A new Fraser Institute report reaffirms just how much more economically free some states are compared with others. These are places where citizens are allowed to make more of their economic choices. Their taxes are lighter, and their regulatory burdens are easier. The benefits for workers, consumers and businesses have been clear for a long time.
There’s another group of states to watch: “movers” that have become much freer in recent decades. These are states that may not be the freest, but they have been cutting taxes and red tape enough to make a big difference.
How do they fare?
I recently explored this question using 22 years of data from the same Economic Freedom of North America index. The index uses 10 variables encompassing government spending, taxation and labor regulation to assess the degree of economic freedom in each of the 50 states.
Some states, such as New Hampshire, have long topped the list. It’s been in the top five for three decades. With little room to grow, the Granite State’s level of economic freedom hasn’t budged much lately. Others, such as Alaska, have significantly improved economic freedom over the last two decades. Because it started so low, it remains relatively unfree at 43rd out of 50.
Three states — North Carolina, North Dakota and Idaho — have managed to markedly increase and rank highly on economic freedom.
In 2000, North Carolina was the 19th most economically free state in the union. Though its labor market was relatively unhindered by the state’s government, its top marginal income tax rate was America’s ninth-highest, and it spent more money than most states.
From 2013 to 2022, North Carolina reduced its top marginal income tax rate from 7.75 percent to 4.99 percent, reduced government employment and allowed the minimum wage to fall relative to per-capita income. By 2022, it had the second-freest labor market in the country and was ninth in overall economic freedom.
North Dakota took a similar path, reducing its 5.54 percent top income tax rate to 2.9 percent, scaling back government employment, and lowering its minimum wage to better reflect local incomes. It went from the 27th most economically free state in the union in 2000 to the 10th freest by 2022.
Idaho saw the most significant improvement. The Gem State has steadily improved spending, taxing and labor market freedom, allowing it to rise from the 28th most economically free state in 2000 to the eighth freest in 2022.
We can contrast these three states with a group that has achieved equal and opposite distinction: California, Delaware, New Jersey and Maryland have managed to decrease economic freedom and end up among the least free overall.
What was the result?
The economies of the three liberating states have enjoyed almost twice as much economic growth. Controlling for inflation, North Carolina, North Dakota and Idaho grew an average of 41 percent since 2010. The four repressors grew by just 24 percent.
Among liberators, statewide personal income grew 47 percent from 2010 to 2022. Among repressors, it grew just 26 percent.
In fact, when it comes to income growth per person, increases in economic freedom seem to matter even more than a state’s overall, long-term level of freedom. Meanwhile, when it comes to population growth, placing highly over longer periods of time matters more.
The liberators are not unique. There is now a large body of international evidence documenting the freedom-prosperity connection. At the state level, high and growing levels of economic freedom go hand-in-hand with higher levels of income, entrepreneurship, in-migration and income mobility. In economically free states, incomes tend to grow faster at the top and bottom of the income ladder.
These states suffer less poverty, homelessness and food insecurity and may even have marginally happier, more philanthropic and more tolerant populations.
In short, liberation works. Repression doesn’t.