Liberty in 2023 and the Year Ahead

Liberty around the world has seemed to be in retreat for several years now. The rise of populism on the left and right, growing authoritarianism in some countries, and a rise in violent conflict have given the last decade something of a whiff of the 1930s.

It comes as a welcome surprise, then, that at the U.S. state level freedom grew last year. The last pandemic-​era restrictions were repealed in 2022, yet the blossoming of school choice and licensing reform that the pandemic spawned continues. Moreover, states continue to cut taxes even after the flood of federal money has washed away.

The widespread closure of public schools during the pandemic and the tragic failure of remote learning made many parents realize that public schools care more about their employees than their clients. Politicians responded with further-​reaching school choice programs than Americans have seen before.

Arizona was the first state to adopt universal education savings accounts in 2022, and universal or near-​universal ESAs have since spread to West Virginia (2022), Arkansas, Florida, Iowa, Ohio, and Utah (all 2023). Outside those states, Oklahoma, South Carolina, and Indiana also significantly broadened eligibility for their school choice programs in 2023.

Starting with New Mexico in 2016, 20 states have now enacted universal occupational licensing reciprocity. That means that you can move to one of these states and automatically qualify to work in a licensed field if you were already licensed in another state and the licensure requirements there are substantially equivalent. The pace of licensing reforms picked up during the pandemic as states competed for healthcare workers. In 2023, Ohio and Virginia were the latest states to enact this reform.

State-​level tax cuts greatly outnumbered tax hikes in 2023. Fourteen states cut individual income tax rates, and six cut business income tax rates. Kansas cut grocery tax, and five states provided some form of property tax relief. Only two states—California and Michigan—are increasing the rate of a major tax (in this case, on individual income). Oregon and Utah are also raising the gas tax, Kentucky is levying a new tax on electric vehicle power, and Maine and Hawaii are raising tobacco taxes.

States tend to cut taxes when revenues grow, and the inflationary burst of the last three years gave a fillip to most states’ revenue collections. The inflation itself was a big negative for freedom, though it is finally coming down as of this writing; a silver lining was that inflationary pressure allowed some states to enact permanent tax cuts.

The pandemic made housing availability and affordability nationwide issues. There were two reasons for this. First, inflation and artificially low nominal interest rates made real interest rates on mortgages negative for many borrowers, incentivizing them to spend more money. Second, the pandemic itself made city life and out-​of-​the-​house activities less attractive, causing people to demand more private space by buying or renting bigger homes, especially in the suburbs and rural areas. The big growth in housing demand had nowhere to go, because supply-​chain problems and zoning regulations made it difficult to build a bunch of new housing cheaply, so prices rose.

States have been responding in a variety of ways. California, Oregon, and Washington have tended to respond with highly bureaucratic routines and exceptions that are intended to create more housing, of just the right kind, for just the right renters, in the long run. Their rent regulation legislation has been actively harmful, and most of their supply-​side reforms have had little impact, but legalization of accessory dwelling units (ADUs) has been among the most significant. In 2023, Washington passed several bills, including ADU legislation, that could end up having a bigger impact.

By my judgment, the most significant 2023 reforms to address the housing issue—by leveraging market mechanisms and restoring private property rights—were enacted in Montana and Vermont. Both states preempted local zoning regulations to allow more market-​rate housing of different types to be built. Alongside some bills streamlining processes and regulations, Montana legalized duplexes in cities of 5,000 residents or more and legalized residential uses in commercial districts. Vermont straightforwardly increased maximum residential densities in places with adequate infrastructure, scaled back state-​level development review, and limited parking minimums.

A fourth state to do significant pro-​housing reform in 2023 was Florida. The Live Local Act has had a big impact already, somewhat surprisingly so, because in form it looks like a California-​style bill with “inclusionary zoning” requirements that require redistribution from market-​rate to subsidized tenants, often making the economics of development futile. But it turns out that Florida’s affordability standard isn’t too strict for many developers to meet, and the standard of allowing development at the maximum density allowed within a mile of the project turns out to be attractive. Some observers say the act has been “like throwing a hand grenade” onto Florida’s construction industry. We’ll have to see what the long-​run implications are: it could encourage preemptive downzoning in areas of high demand.

Finally, 2023 saw some important judicial decisions protecting liberty at the state level. The Supreme Court banned affirmative action in public universities and private universities that accept public funds, extending a protection nationwide that a handful of states had already enacted. They overturned Colorado’s enforcement of antidiscrimination law against a web designer who did not want to work on same-​sex weddings. They eliminated home-​equity theft by local governments in tax delinquency cases. In general, my research shows that judicial engagement over state law tends to increase freedom.

In most states, 2024 is an election year, so expect more “messaging” bills, especially ones that deal with social issues. States with biennial budgeting will not be doing anything significant with fiscal policy. But I expect school choice and housing to remain areas of great activity around the country, largely in the direction of freedom.

The record of liberty at the state level over the last few years leaves one optimistic about federalism as a system of government in which states have the autonomy to decide their own policy regime. While the federal government has continuously taken liberty with debt-​fueled spending, inflation, and ever-​growing regulatory burdens, states have opened up in many ways. Certainly, stricter minimum wage laws, growing labor regulation (Michigan repealed right-​to-​work in 2023, for example), growing taxes and regulations on tobacco and e-​cigarettes, and the spread of rent regulation laws and ordinances have been noteworthy negatives in some places. The post-​2020 rise in crime seems to have slowed the momentum of criminal justice reform (though Delaware, Minnesota, and Ohio legalized marijuana in 2023). All in all, though, we’re in a much better situation for liberty now at the state level than we were at the end of 2020, and maybe even 2019.