OH’s economic outlook improves, but performance remains stagnant

By Maggie Thurber │ for Ohio Watchdog

It’s mixed news for Ohio in the annual “Rich States, Poor States” report, released Tuesday.

The economic outlook for Ohio has risen steadily to 23rd in 2014, from 47th in 2008 and three spots higher than last year. But when it comes to actual economic performance, the state continues to rank 49th, behind perennial last-place Michigan.

Officially titled “Rich States, Poor States: ALEC-Laffer State Economic State Competitiveness Index,” the annual comparison examines the latest economic growth trends and ranks state economic outlook based on 15 categories, from tax rates to regulatory burden and labor policies.

The American Legislative Exchange Council is a nonpartisan, voluntary membership organization of state legislators.

Ohio had high rankings for the elimination of the state inheritance tax, recently enacted tax changes and top marginal corporate income tax rates.

The state also improved its ranking in the individual areas of personal income tax rates and progressivity of income tax, remaining tax burden and state minimum wage — even though the minimum wage increased $.10 in January.

Despite a slight reduction in the number of public employees in the state, Ohio went from 16th to 17th in that category, indicating other states are doing better.

The same is true for the property tax burden. While Ohioans saw a decrease — from $32.11 to $30.40 per $1,000 of personal income — the state’s ranking did not improve, going from 21st to 24th.

The sales tax burden was down slightly, though the state’s ranking remained the same.

Together, these categories resulted in Ohio moving up in economic outlook for the seventh consecutive year.

But when it comes to overall economic performance, which the report also ranks, Ohio just can’t seem to move from 49th.

Using cumulative data from 2002 to 2013, Ohio ranked 49th in state gross domestic product, 45th in domestic migration and 49th in job growth of non-farm payroll employment, earning it a second to last overall ranking — again.

Ohio consistently lags behind the nation in gross domestic product, outpacing that measure in 2011, only to fall behind again in 2012.

The same is true for employment, which shows a minus 4.7 percent growth during the same time, indicating the state has a long way to go before it recovers from recent recession.

Ohio consistently loses more people than it takes in. Lest anyone think this is just people choosing warmer, sunnier climates, the evidence proves otherwise.

In the 2013 report, the authors describe how they examined 11 states that introduced an income tax during the past half-century. They looked at the gross state product and population for the average of the five years prior to the income tax, and then for 2011.

What they found is that the size of the economy in each state declined.

“… analysts would perhaps argue that these 11 states — Ohio, Michigan, Maine, West Virginia, Pennsylvania, Illinois, Indiana, Connecticut, New Jersey, Rhode Island and Nebraska — have all of a sudden gotten a lot cloudier … What the data clearly shows is that 11 states that have adopted an income tax have faced economic decline – or, at least, been out-paced by the rest of the 39 states in terms of economic growth.”

But Ohio’s ranking on the outlook for income taxes has improved. So if the forward-looking economic outlook is steadily getting better, shouldn’t the backward-looking economic performance ranking also improve?

“Yes,” says Jonathan Williams, director of the American Legislative Exchange Council’s Center for State Fiscal Reform and one of the co-authors of the yearly report.

“The performance rank should start to move towards the outlook rank at some point,” Williams said. “However, the performance number is fairly consistent because it has 10 years’ worth of data. Each new edition of our ranking only slightly changes the performance, since it is a 10 year total.”

Stephen Moore, chief economist at the Heritage Foundation and former senior economics writer at The Wall Street Journal, is also a report co-author.