By Ryan Ekvall | Wisconsin Reporter
MADISON — Four out of every five states in the country have a higher level of economic freedom than Wisconsin, according to a study from free-market advocate the Fraser Institute.
Based on 2010 numbers, Wisconsin ranks 40th among the states, lower than its neighbors Illinois, Iowa and Minnesota, but higher than Michigan.
The Fraser Institute, a Canadian-based free-market think tank, factored in the size of state and local government, takings and discriminatory taxation, and regulation — including labor market freedom — in determining its rankings.
However, the Badger State may improve in future rankings due to changes stemming from 2011’s Act 10, which frees the taxpayer of roughly half its burden for funding public-sector pensions and health care benefits and allows public employees to opt-out of paying union dues.
“If those changes take effect,” cautioned Nathan Ashby, co-author of the Economic Freedom of North America study and assistant professor of economics at the University of Texas-El Paso, “that would be likely to improve Wisconsin’s score.”
Act 10 is tied up in court after Dane County Judge Juan Colas ruled parts of the law unconstitutional. The reforms already have provided more than $1 billion in savings at the state and local levels, according to independent studies. But several municipalities and county governments have extended pre-Act 10 collective-bargaining agreements while the state waits for the appeals process.
“One of the measures we include as far as government spending is concerned is spending on government pensions and compensation. That would tend to improve Wisconsin’s score in the future,” Ashby said of Act 10.
Wisconsin’s cumulative state and local score for 2010 was 5.9 out of 10. Factoring in the federal government actually increased Wisconsin’s economic freedom score to 6.6.
The study found that “at an all-government level (including federal), holding other components constant, an increase of one point in economic freedom in a U.S. state will increase that state’s per-capita income by $13,276.”
Wisconsin scored 3.0 of 10 (40th in the country) on Social Security payments as percentage of GDP, which in this case includes unemployment insurance, workers compensation, government pensions and other socially funded programs that replace private options such as insurance and retirement accounts.
Wisconsin ranked 43rd among all states in takings and discriminatory taxation (total tax revenue, indirect tax revenue and sales taxes as percentage of GDP and top marginal rate and income threshold), and was 33rd in total size of state and local government.
Ashby said the state could improve its level of economic freedom by lowering tax burdens and reducing the amount of bureaucracy, but warned the metastasizing federal budget and unfunded liabilities can wreak more havoc on economic freedom than restrictive state governments.
“I think a lot of people recognize that the burden at the federal level, unless that is reformed, is going to affect us more than anything else,” he said.
The study asserts that over time voluntarism trumps coercion for increased economic prosperity.
“One trend we do find is over that 30-year period … (is) a significant relationship between economic freedom and income per capita,” Ashby said. “We also find the same relationship between growth in economic freedom and growth in per capita income.”
Contact Ekvall at [email protected]
— Edited by Kelly Carson, [email protected]