Maybe this means I’m not a nice person (notwithstanding my high score for tenderness in a recent test), but I can’t help but be happy when I read bad news about fiscal policy in high-tax welfare states.
And because I’m a huge fan of tax competition, I get even happier when I find out that bloated governments are in trouble because people are escaping to places where government isn’t quite so greedy.
With that in mind, I smiled when I read what the Washington Examiner just wrote about tax competition and tax migration inside the United States.
States like California…can’t afford to be hospitable to business while also funding massive public employee entitlements. …job-creating businesses flee big-government Blue States for limited-government Red States. In short order, Blue States find themselves in financial straits. …between 2000 and 2010, the big Blue States of New York, California, and Illinois chased off hundreds of thousands of residents taking billions in income with them ($45.6 billion, $29.4 billion, and $20.4 billion respectively). Each of these states have highly progressive, high-marginal rate tax codes. California, for example, has 10 income tax brackets and a top rate of 13.3 percent. New York has eight brackets and an 8.82 percent top rate. Where did all those formerly Blue State income go? To low-tax, Red State jurisdictions, including Florida (no income tax), Texas (no income tax), and Arizona (4.54 percent top rate). Those three alone raked in $67.3 billion, $17.7 billion, and $17.6 billion, respectively.
Indeed, there have been studies looking at how specific states are driving high-income taxpayers to emigrate. And that means big Laffer-Curve effects.
Which is good news because even politicians are probably capable of learning – sooner or later – that high tax rates won’t raise much revenue if the geese that lay the golden eggs decide to fly away.
And since a picture tells a thousand words, here’s the map of taxable income migration put together by the Tax Foundation using IRS data.
Before closing, I want to highlight one other passage from the Examiner column that touches on a very critical point.
Thanks to the few federalist principles that are still protected in the Constitution, Americans remain free to vote with their feet and escape economically suffocating places like California in order to move to the vastly more hospital economic climates found in Red States like Texas.
Amen. Federalism is a very valuable way of protecting people from statism. We see it when people move from New York. We see it when they escape from California. We see it from a big-picture perspective in the Tax Foundation map.
Federalism enables to producers to escape the looters and moochers.
But federalism has been weakened over the years by the expansion of federal government. If we want to bolster competition among the states – and therefore constrain the greed of the political class, we need to devolve programs from Washington.
This is why welfare reform during the Clinton years was such a good idea. And it’s why block-granting Medicaid is so desirable (above and beyond the fiscal need to implement good entitlement reform).
P.S. It’s rather appropriate that I’m writing about federalism since I’m now in Lausanne, Switzerland, for the 2013 Liberty Conference and Switzerland is probably the world’s best example of genuine federalism.
P.P.S. One small correction to the Examiner’s piece. Illinois is a high-tax state. Illinois is a big-government state. Illinois is a state heading toward fiscal collapse. There are many things wrong with the Land of Lincoln, but it hasn’t compounded those other mistakes with a “progressive” tax that discriminates against those who add more to economic output. Indeed, the fact that Illinois has a flat tax helps to explain why politicians had such a hard time pushing through a tax hike a couple of years ago. They eventually succeeded, but the politicians faced an uphill battle because they couldn’t play the divide-and-conquer game of raising taxes on a limited segments of the population.
