Thursday, October 30, 2008

A Tale of Two States: Utah versus Rhode Island

An article in last week's Economist (The Mormon work ethic: Why Utah’s economy is soaring above its neighbours") noted that Utah's unemployment rate is 3.5%. A few days later, a New York Times article ("Leading in Job Losses, Rhode Island Struggles On") noted that Rhode Island's unemployment rate is 8.8%. A number of factors contribute to this disparity, but a smart Republican strategist would focus on two of them: energy costs1 and taxes on businesses2. According to The Tax Foundation, among the states, Utah ranks 17th in business tax climate, and Rhode Island ranks 50th. According to the Energy Information Agency, Utah had the 5th cheapest industrial electricity rates in July, with an average cost of 5.26 cents per kilowatt hour, and Rhode Island ranked 47th, with an average cost of 15.53 cents per kilowatt hour.

Neither article mentions the Tax Foundation or EIA data I just cited, but the Economist does mention Utah's low energy costs, noting that "The state has experienced a minor semiconductor boom in part because of its cheap, coal-fired power", and the New York Times article mentions taxes, noting that "Many economic analysts and state officials say Rhode Island has long had a high tax burden for businesses, discouraging them from moving here."

1Energy is one issue the GOP initially had some traction with a couple of months ago (e.g., "Drill here, drill now, pay less"), before the steep correction in oil prices.

2Republican candidates, such as McCain, generally focus on personal income taxes, which doesn't give them much traction anymore, since the federal income tax code is so progressive that most Americans pay little if any net federal income taxes, and Democratic candidates can always promise to make the income tax even more progressive, as Senator Obama is currently doing. Better to focus on business taxes, and explain how high taxes on business discourage job creation.

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