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Archive for the ‘States’ Category

I used to think Texas vs. California was the most interesting and revealing rivalry among states. It was even the source of some clever jokes and cartoons.

But the growing battle between Florida vs. New York may now be even more newsworthy.

I wrote last month about how many entrepreneurs, investors and business owners are escaping bad tax policy by moving from the Empire State to the Sunshine State.

Not that we should be surprised.

Florida ranks #1 for economic freedom while New York languishes in last place.

A big reason for the difference is that Florida has no state income tax, which compares very favorably to the punitive system in New York.

And because the federal tax code no longer provides an unlimited deduction for state and local taxes, I expect the exodus from New York to Florida to accelerate.

What’s especially amusing is that Alexandria Ocasio-Cortez’s mother is one of the tax refugees.

Here are some excerpts from a report in the New York Post.

The mother of soak-the-rich Congresswoman Alexandria Ocasio-Cortez said she was forced to flee the Big Apple and move to Florida because the property taxes were so high. “I was paying $10,000 a year in real estate taxes up north. I’m paying $600 a year in Florida. It’s stress-free down here,” Blanca Ocasio-Cortez told the Daily Mail… Her daughter raised eyebrows with her pitch to hike the top marginal tax rate on income earned above $10 million to 70 percent. She has also gotten behind the so-called Green New Deal, which would see a massive and costly government effort.

The former Governor of Florida (and new Senator from the state) obviously is enjoying the fact that New York politicians are upset.

Here’s some of what Rick Scott wrote in today’s Wall Street Journal.

America is a marketplace where states are competing with each other, and New York is losing. Their loss is Florida’s gain… I would like to tell New Yorkers on behalf of the rest of America that our hearts go out to you for your sagging luxury real-estate market. But you did this to yourself, and you can fix it yourself. If you cut taxes and make state and local government efficient, maybe you can compete… I made more than 20 trips to high-tax states like California, Connecticut, Illinois, New York and Pennsylvania to lure businesses to Florida. The tax-happy leaders of those states were furious, which made the visits all the more enjoyable for me. They called me every name in the book. But they were the ones who raised taxes, and bad decisions have consequences. The elites in New York and Washington should commission a study of Florida to see what happens when conservative ideas are put into practice. …Florida’s economy is thriving, expanding at a record pace. …There’s a reason Rep. Alexandria Ocasio-Cortez’s mom left New York for Florida. And there’s a reason companies are fleeing high-tax states, bringing jobs with them to Florida.

I mentioned above that having no state income tax gives Florida a big advantage over New York.

Courtesy of Mark Perry, here a comprehensive comparison of the two states.

Wow. If this was a tennis tournament, the announcers would be saying “game, set, and match.” And if it was a boxing contest, it would be a knock-out.

The bottom line is that we should expect more rich people to escape New York and move to Florida because they’ll get to keep more of their money.

And we should expect more lower-income and middle-class people to also make the same move because Florida’s better policy means more jobs and more opportunity (sadly, Rep. Ocasio-Cortez has learned nothing from her mother’s move).

P.S. New York actually doesn’t do terribly in nationwide rankings for pension debt, though it is still below Florida.

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I wrote a couple of weeks ago about how New York is committing slow-motion fiscal suicide.

The politicians in Illinois must have noticed because they now want (another “hold my beer” moment?) to accelerate the already-happening collapse of their state.

The new governor, J.B. Pritzker, wants to undo the state’s 4.95 percent flat tax, which is the only decent feature of the Illinois tax system.

And he has a plan to impose a so-called progressive tax with a top rate of 7.95.

Here are some excerpts from the Chicago Tribune‘s report., starting with the actual plan.

