Sept 4 States with simpler tax codes and lower
welfare payments have stronger wage and employment growth than
other states in the union, research published Tuesday by the
U.S. Federal Reserve Bank of San Francisco showed.
The findings, published in the San Francisco Fed's latest
Economic Letter, suggest that state policymakers can goose
economic and job growth by fostering a better business climate
as measured by taxes and other costs.
"Corporate tax simplicity and uniformity with federal
taxation are associated with stronger wage and gross state
product growth," wrote David Neumark, a University of
California, Irvine economics professor and visiting scholar at
the regional Fed bank. "States with higher welfare and transfer
payments show weaker employment and wage growth."
But the research, co-authored by Trulia Inc chief economist
Jed Kolko and Public Policy Institute of California policy
associate Marisol Cuellar Mejia, also showed that conditions
over which policymakers have little control -- like mild weather
and low population density -- are even more closely tied to
economic growth than tax policy.
The findings help explain some of the differences in state
Texas, which had some of the strongest job growth during and
since the Great Recession, scores highly both on indexes
measuring business climate as well as nonpolicy factors.
Tennessee and Alabama - where job growth has lagged that of
Texas -- have favorable business climates but rank low in terms
of nonpolicy factors, the study said.
California, the study said, ranks among the worst in terms
of taxes and other business costs, but is among the strongest in
nonpolicy growth factors.
Some policies that could hurt growth, like high welfare
payments, could have other benefits, like equity, the
"Growth is not the only criterion for evaluating a state's
economic performance," the researchers said. "Still, economic
growth can't be ignored since it is the long-run source of the
resources that society can use to pursue its other goals."