Good small business policies such as low tax rates and right-to-work laws are the ingredients for a successful state. These states tend to be red-states. Screaming liberals want equality for all. And yet it’s the liberal blue-states that are the biggest losers of businesses and have greater income inequality. Stephen Moore and Richard Vedder give the facts here in today’s WSJ.
For those in Washington obsessed with reducing income inequality, the standard prescription involves raising taxes on the well-to-do, increasing the minimum wage, and generally expanding government benefits—the policies characterizing liberal, blue-state governance. If only America took a more “progressive” approach, the thinking goes, leaving behind conservative, red-state priorities like keeping taxes low and encouraging business, fairness would sprout across the land.
Among the problems with that view, one is particularly surprising: The income gap between rich and poor tends to be wider in blue states than in red states. Our state-by-state analysis finds that the more liberal states whose policies are supposed to promote fairness have a bigger gap between higher and lower incomes than do states that have more conservative, pro-growth policies.
The Gini coefficient, a standard measure of income inequality, calculates the ratio of income at the top of the income scale relative to the income of those at the bottom. The higher the ratio, the more inequality. A Gini coefficient of zero means perfect equality of income and a Gini coefficient of one represents perfect inequality, such as if one person has all the income.
The measure has some obvious flaws: If everyone is doing better but some get richer at a faster pace, the Gini coefficient will increase, and so rising prosperity and economic progress will look like retrogression. Still we used it in our analysis, since it is the favorite measure among advocates of greater equality and the stick used to beat free markets. Conveniently, the U.S. Census Bureau annually calculates the Gini coefficient for the 50 states and the District of Columbia.
According to 2012 Census Bureau data (the latest available figures), the District of Columbia, New York, Connecticut, Mississippi and Louisiana have the highest measure of income inequality of all the states; Wyoming, Alaska, Utah, Hawaii and New Hampshire have the lowest Gini coefficients. The three places that are most unequal—Washington, D.C., New York and Connecticut—are dominated by liberal policies and politicians. Four of the five states with the lowest Gini coefficients—Wyoming, Alaska, Utah and New Hampshire—are generally red states.