Democratic Gov. J.B. Pritzker embarked on a new and potentially bruising political campaign Thursday by seeking to win public approval of a graduated-rate income tax that he contended would raise $3.4 billion by increasing taxes for the wealthy…for his long-discussed plan to replace the state’s constitutionally mandated flat-rate income tax. Currently, all Illinois residents are taxed at 4.95 percent… Pritzker’s proposal is largely reliant on raising taxes significantly on residents making more than $250,000 a year, with those earning $1 million and up taxed at 7.95 percent of their total income. …The corporate tax rate would increase from the current 7 percent to 7.95 percent, matching the top personal rate. …The governor’s proposal would give Illinois the second-highest top marginal tax rate among its neighboring states.

And here’s what would need to happen for the change to occur.

Before Pritzker’s plan can be implemented, three-fifths majorities in each chamber of the legislature must approve a constitutional amendment doing away with the flat tax requirement. The measure would then require voter approval, which couldn’t happen until at least November 2020. …Democrats hold enough seats in both chambers of the legislature to approve the constitutional amendment without any GOP votes. Whether they’ll be willing to do so remains in question. Democratic leaders welcomed Pritzker’s proposal… voters in 2014 endorsed the idea by a wide margin in an advisory referendum.

The sensible people on the Chicago Tribune‘s editorial board are not very impressed, to put it mildly.

…how much will taxes increase under a rate structure Pritzker proposed? You might want to cover your eyes. About $3.4 billion annually… That extraction of dollars from taxpayers’ pockets would be in addition to roughly $5 billion raised annually in new revenue under the 2017 income tax hike. …How did Springfield’s collection of all that new money work out for state government and taxpayers? Here’s how: Illinois remains deeply in debt, continues to borrow to pay bills, faces an insurmountable unfunded pension liability and is losing taxpayers who are fed up with paying more. The flight of Illinoisans to other states is intensifying with 2018’s loss of 45,116 net residents, the worst of five years of consistent, dropping population. …Illinois needs to be adding more taxpayers and businesses, not subtracting them. When politicians raise taxes, they aren’t adding. A switch to a graduated tax would eliminate one of Illinois’ only fishing lures to attract taxpayers and jobs: its constitutionally protected flat income tax. …Pritzker’s proposal, like each tax hike before it, was introduced with no meaningful reform on the spending side of the ledger. This is all about collecting more money. …In fact, the tax hike would come amid promises of spending new billions.

And here’s a quirk that is sure to backfire.

For filers who report income of more than $1 million annually, the 7.95 percent rate would not be marginalized; meaning, it would be applied to every dollar, not just income of more than $1 million. Line up the Allied moving vans for business owners and other high-income families who’ve had a bellyful of one of America’s highest state and local tax burdens.

The Tax Foundation analyzed this part of Pritzker’s plan.

This creates a significant tax cliff, where a person making $1,000,000 pays $70,935 in taxes, while someone earning one dollar more pays $79,500, a difference of $8,565 on a single dollar of income.

That’s quite a marginal tax rate. I suspect even French politicians (as well as Cam Newton) might agree that’s too high.

Though I’m sure that tax lawyers and accountants will applaud since they’ll doubtlessly get a lot of new business from taxpayers who want to avoid that cliff (assuming, of course, that some entrepreneurs, investors, and business owners actually decide to remain in Illinois).

While the tax cliff is awful policy, it’s actually relatively minor compared to the importance of this table in the Tax Foundation report. It shows how the state’s already-low competitiveness ranking will dramatically decline if Pritzker’s class-warfare plan is adopted.

The Illinois Policy Institute has also analyzed the plan.

Unsurprisingly, there will be fewer jobs in the state, with the losses projected to reach catastrophic levels if the new tax scheme is adjusted to finance all of the Pritzker’s new spending.

And when tax rates go up – and they will if states like Connecticut, New Jersey, and California are any indication – that will mean very bad news for middle class taxpayers.

The governor is claiming they will be protected. But once the politicians get the power to tax one person at a higher rate, it’s just a matter of time before they tax everyone at higher rates.

Here’s IPI’s look at projected tax rates based on three different scenarios.

The bottom line is that the middle class will suffer most, thanks to fewer jobs and higher taxes.

Rich taxpayer will be hurt as well, but they have the most escape options, whether they move out of the state or rely on tax avoidance strategies.

