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November 17, 2004

New economic index finds New York ranking last in nation- again

In the latest of a series of studies critical of New York State's business climate, a new report by the California-based Pacific Research Institute (PRI) and Forbes magazine has concluded that New York State is the least economically free state in the nation.

The 2004 U.S. Economic Freedom Index ranked New York at or near the bottom of the list in four of five measures considered in the study: government size (50), welfare spending (50), regulatory (42), fiscal (47), and judicial (8).

States earned their scores on the level of government intervention in each category, according to the study. The variables include tax rates, state spending, occupational licensing, environmental regulations, income redistribution, right-to-work and prevailing-wage laws, tort laws, and the number of government agencies. States with the most economic freedom boast fewer tax and regulation obstacles to running a business or working.

New York also fared badly on the study’s tax oppression index. That index measured the effect that loss or gain of economic freedom over a five year period had on each state.

“I can’t think of another state that consistently performs as badly as New York,” said Lawrence McQuillan, director of business and economic studies at PRI.

The study showed that, for every 10 percent increase in a state’s economic index, average annual per capita income increased by about half a percent. Over the past five years, New York's per capita income has dropped by $2,441, well above the national average of $1,161 and the third highest loss in the nation.

The study also measured "tax oppression" as a percentage of income. New York's percentage, 7.45, was the fourth highest in the nation, and also well above the national average of 4.42 percent.

The 2003 increases in personal income, capital gains, and sales tax rates contributed to the decline in New York’s freedom score, the study said. New York’s above-average taxes are one of the biggest variables pulling the state’s ranking down, McQuillan added.

New Yorkers would experience more economic freedom if one set of taxes was “taken off the board,” McQuillan said. Some states have no sales or individual tax, allowing for more individual economic freedom, he noted.

McQuillan also said that New York could improve its score by identifying the industries most important to the state and working to remove regulations hindering that industries production and growth.

Kansas, which ranked number 10 on the 1999 index, jumped to the number one state this year. Rounding out the top five are Colorado, Virginia, Idaho, and Utah, respectively. Illinois, Rhode Island, Connecticut, California, and New York are ranked as the bottom five.

The Northeast states, overall, proved to be the least economically free, along with the Midwest, the study found.

This is the third time within two months New York’s economic climate has fared poorly in major studies.

An Oct. 14 study from the non-partisan Tax Foundation, the “State Business Tax Climate Index,” concluded that New York’s “tax climate” for business ranks 49th, ahead of only Hawaii’s. That study said the 10 states ranked at the bottom of the list, including New York, tend to have more complex tax codes at above-average rates with few expenditure controls.

On Oct. 7, the Small Business Survival Index ranked New York State only 45th in an analysis of states’ hospitality to small businesses and entrepreneurs. The Survival Index found New York performed badly in comparison to the nation in a range of variables similar to those used in the Economic Freedom Index, including: state and local taxes, major cost of job creation, spending on government employment, and regulatory flexibility.

The PRI study can be found at www.pacificresearch.org.