The “New Hampshire Advantage”: Nearly Killed Off in 2009-10

Here is what my coauthor William Ruger and I wrote about New Hampshire in the 2011 edition of Freedom in the 50 States: Index of Personal and Economic Freedom:

New Hampshire is by our count the freest state in the country. Depending on weights, however, it really shares the slot with South Dakota. New Hampshire does much better on economic than personal freedom and on fiscal than regulatory policy. Under unified Democratic control in 2007-8, the state saw a respectable increase in freedom. A smoking ban was enacted, but so were same-sex civil unions. Taxes, spending, and fiscal decentralization remain over a standard deviation better than average, and government debt actually went down slightly.

We are going to write something very different in the 2013 edition, coming out early next year. The 2009-10 legislature, also under unified Democratic control, went on a spending and tax-hiking binge. They did this even as states like North and South Dakota were already strengthening market-friendly policies in many areas. As a result, New Hampshire will no longer be the freest state in the country — not by a long shot.

In fiscal year (FY) 2000, New Hampshire’s state and local tax burden (excluding motor fuel, severance, alcohol, and tobacco taxes) stood at 7.5% of personal income, not only the best in the country but only seriously approached by Tennessee. Government consumption and subsidies made up only 7.3% of personal income. By the end of FY 2006, with Republicans having controlled the legislature in the interim, those figures had edged up, to 7.9% and 8.1%, respectively. But by the end of FY 2010, government consumption and subsidies made up 9.1% of income, a nearly two-percentage-point increase over a decade, while the tax burden stood at 8.0% of income. State and local debt was at 18.8% of income, compared to 16.7% a decade earlier.

In the mean time, Alabama, Montana, North Dakota, Oklahoma, South Dakota, and Tennessee have all passed New Hampshire for lower taxes. We don’t yet have the local data to measure whether FY 2012 saw a return to public thrift under the new Republican legislature elected in November 2010, but when New Hampshire voters go to the polls Tuesday, they should remember where their state was two years ago.

11 thoughts on “The “New Hampshire Advantage”: Nearly Killed Off in 2009-10

  1. Jason, thank you for this.

    Would you say that New Hampshire is still the best choice for the Free State Project? I realize that the FSP has made its choice and cannot now change its mind, but I am wondering whether, if the vote to select a destination state were held today, New Hampshire would still be selected. It still has the advantage over states like the Dakotas, Montana, Oklahoma, and Tennessee in that it has a port allowing exchange with the outside world (even if its port is tiny), and perhaps it has a tradition of small government that most other states do not enjoy. But does its trendline for the freedom you are measuring look encouraging over, say, the next ten to twenty years? More encouraging than the trendlines in those other states?

    1. I still think NH would have been the best choice of the FSP, for four major reasons:
      1) It has a stronger economy than most other low-population states. The North Dakota oil boom has suddenly made the northwestern part of that state much more desirable, but that comes with problems too in terms of social rootedness and being able to make an impact in the community.
      2) The large, nonprofessionalized legislature of NH is a true difference-maker for any upstart political movement. The FSP has already made a significant impact in NH; it could not have done this so quickly in any other state, save perhaps Vermont, which has a similar legislature.
      3) The Dakotas, Idaho, and Wyoming are overwhelmingly conservative and do not do very well at all on personal freedom. For many libertarian activists, personal freedoms are nearer and dearer to their hearts than taxes and abstruse, even if important, economic regulations. As even the new index will show, NH lies along an arc demarcating the “northeast frontier” of economic & personal freedom – no other state really has that combination of both sides of freedom.
      4) The rest of the nation pays a lot more attention to New Hampshire than “flyover country,” however unjustifiable that may be. If we want our successes to influence the rest of the country too, NH was a better choice than, say, Wyoming.

    1. Yep – North Dakota and Oklahoma are big ones. Looking at the national average, we see a slight gain in economic freedom from Jan. 2001 to Jan. 2011 and a slight decline in personal freedom over the same period. So there are plenty of gainers to go along with the decliners.

      1. Is there a natural resources component to Oklahoma along with North Dakota? It seems that gains in economic freedom from temporary surges in natural resource extraction may be . . . well, temporary.

      2. That’s true, and we have to be cautious about that… But OTOH, we’ve seen Wyoming go in the exact opposite direction, and they also have a mineral-dependent economy. Generally, we expect if personal income is gaining, that taxes will proportionally as well. But it’s a fair point, as the structure of the tax system may not immediately capture the new gains (e.g., consumption taxes, if the new income is being saved).

    1. No, I guess that was a misleading metaphor – I was thinking of a two-dimension graph with economic freedom on one axis and personal freedom on the other… The “northeast frontier” of the graph would consist of states that are high on both.

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