State of the States: Republicans Better for Government, Small Business & Inequality

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Numerous articles have been published recently comparing red states to blue states, most involving complicated formulas inaccessible to most people except for social scientists. But a simple matter of score-keeping gives a shockingly clear picture of where the nation stands in terms of the states: Red states are better-run, superior for small businesses, and surprisingly, have less inequality than blue states.

Business Opportunity

As the chart from Entrepreneur magazine illustrates, red states are better for small business, according to a survey of 6,000 small business owners across the country. Republican-controlled states surveyed (21),  average grade: B (9 states had at least an A-: VA, UT, TX, SC, OK, LA, KS, ID, GA; and there were no Fs). Democrat-controlled states surveyed (13), average grade: C- (3 states had an F: VT, HI, RI; 1 A-: OR). Split-party controlled states surveyed (10), average grade: C+ (2 states with an A: NH, AR; no Fs).

If we delve into why that might be, we find that whether a state has a “right to work” law seems to have a lot to do with it. Every Democrat state is a “forced unionism” state. On the other hand, 20/25 Republican-controlled states are “right to work” states. Only three Split-controlled states are “right to work” states. The average grade of the 23 “forced-unionism” states: C (rounded up).

Looking into if there is any possible connection between small business friendliness and unemployment, we can examine BLS numbers from October (warning: the average of state numbers is inexplicably lower at 7.27% than the national average of 7.9% reported, both seasonally adjusted).

Unemployment

The average unemployment of Republican-controlled states is 6.6%, while that of of Democrat-controlled states is 7.74%. Split-controlled states are somewhere in the middle at an average of 7.4%. Of the 14 states with the lowest unemployment rates (6% or lower), 3 are Democrat, 3 are split-controlled, and the other 8 are Republican-controlled.

Interestingly, the 24 states that voted for Romney had an average unemployment rate of 6.83%. The 26 states that voted for Obama had an average unemployment rate of 7.67%. This was mostly because the states with the highest unemployment rates voted for Obama: NV (11.5%), RI (10.4%), CA (10.1%), and NJ (9.7%).

State Budgets

We can also examine an interesting metric from Forbes that has been dubbed “death spiral states.” As reported earlier, these 11 financially risky states where the “takers” outnumber the “makers” are as follows: California, New Mexico, Mississippi, Alabama, South Carolina, Illinois, Kentucky, Ohio, New York, and Maine. Although there is no connection by party control, seven of these eleven states voted to re-elect President Obama.

Twenty-five states have at least a billion-dollar projected state budget deficit (may be annual or biennial): 12 are Republican-controlled, 10 are Democrat-controlled, and 3 are Split-controlled. But 18 of these 25 states voted for Obama. [Continuing this line of investigation, Republican-controlled is (R), Democrat-controlled is (D), and Split-controlled is (S).]

Eight states have zero budget deficits: AK (R), ND (R), WY (R), VA (R), MT (S), AR (S), WV (D), KY (S). Only one of these states voted to re-elect Obama: Virginia.

The 12 states with the largest public employee payrolls (500,000 and above) have budget deficits of $1.85 billion (MI) to $28 billion (CA), except one has no budget deficit: Virginia. Deep red state Texas has the second-highest (projected) budget deficit of $27 billion (includes fiscal years 2012 & 2013, because of biennial budgets). Overall, there is a connection between large public sector payrolls and high budget deficits.

Public Sector Unions

Of the nine states with $5 billion or higher projected budget deficits, all of them have collective bargaining for most public employees, except for Texas. All of them voted for Obama, except for Texas. Public sector unions  kill budgets and polarize the electorate.

One of the most surprising and telling findings regards collective bargaining for public sector employees. Of the 25 states with collective bargaining for most public sector union employees, all but three (88%) voted for Barack Obama in 2012: AK, MT, and NE.Of the 25 states with no collective bargaining or no law about it (KS, MD), only four (16%) voted for Obama: MD, NV, CO, VA (3/4 were swing states).

Income

Of the top 20 states in terms of median per capita income (above national average), only four (20%) voted Republican: AK, WY, UT, ND. The other 16/20 top income states (80%) voted for Obama, suggesting that they simply do not feel the rest of the country’s pain. (This is ironic because of the class warfare platform of the Democrat Party.)

Of the bottom thirty states in terms of median per capita income (below the national average), only ten (33%) voted Democrat for president. This group is remarkable in terms of stagnant or even declining wages in the majority of cases.

Inequality

The income inequality score (Gini 2010) of the 15 Democrat-controlled states (.4574) was actually higher than the 25 Republican-controlled states (.4508). The income inequality score of the 10 Split-controlled states was lower still (.4479). A lower inequality number, simply put, indicates more equal distribution.

The top 22 states for small business (scored B- or better, according to survey) had less inequality (Gini .451) than the bottom 23 states (scored C or worse, according to survey) for small business (Gini .457).

Of the top 15 least unequal states, only two (or 13%) are Democrat-controlled (2 are Split-controlled), implying that big spending government does not reduce income inequality, economic freedom does. That economic freedom correlates with less income inequality has been confirmed at the international level.

Federal Funding

The top ten states in terms of receiving more federal funding than taxes paid in had a tally of 4 Republican (AK, ND, AL, VA), 4 Democrat (WV, CT, HI, MD) and 2 Split (NM, KY). Among the top federal funding takers, there was no appreciable correlation with party control.

Best-Run Governments

In addition, Republicans dominate the best-run state governments, and Democrats control the worst. North Dakota, Wyoming, Nebraska, Utah, and Iowa are Red states that top the rest, and the worst states, New Jersey, Illinois, Rhode Island, California, and Arizona (the only red state), tend to be controlled by Democrats.

The rankings were based on a 24/7 Wall Street study that measured the following: state’s debt, revenue, expenditure and deficit, taxes, exports, and GDP growth; in addition to managing its resources. The study also looked at poverty, income, unemployment, high school graduation, violent crime and foreclosure rates.

Graphics for Top Five Sunshine States and Bottom Five Sinkhole States: Truth in Accounting.

Conclusion

The results are clear: Red states are clearly doing better than Blue states on a number of measures. The conclusion for Republicans would obviously be to continue their relative success, while the conclusion for Democrats is that this is “unfair” and Red states need to redistribute their income to the poorer-run ones. Suggestion: Wouldn’t it just be better for the Blue states to become more successful by balancing their budgets, becoming more friendly to businesses, and promoting industriousness instead of government dependency? Just throwing that out there.

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