[…] version, there’s a must-read editorial in the Wall Street Journal about the ongoing exodus from fiscal hellholes such as Illinois, New York, and […]
[…] there’s a must-read editorial in the Wall Street Journal about the ongoing exodus from fiscal hellholes such as Illinois, New York, and […]
[…] you can see from this map that taxpayers also were fleeing the state earlier this […]
[…] written many columns about the migration from high-tax states to low-tax […]
[…] you can see from this map that taxpayers also were fleeing the state earlier this […]
[…] you can see from this map that taxpayers also were fleeing the state earlier this […]
[…] make the mistake of voting for tax-and-spend politicians, but at least they have enough sense to then escape the places being harmed by statist […]
[…] make the mistake of voting for tax-and-spend politicians, but at least they have enough sense to then escape the places being harmed by statist […]
[…] Committee to Unleash Prosperity. As you can see, it’s not just people that move. It’s their money as […]
[…] to say, that won’t end well, for Illinois or other blue states. Either they go bankrupt or future politicians do a big […]
[…] to say, that won’t end well, for Illinois or other blue states. Either they go bankrupt or future politicians do a big […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] Ci sono alcuni stati che possono permettersi delle tasse più alte della media a causa di contesti eccezionali. La California, per esempio, ha il clima e il paesaggio. Nel caso di New York, può cavarsela con qualche cattiva politica perché alcune persone pensano a New York City come un posto unico. Ma c’è un limite a quanto questi fattori possano essere sfruttati, come sia la California che New York stanno imparando ora. […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant). […]
[…] among governments. For instance, I cheer when businesses, investors, and entrepreneurs escape from high-tax states like California and New York and move to zero-income tax states such as Florida and […]
[…] competition among governments. For instance, I cheer when businesses, investors, and entrepreneurs escape from high-tax states like California and New York and move to zero-income tax states such as Florida and […]
[…] There are a few states that can get away with higher-than-average taxes because of special considerations. California, for instance, has climate and scenery. In the case of New York, it can get away with some bad policy because some people think of New York City as a one-of-a-kind place. But there’s a limit to how much those factors can be exploited, as both California and New York are now learning. […]
[…] There are a few states that can get away with higher-than-average taxes because of special considerations. California, for instance, has climate and scenery. In the case of New York, it can get away with some bad policy because some people think of New York City as a one-of-a-kind place. But there’s a limit to how much those factors can be exploited, as both California and New York are now learning. […]
[…] There are a few states that can get away with higher-than-average taxes because of special considerations. California, for instance, has climate and scenery. In the case of New York, it can get away with some bad policy because some people think of New York City as a one-of-a-kind place. But there’s a limit to how much those factors can be exploited, as both California and New York are now learning. […]
[…] There are a few states that can get away with higher-than-average taxes because of special considerations. California, for instance, has climate and scenery. In the case of New York, it can get away with some bad policy because some people think of New York City as a one-of-a-kind place. But there’s a limit to how much those factors can be exploited, as both California and New York are now learning. […]
[…] showing that taxpayers move from high-tax states to low-tax states. And Illinois already has been bleeding taxable income to other states, so it’s very likely that a progressive tax would dramatically worsen the state’s […]
[…] More worrisome is that the people leaving tend to have higher-than-average incomes (and it’s been that way for a while since New Jersey’s been pursuing bad policy for a […]
[…] Yet the folks in Minnesota – at least if the anti-capitalism comments in the video are any indication – must not care whether the geese with the golden eggs fly away. […]
[…] The same pattern exists all across the United States. Taxpayers are escaping the poorly managed states and fleeing to low-tax states. Especially ones with no income […]
[…] Needless to say, grousing politicians in high-tax states have no legitimate argument. If they don’t provide good value to taxpayers, they should change policies rather than whining about out-migration. […]
[…] And keep in mind that when people move, their taxable income moves with them. […]
[…] only possible advice I have for state residents is to move. Florida would be a good […]
[…] written many times about people and businesses escaping high-tax states and moving to low-tax […]
