New York’s rising political voices, including New York City Mayor Zohran Mamdani, have put inequality back at the center of public debate. The focus is familiar: the gap between rich and poor, and what government can do to close it.
But America’s most important inequality problem isn’t about income. It’s about rules.
When Americans talk about inequality, they usually mean outcomes—who has more and who has less. But a deeper divide runs beneath those outcomes: the growing gap between states that enable economic mobility and those that quietly restrict it.
The Economic Freedom of North America (EFNA) report captures this divide. It measures how much freedom people have to make economic choices—where to work, what to invest in, and how to build a life. It evaluates states across three areas: government spending, taxation, and labor market regulation.
The results are striking. States like New Hampshire, Tennessee, South Dakota, and Texas consistently rank near the top, thanks to relatively light fiscal burdens and flexible labor markets. States like New York, California, Hawaii, and New Mexico rank near the bottom. Policies like Mamdani’s proposed rent freezes, raising corporate taxes, and higher minimum wages threaten to keep New York perennially stuck at the bottom.
These rankings aren’t just abstract scores. They correlate strongly with real-world outcomes. States with higher levels of economic freedom tend to see faster income growth, stronger job creation, and larger inflows of new residents.
This isn’t mysterious. Rules shape incentives. Incentives shape behavior. And behavior shapes outcomes. If the wealthiest New York City residents are going to face new tax burdens to fund Mamdani’s socialistic programs, what’s the incentive to stay in the city?
If policymakers want to understand inequality, they should begin by evaluating rules that negatively impact economic freedom.
Consider California. Despite its enormous wealth and status as a hub of innovation, it consistently ranks near the bottom of the EFNA index. High taxes, extensive regulation, and restrictive housing policies have made it increasingly difficult for ordinary residents to build and maintain economic security. The consequences are visible. Since 2020, California has lost nearly 1.3 million residents to other states on net. In just 2023 and 2024 alone, roughly half a million more people left the state than the number that moved in, and the outflow has continued in recent years.
Cost pressures are a central driver. The average Californian who moves out relocates to a place where housing costs are about $600-$700 per month lower, a substantial difference for middle-income families. Within the state, more than half of renters spend over 30% of their income on housing, a commonly used threshold for financial strain.
These outcomes are not accidental—they reflect the cumulative effect of policy choices that raise barriers to work, investment, and mobility.
Just a few states away, Texas tells a very different story. For decades, it has ranked in the top tier of economic freedom. Between 2012 and 2022, Texas added nearly 4 million residents, more than any other state, and it has led the nation in population growth for 14 consecutive years. Businesses expand there. Workers move there. Families stay.
They do so for a simple reason: the rules make opportunity easier to pursue.
This is what often gets lost in today’s inequality debate. Opportunity cannot be mandated. It emerges from a system that either empowers people to act—or quietly constrains them.
Call it institutional inequality: the end result of people facing radically different economic environments depending on where they live. In one state, starting a business or changing jobs is relatively straightforward. In another, it is burdened by higher costs, stricter regulations, and fewer opportunities.
Those differences compound over time—and they matter far more than any snapshot of income inequality.
No state is perfect. But the pattern is clear. States that allow people to work, invest, and build with fewer barriers tend to generate more opportunity—not just for some, but for everyone.
If Americans are serious about inequality, they should spend less time arguing over how to redistribute outcomes—and more time examining the rules that shape them in the first place.
Meg Tuszynski is a research assistant professor at the SMU Dallas Cox School of Business, where she is managing director of the Bridwell Institute for Economic Freedom.