Monday, May 18, 2009

Fleeing high state taxes 

Arthur Laffer and Stephen Moore have an op-ed in today's Wall Street Journal, analyzing the phenomenon of people and capital leaving higher tax states for lower tax states:
"Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts."
It is worth looking into the specifics of their study, which was published in March, to get a feel for how the data was handled, and to confirm what at first glance seems to be a somewhat surprising result regarding net out-migration from California from 1998-2007. With that caveat, it would seem to make sense that during a period of time when our society has been as mobile as ever, jobs would be created in relatively lower tax environments. Undoubtedly, there are confounding factors that will make the conclusions reached by the authors a topic of much disagreement, but over the long run, state tax structures do matter to the citizens of that state. Ultimately, people can vote with their feet.

One of the specific examples cited in the op-ed is the great State of New Jersey, home of our blog host TigerHawk:
"Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation -- much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves."
We can only hope that TigerHawk does not opt to become a member of one of the "droves" (moving to the west coast of Florida and renaming the blog "GulfHawk" or some such nonsense) -- the frequent campus shots of Princeton would be missed!

Read the entire op-ed.


By Anonymous Anonymous, at Mon May 18, 01:05:00 PM:

It's the most-oft heard topic at every cocktail party; suddenly, everyone is talking about moving. Public employee unions are so crazed, though, that I don't think they'll take notice until the state defaults, so some substantial number of the people talking will have to actually follow through.  

By Anonymous in_awe, at Mon May 18, 02:08:00 PM:

A recent report in the CA papers said that out-migration for managers and executives is hitting a multi-decade low, My guess is that the recession has sharply reduced the number of open positions at that level in other states - for now. I fully expect the brain/executive drain to reassert itself in CA when the economy stumbles into recovery faster in those states than in CA.  

By Blogger TigerHawk, at Mon May 18, 02:58:00 PM:

in_awe - the other problem is the steep drop in home prices. So many people are underwater, especially in highly-priced, highly-taxed coastal states, that they cannot move even if a decent job presents itself, or they are psychologically inhibited from moving even if it were financially smart to do so.  

By Anonymous Anonymous, at Mon May 18, 09:09:00 PM:

What happens to this when the federal government swamps state and local rates and the idea of an intra-USA tax haven disappears? Look at what happened to Gov. Sanford of SC who didn't want the money which had strings attached. He eventually folded. This is the tragedy of the commons. Everybody is out to get his share. The article also mentions Texas competing with Germany, etc. When the US total expenditure as a percent of GDP matches Germany's, who cares whether it is federal or state/local?


By Blogger Purple Avenger, at Mon May 18, 09:47:00 PM:

I fled NY for FL.

People whine about high real estate taxes here, but in reality they're half or less what they'd be in NY.

No (significant) snow in the winter is a big plus. Hurricanes, a minus.

Being at a lower latitude, its not dark out at 4pm like it is in the north during winter. I find I'm not nearly as affected by SAD here. The constant gray and dark in the north is psychologically debilitating. Winter here are a joy.  

By Blogger Gary Rosen, at Tue May 19, 01:35:00 AM:

PA - what about the alligators?  

By Blogger The Conservative Wahoo, at Tue May 19, 05:41:00 AM:

TH--you bring up a good point about mobility. I've been on a little jihad over at my blog against using one's home as a disproportionate portion of an investment portfolio--the mortgage interest deduction helps advantage this investment in a way that winds up further exacerbating the problem. Whether one is upside down or not--the very fact that people put SO MUCH of their economic futures in their houses has a huge impact on the mobility of labor...it can't help but have an impact on depressing wages....  

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