[…] huge unfunded liabilities for bureaucrats, yet they were constrained by the fact that taxpayers have the freedom to move when tax burdens become […]
[…] bottom line is that tax-motivated migration already was occurring and it’s going to become even more important now that federal tax reform is no longer […]
[…] all intents and purposes, they’re trying to drive job creators out of the state (a shift that already has been happening, but now will […]
[…] don’t know if their estimate is too high or too low, but there’s no question that they are correct about the direction of […]
[…] of the main lessons we learn (see here, here, here, here, and here) is that high-earning taxpayers tend to migrate from states with […]
[…] of the main lessons we learn (see here, here, here, here, and here) is that high-earning taxpayers tend to migrate […]
[…] of the main lessons we learn (see here, here, here, here, and here) is that high-earning taxpayers tend to migrate from states with […]
[…] tax increase – If there was a contest for bad state fiscal policy, Illinois would be a strong contender. That was true even before 2017. And now that the state legislature rammed through a big tax […]
[…] Here’s a map showing the entire country and here’s a map showing the exodus from California. […]
[…] a map showing the entire country and here’s a map showing the exodus from […]
[…] the risk of asking an obvious question, how can they not realize that this will accelerate the migration of high-value taxpayers to states with better […]
[…] the risk of asking an obvious question, how can they not realize that this will accelerate the migration of high-value taxpayers to states with better […]
[…] the risk of asking an obvious question, how can they not realize that this will accelerate the migration of high-value taxpayers to states with better […]
[…] As a former Connecticut resident, I’m ashamed that my home state, which used to be a success story with no income tax, has now morphed into a high-tax welfare state that is now increasingly infamous for the outflow of productive people and taxable income. […]
[…] a very good track record of fiscal prudence. Especially since it’s about to benefit from an influx of tax refugees from its neighbor to the […]
[…] here’s another very powerful chart that was circulated to policy makers, showing the migration of taxpayers from high-tax states to zero-income-tax […]
[…] don’t fully agree with the above excerpt because there’s plenty of evidence that income taxes cause migration from high-tax states to zero-income-tax […]
[…] fully agree with the above excerpt because there’s plenty of evidence that income taxes cause migration from high-tax states to zero-income-tax […]
[…] It’s worth noting that the high-tax approach is not producing good results. […]
[…] this legislation is adopted, the migration of taxpayers out of California will accelerate, the costs will be higher than advertised, and I’ll have a powerful new example […]
[…] It’s worth noting that the high-tax approach is not producing good results. […]
[…] this legislation is adopted, the migration of taxpayers out of California will accelerate, the costs will be higher than advertised, and I’ll have a powerful new […]
[…] the story basically admits that the tax increases have backfired because some rich people are fleeing the state, while others have simply decided to earn and/or report less […]
[…] Governor Malloy recognizes that tax-motivated migration is a powerful force. […]
From A New Jersey “Exile”:
I’ve watched relatives and friends forking over hideously high property taxes on top of the state income taxes. I’m told by family of how many times in my old home town in NJ, how hard it is for widows to hold on to the home they paid off decades ago.
In 5 years we’re retiring – to Florida! like many other former Jerseyan’s
Has France and Illinois taught Trenton NOTHING?
[…] Data from the internal revenue service shows that states like Illinois are losing people with above-average incomes. In other words, the net taxpayers are […]
[…] Data from the internal revenue service shows that states like Illinois are losing people with above-average incomes. In other words, the net taxpayers are […]
[…] already was losing both taxpayers and taxable income during the first decade of the century and the tax increase accelerated the […]
[…] already was losing both taxpayers and taxable income during the first decade of the century and the tax increase accelerated the […]
[…] golden eggs may fly away. And this isn’t just theory. As revealed by IRS data, taxpayer will move across borders to escape punitive […]
[…] and local borders and this means governments have to compete with each other, both in terms of not driving away productive people and also in terms of not attracting those who want to mooch off the […]
[…] there’s been a spike in favor of Kansas. Which is particularly impressive considering that Kansas suffered a loss of taxable income to other states last […]
[…] there’s been a spike in favor of Kansas. Which is particularly impressive considering that Kansas suffered a loss of taxable income to other states last […]
[…] companies, Italian boat owners, Spanish movie patrons (and porn aficionados), California citizens, Greek shop owners, Facebook millionaires, Norwegian butter buyers, New York […]
