A new economic competitiveness forecast ranks Indiana third in the nation, fostering hope that the state could soon see robust growth.
The 2014 outlook propels the Hoosier State’s prospects 11 spots higher as compared with last year and 21 places higher than two years ago.
But critics question the forecast’s criteria. The same report places Indiana a mere 38th in actual economic performance as measured over a 10-year span ending in 2012. That ranking is based on state gross domestic product, net migration into – or out of – the state, and non-farm employment.
“Rich States, Poor States” is scheduled to be released today by the American Legislative Exchange Council. The business advocacy group in Washington, also known as ALEC, uses different criteria to measure a state’s past performance than it uses to project future results.
Researchers selected 15 criteria – each equally weighted – for the state-by-state economic forecast. States are rewarded for lower tax rates, lower minimum wage, lower payments to workers hurt on the job and allowing workers the option not to join a workplace union.
In the General Assembly session ended March 13, Indiana legislators reduced business property taxes and lowered the state corporate tax rate to the second-lowest in the nation. Lawmakers revoked the state’s inheritance tax in 2013.
“We thought these 15 variables captured the essence of what it takes to be a competitive state for economic growth,” said Jonathan Williams, director of the Center for State Fiscal Reform. The center is ALEC’s think tank for tax, budgeting and pension policy.
When asked whether the group advocates trickle-down economics, Williams said he prefers to think of it as real-world economics. But the idea is the same: When business owners prosper, it’s assumed they will reinvest in their companies and create more jobs.
A local union leader and a retired Indiana University economist said the variables chosen for the economic outlook make sense only if the goal is to reflect the best interests of big business.
Tom Lewandowski, president of the Northeast Indiana Central Labor Council, AFL-CIO, said the rankings are irrelevant.
“If measuring the economy doesn’t include people, then what’s the point?” he asked.
Morton Marcus, an economist retired from Indiana University, had fun with the idea of trickle-down economics.
“It sounds to me like someone with a bladder problem,” he said, dismissing the notion that when the richest in a society prosper that the lower classes are also lifted up.
“(Indiana) is high in outlook but low in performance,” Marcus said. “It could be the things this index relies on has very little to do with reality.”
Williams, who helped launch the annual report seven years ago, said economic outlooks are based on a snapshot in time: Jan. 1 of each year.
“We say that that’s suggestive of future economic growth,” Williams said.
ALEC researchers compare how business friendly various states are on that date by looking at tax policies and other factors. The organization promotes limited government, free markets and federalism.
The study awarded Indiana a first-place ranking in the minimum wages category because the state uses the federal-mandated minimum wage instead of requiring a higher rate, as some other states do.
The question, Williams said, is whether it’s more effective for federal or state governments to set the minimum rate. If a state adopts a higher wage, businesses could leave the state, costing jobs.
“The goal of making more states competitive is if you grow more $20 (an hour) jobs, $30 jobs, the minimum wage becomes irrelevant,” he said. “No one wants to treat workers unfairly.”
Williams believes a state should collect only as much income from residents as it needs to cover basic services.
Marcus countered that robust economies rely on government to build roads, bridges and other infrastructure, including sewers.
Business leaders aren’t going to provide necessities such as clean drinking water, he said. Taxes pay for those things.
States shouldn’t strive for doing as little as possible for their residents, Marcus said.
“The bare minimum,” he said, “has been Indiana’s policy for a long time.”