iowa’s economy is doing well. While we may be enjoying a temporary surge due to President Donald Trump’s economic policies, we must make decisions that grow and sustain our state for the long haul. Iowa competes with other states, both for jobs and people, and there is a bipartisan consensus that one of Iowa’s greatest challenges is expanding our workforce. For Iowa’s economy to grow, we must become more competitive, and that can only be achieved by advancing free-market economic policies.
The Fraser Institute, a non-partisan public policy think tank, has released the annual Economic Freedom of North America report, which measures economic freedom among the states. States with lower levels of government spending, taxation, and labor market restrictions perform better. “Higher levels of economic freedom lead to more prosperity, greater economic growth, more investment, and more jobs and opportunities,” stated Dean Stansel, who is a co-author of the report and an economics professor at Southern Methodist University.
The Economic Freedom of North America ranks Iowa 28 out of 50. All of Iowa’s neighbors, except for Minnesota (41 out of 50) and Illinois (34 out of 50), are ranked higher in economic freedom. South Dakota, a state with no income tax, is ranked in the top 10 (7 out of 50), while Nebraska, Missouri, and Wisconsin rank 15,16, and 19, respectively.
“When governments allow markets to decide what’s produced, how it’s produced and how much is produced, citizens enjoy greater levels of economic freedom,” stated Fred McMahon, who is a co-author of the report and the Dr. Michael A. Walker Research Chair in Economic Freedom at the Fraser Institute.
The Economic Freedom of North America report demonstrates Iowa needs to embrace more free-market policies to compete with our neighbors. Even with Iowa’s low unemployment, our economy still suffers from the albatross of high tax rates. The Tax Foundation’s 2020 State Business Tax Climate rankings indicated Iowa has one of the worst environments (42 out of 50) for business compared to other states. Our high tax rates deter economic growth and punish productivity.
Many states are working towards lowering tax rates and making themselves more competitive. Research is demonstrating tax rates and economic climate are factors in where people choose to live. “Today, more and more Americans of all ages migrate internally for economic reasons (lower taxes, a better job market, and cheaper housing),” wrote Mark Pulliam, who is a contributing editor of Law & Liberty.
High tax progressive “blue states” such as Minnesota, Illinois, New York, and California, among others are seeing population loss because of high tax rates and poor economic policies. “When excessive regulation, progressive policies, and high taxes drive residents to move to other states, a form of interstate competition is at work,” argues Pulliam.
States with lower levels of spending, taxation, and regulation tend to see more significant economic and population growth. For example, North Carolina, Indiana, and Utah demonstrate that states can succeed with both lower tax rates and lower levels of government spending. “States with sensible regulations and low taxes (such as Texas, Arizona, and Florida) draw productive taxpayers at the expense of the failed blue states,” wrote Pulliam.
Iowa does not want to follow the example of Illinois. States cannot tax, spend, subsidize, and regulate themselves into prosperity. For Iowa to become more competitive and attract more people and entrepreneurs, we must continue to work to reduce our high tax rates, eliminate excessive regulations that shackle business, and reduce barriers to work in Iowa. Iowa is making progress with the recent income and property tax reform laws, but our tax rates are still high. To grow Iowa’s economy, the best solution is to unleash economic liberty.