[…] American companies, Italian boat owners, Spanish movie patrons (and porn aficionados), California citizens, Greek shop owners, Facebook millionaires, Norwegian butter buyers, New York taxpayers, Bulgarian […]
[…] companies, Italian boat owners, Spanish movie patrons (and porn aficionados), California citizens, Greek shop owners, Facebook millionaires, Norwegian butter buyers, New York […]
[…] decent constraint on state and local governments is jurisdictional competition, and that’s a necessary but far from sufficient condition for good […]
[…] that make wise choices will be role models for their peers. And it’s also worth noting that states that screw up will provide valuable lessons as […]
[…] that make wise choices will be role models for their peers. And it’s also worth noting that states that screw up will provide valuable lessons as […]
[…] c’est ce qui semble bien se produire en Californie. Regardez les sommes d’argent qui ont « émigré » de l’État depuis […]
[…] that’s what seems to be happening in California. Take a look at how much income has emigrated from the state since […]
[…] that’s what seems to be happening in California. Take a look at how much income has emigrated from the state since […]
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States such as New York, California, and Il… The tax migration map and proof at just how close many states are to fiscal collapse Reply With Quote […]
[…] August, I shared a fascinating map from the Tax […]
[…] August, I shared a fascinating map from the Tax […]
[…] upshot is that Texas has thumped California, which echoes what I’ve been saying for […]
[…] we not take itemized deductions, or even the standard deduction? Is is somehow immoral to move from a high-tax state to a low-tax state? In other words, should we try to maximize the amount of our income going to […]
[…] of the Mercatus study and the “death spiral” states that I shared last year. No wonder taxpayers are fleeing these oppressive […]
[…] at the bottom. The state routinely gets bad grades on various measures of fiscal policy. No wonder so much income is moving out of the state. As for Louisiana, I can understand why Governor Jindal is so anxious to get rid of the state […]
[…] of how they vote, they should understand the potential consequences if Amendment 66 is […]
[…] my favorite map from the Tax Foundation is the one showing that the geese with the golden eggs are moving from high-tax states to low-tax states. That’s tax competition in […]
Liberals like Max Brantley of the Arkansas Times just don’t want to face the facts that you have presented Dan!! Brantley states, ” I don’t believe it was tax rates that put those feet in motion.” http://www.arktimes.com/ArkansasBlog/archives/2013/09/22/money-walks-the-flight-to-suburbs-and-more-prosperous-regions-is-it-tax-policy-or-something-else
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States such as New York, California, and I… […]
[…] there are limits. Last month, I shared a very powerful map from the Tax Foundation showing there’s been a huge shift of taxable income out of New York and California between […]
[…] there are limits. Last month, I shared a very powerful map from the Tax Foundation showing there’s been a huge shift of taxable income out of New York and California between […]
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States such as New York, California, and Il… (danieljmitchell.wordpress.com) […]
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States … […]
[…] were among the poorest when democrats left office in those states. But they are getting richer: https://danieljmitchell.wordpress.com…-and-illinois/ The etc… Is about their double standard rhetoric and the like. Plus they have more policies then […]
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States … […]
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States … […]
One word: Detroit.
Yes, I escaped that state- Michigan because of its rising liberal social policies. A beautiful state to leave it was and still is. I escaped to Texas- the most freedom-loving state in the USA. Now others are escaping those liberal bastions NOT because of the social issues of liberalism, but because of the fiscal problems that liberal thinking promotes. They have sucked those states that did what they asked for to a state of dessication. And they are coming to areas where libertarian thinking has created such fiscal freedoms. And they are bringing in the ideas and voting for the very problems that created their problems to begin with.
In other words, they are like an infection that is spreading across the US- going from free state to free state, and eating up the very policies that keep us free, and then moving on to the next free area when they have sucked each one dry. Just look at the east coast. It was once the very bastion of freedom- now it has become an example of socialism and waste.
What we really need to do is eradicate these people from our society. Perhaps we should not allow people to vote who do not understand the American way of life and why it is better than all others. Perhaps a test??
