Cause of concern or cause to cheer: ALEC lowers SD rank

South Dakota nearly fell out of the top 10 in an annual survey of states and their economic competitiveness, coming in at number nine after spending the last seven years in the top five.

The reason: Voters approved a minimum wage increase in November.

The report hails from the American Legislative Exchange Council, a free-market organization that receives funding from corporations and the bête noire of American liberalism: the Koch brothers. Industrialist brothers Charles and David Koch have spent lavishly on groups that include ALEC and free-market political causes.

To some economists, that's all anyone needs to know about ALEC.

"We know that in 2014, those states that increased their minimum wages experienced above average job creation," said Reynold Nesiba, an economics professor at Augustana College. "This empirical fact seems to be completely overlooked by the Koch-Brothers-funded-ALEC."

Welcome to the fight between dueling economics schools on what it takes to foster prosperity. One side values low taxes and minimal regulation; the other values progressive taxes on income, worker rights and government spending in education and safety nets.

In a press call to explain this year's report, Jonathan Williams, a vice president of ALEC, said South Dakota is still "a very competitive place," and that finishing in the top 10 of ALEC's "Rich States, Poor States" report is "something to be very proud of." Also on the call were two longtime stalwarts of the free-market movement: Stephen Moore, now of The Heritage Foundation, and Arthur Laffer, the founder of supply-side economics and the theory that targeted tax cuts can produce more government revenue.

South Dakota scored high marks in the ALEC report for not having personal and corporate income taxes and for its non-existent estate tax. The state scored lower under ALEC's metrics for having a higher number of per capita public employees and for the minimum wage increase.

Laffer and Moore argued that states with high tax burdens and high public employee costs will eventually find themselves in a death spiral. Businesses will move out of those states in search of lower-tax states. South Dakota Gov. Dennis Daugaard has aggressively tried to court businesses in high-tax states to relocate to South Dakota.

Laffer also addressed the situation in Kansas, where lawmakers at the urging of Republican Gov. Sam Brownback slashed a host of taxes, including business and personal income tax rates. But the cuts didn't lead to a boon in government revenues. Laffer said give it time.

"It takes a long time to destroy a state," he said. "It takes a long time to recreate it."

Nesiba, however, has a different take on ALEC's economics: "ALEC's agenda is not consistent with the goal of creating an economy that works for everyone and not just the rich."

"A better comparison is to look to our neighbor to the east," Nesiba said. "Minnesota has raised the income tax, raised its minimum wage, invested in education and created 172,000 new jobs and is among the most vibrant state economies in the nation."

What does ALEC think of our neighbor to the east? Minnesota ranked 48 in this year's report.

And so, the debate between economists and what policies best foster prosperity continues. Don't expect it to end any time soon.

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