| May 3, 2012
Ranking Oklahoma’s Economy
Over the last few years, a veritable cottage industry has arisen ranking states on any number of issues. The upside of these rankings is that they provide citizens with a snapshot of how their state is doing on an issue. The downside is that the rankings can be selective in what is included in order to reach a predetermined outcome.
On labor issues, Oklahomans now have a ranking to consider how the state is doing. The “Big Labor versus Taxpayers Index,” recently released by Workplacechoice.org, is a comprehensive tool allowing users to view the rankings of all 50 states based on “23 individual aspects to determine the degree to which states favor organized labor and which favor taxpayers.” The top score a state can earn is a 40. Each state is ranked on several categories, including collective bargaining, paycheck protection, union density, public pension underfunding, and project labor agreements.
The top five states are Tennessee (36), Utah (34), Arizona (32), Idaho (30), and Texas (31). Not surprisingly, the top states are all located in the southern and western United States. Not one northeastern state makes it into the two pro-taxpayer categories. The bottom five states are New York (4), New Jersey (6), Illinois (6), Connecticut (6), and Pennsylvania (7). Except for New Mexico, the worst states all come from the northeast United States.
So, where does Oklahoma stand?
Despite the solid gains over the last 10 years to protect taxpayers, Oklahoma is ranked in the middle of the pack at 24th in the country, with an index score of 18 points. The low score is due to several glaring omissions. Oklahoma does not have laws covering paycheck protection, secret balloting, forced card check, project labor agreements, government-sector binding arbitration, and government employee strikes. If Oklahoma’s elected officials would enact laws covering those issues, Oklahoma’s ranking would jump to the top.
The index, while interesting and useful, has some minor flaws. First, it focuses too much on legislation and not enough on the key factor that drives a healthy economy: a growing job base.
On percentage net job growth, Oklahoma is outperforming most other states. From January 2010 to January 2012, Oklahoma’s net job growth is the 5th best in America. While union supporters like to point to Oklahoma’s weak job growth in the 10 years after it adopted workplace freedom legislation (Oklahoma had the 15th best net job growth from 1990 to 2000 and the 18th best net job growth from 2000 to 2010), the reality is that there is lag after adopting such a law before the impact can be seen in the data. Businesses don’t just move in a day. The fact that Oklahoma is expanding rapidly in this tepid economy is solid proof that the foundation laid 10 years ago is now paying off.
Secondarily, despite being an index that measures taxpayer protections, it doesn’t rank a state’s tax policies. So, a state with lots of legal protections against labor unions will rank high regardless of that state’s tax policies. This omission seems short-sighted, as both protections against labor unions and low taxes provide the most conducive environment to job growth. The fact is that strong government labor unions are driving taxes higher today because of the gold-plated compensation packages they are getting for their members from government. Thus, keeping taxes low also serves to keep a lid on government compensation package growth.
According to the Tax Foundation, Oklahoma’s state and local tax burden is one of the lowest in the country. In 1977, Oklahoma had the 43rd highest. By 1999, Oklahoma’s state and local tax burden had risen to the 23rd highest in America. Over the next decade, Oklahoma made some tax policy corrections that drove its state and local tax burden ranking back down to the 37th highest. With policymakers now considering reducing or eliminating the state income tax, Oklahoma’s tax environment is only getting better for taxpayers and the businesses that employ them.
On the negative side of the ledger, the number of government workers in Oklahoma has exploded since 2000. Over the last eleven years, the number of government workers in Oklahoma grew by almost 19 percent, the 4th highest in the country. More government workers require more revenue and add to the government pension burden. As Oklahoma government expanded, its total population only increased by 10 percent. This disconnect between population and government growth may hurt taxpayers if taxes are driven higher to pay for this disproportionately bigger government.
For example, according to the U.S. Census Bureau’s “Annual Survey of Public Employment and Payroll” in 2000 and 2010, the average monthly pay per full-time-equivalent government worker in Oklahoma rose from $2,416 to $3,297, or 36 percent in 10 years. Even more eye-popping, the total pay for Oklahoma state and local government workers jumped significantly. The total pay in 2000 was $480,402,310. By 2010, total pay had hit $714,988,625, or 49 percent more than just 10 year earlier. So, not only are Oklahoma taxpayers paying more government workers, they also are paying those government workers more money than inflation would justify.
Finally, the index fails to capture the overall economic performance of states. As Dr. Arthur Laffer, Stephen Moore, and Jonathan Williams found in Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, Oklahoma’s economic performance over the last decade is the 9th best in the United States, with an economic outlook ranked as the 14th best. In terms of the pocketbook of Oklahomans, from 2000 to 2010, Oklahoma had the 10th strongest personal income per capita growth in America.
Though statistically on very shaky grounds (but useful as a rough gauge), if you take the average of the three separate rankings discussed above—24th in protection against labor unions, 13th on tax policies, and 9th on economic performance—Oklahoma’s overall ranking on the broader categories of taxpayer protections is 15th highest in the America. This overall score is good, but can be raised even higher.
Going forward, Oklahoma’s elected officials should take the following actions:
- Put in place additional protections against labor unions;
- Enact tax reform that lowers the overall state and local tax burden on Oklahomans;
- Trim back the government workforce that grew far in excess of population; and
- Keep a laser-like focus on enhancing the business environment in Oklahoma.
With smart policies, Oklahoma can continue to reap the benefit of its pro-business environment and low-tax status. Failure to push the bar higher, however, will allow other states to catch up with Oklahoma. In a globally competitive world, treading water just won’t cut it.
Matt Mayer (J.D., The Ohio State University) is an OCPA research fellow.