Having been dethroned in worldwide economic liberty ranking for the first time in almost a century (#18 and sinking into a vicious cycle) Americans think their exceptional prosperity will last forever. The embodiment of their hope: Become like Europe… what an incredible delusion indeed.
[…] https://danieljmitchell.wordpress.com/2013/08/24/why-tax-migration-and-federalism-mean-doom-for-left-… […]
recently… an Egyptian official characterized John McCain as a “senile old man”… no matter how you view Senator McCain… it’s clear that a large number of our elected officials at both the state and federal level are simply out of touch with reality… they just don’t live in the same world as the rest of us… in their America… the political class has unlimited recourses and the citizens will pay any amount of tax self-aggrandizing politicians demand… in this fantasy land… the U.S. can achieve hegemonic domination of the planet at an affordable cost and democrats and republicans will [of course] get re-elected year after year by simple minded but adoring masses… addicted to government handouts… not gonna happen…… state and local governments have unfunded liabilities estimated on the low end at over one trillion dollars… and when the bubbles start bursting.. that figure will explode… think Detroit…….. on steroids… on the federal side… each point of increase in interest will add near 130 billion to the federal deficit… austerity… tax increases will happen… banks will close… people will lose vast sums of money… and the social safety net will collapse… and the lunatic fringe of the political class? they will retire… to build libraries… do good works… and spend time with young women minding them in Alzheimer’s wards… it’s justice?
there… I have said the sooth…………….
[…] https://danieljmitchell.wordpress.com/2013/08/24/why-tax-migration-and-federalism-mean-doom-for-left-… […]
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States … […]
[…] Why Tax Migration and Federalism Mean Doom for Left-Wing States … […]
Not so fast. A blue majority of voters at the federal level could (and does) force redistribution from Red to Blue.
With the federal government still collecting close to 20% of GDP even from those who escaped to Florida, there is plenty of money for redistribution. And there are enough useful Red idiots to coalesce with the Blue into a permanent supermajority mandating that we help out those of our friends who got in trouble by flattening the effort-reward curves. Hence Federal Government expands. You can explicitly see that happening in Europe, and there is not even as strong of a Federal European Government (yet).
In the US, a substantial amount of this redistribution already happens indirectly right under our noses. For example:
When in California a coalition of Enviro-NIMBY voters taps into their inner urge to impose mandatory collectivism (and desire to shut others out of their paradise), forms a majority, and imposes severe zoning restrictions and thus chokes-off housing supply (at least supply of housing people want to live in, not the 1200 sqf Euro-apartments by the light rail tracks housing that Californians have to settle for because that is the only type of new housing allowed) then housing prices skyrocket to levels triple and quadruple the US average. That is essentially the embodiment of a “we found our paradise, now let’s lock the door by preventing others from doing to their land what was done to build our houses” mentality. Now, by golly, the sons and daughters of Californians cannot find affordable housing! They must pay triple price. Who pays for that? Amongst others, Federal Agencies, like FHA who will now subsidize loans to much higher levels in self-inflicted expensive housing California. So the poor chap who lives in the dreary North Dakota weather is prevented from moving to California through the “we found our California paradise, now let’s lock the door by preventing others from doing to their land what was done to build our houses” policy, yet he is forced to pay taxes into federal programs that help the sons and daughters of Californians ease the pain of unaffordable California housing and remain close to their Enviro-NIMBY parents in paradise.
This is just a small example of the entire indirect Federal redistribution equation, but many forms of redistribution are already in place at the Federal level to help out those voting groups who run their economies along the lines of socialist inefficiency and flatter effort-reward curves. This redistribution is one of the main underlying reasons there is great aggregate indirect majoritarian voter interest in further and further growth of the Federal government.
New York is worse than you indicate. Almost half of the state lives in New York City which has its own income tax with a top rate of 3.86%, for a combined state/city rate of 12.48%.
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Why Tax Migration and Federalism Mean Doom for Left-Wing States such as New York, California, and Illinois
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Doom, indeed, unless they can continue voting for a living in Washington, DC.