Let’s close with a few observations about the state’s core problem of too much spending.

Steve Cortes, writing for Real Clear Politics, outlines the problems in his home state.

…one class of people has found a way to prosper: public employees. …over 94,000 total public employees and retirees in Illinois command $100,000+ salaries from taxpayers…former Chicago Mayor Richard M. Daley, who earned a $140,000 pension for his eight years of service in the Illinois legislature. …Such public-sector extravagance has fiscally transformed Illinois into America’s Greece – only without all the sunshine, ouzo, and amazing ruins.

So nobody should be surprised to learn that the burden of state spending has been growing at an unsustainable rate.

Indeed, over the past 20 years, state spending has ballooned from $34 billion to $86 billion according to the Census Bureau. At the risk of understatement, the politicians in Springfield have not been obeying my Golden Rule.

And today’s miserable fiscal situation will get even worse in the near future since Illinois is ranked near the bottom when it comes to setting aside money for lavish bureaucrat pensions and other retirement goodies.

Indeed, paying off the state’s energized bureaucrat lobby almost certainly is the main motive for Pritzker’s tax hike. As as happened in the past, this tax hike is designed to finance bigger government.

Yet that tax hike won’t work.

Massive out-migration already is wreaking havoc with the state’s finances. And if Pritzker gets his tax hike, the exodus will become even more dramatic.

P.S. Keep in mind, incidentally, that all this bad news for Illinois will almost certainly become worse news thanks to the recent tax reform. Restricting the state and local tax deduction means a much smaller implicit federal subsidy for high-tax states.

P.P.S. I created a poll last year and asked people which state will be the first to suffer a fiscal collapse. Illinois already has a big lead, and I won’t be surprised if that lead expands if Pritzker is able to kill the flat tax.

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I shared data a couple of weeks ago showing that Florida is the freest state in America (for both overall freedom and economic freedom) while New York is in last place (in both categories).

Well, it seems that freedom has consequences when people can “vote with their feet.”

We’ll start with an op-ed in the Miami Herald by Ed Pozzuoli.

In a recent press conference, New York Gov. Andrew Cuomo…mentioned Florida as an attractive option for New Yorkers who are unhappy… a Census Bureau report late last year detailing the states that lost residents because of high taxes, overregulation and dwindling opportunities. Leading the list? New York. …what jurisdiction did the Census folks say benefits the most from domestic “in-migration? You guessed it — Florida… our low-tax, business-friendly welcome to asylum seekers from Big Government states like New York… It’s Florida’s low taxes and reasonable regulatory environment that attract businesses here. Florida ranks sixth among states for new business creation. …Unlike the federal government, Florida balances its budget and does so without an income tax. New York can keep its big progressive government.

And that “big progressive government” means onerous and punitive taxes, as the Wall Street Journal opined.

New York City’s combined state and local top rate of 12.7% hits taxpayers earning more than $1 million and is the second highest in the country after California. The deduction limit raised New York’s top rate by an effective 5%, though this was partially offset by the tax reform’s 2.6 percentage-point reduction in the federal top rate. …According to IRS data we’ve examined, New York state lost $8.4 billion in income to other states in 2016 (the latest available data), up from $4.6 billion annually on average during the prior four years. Florida raked in the most New York wealth. Mr. Cuomo says that “a taxpayer in Florida would see no increase, or a decrease” under the GOP tax reform and “Florida also has no estate tax.” New York’s 16% estate tax hits assets over $10.1 million. …Mr. Cuomo promised to let New York’s tax surcharge on millionaires expire. But he has extended it again and again and now wants to renew it through 2024 because he says the state needs the money. Meantime, he warns that a wealth exodus could force spending cuts for education and higher taxes on middle-income earners. All of this was inevitable, as we and others warned. Yet rather than propose to make the state’s tax burden more competitive, Mr. Cuomo rages against a tax reform that has helped the overall U.S. economy, even in New York.

I especially enjoy how Governor Cuomo is irked because his state’s profligacy is no longer subsidized by an unlimited federal deduction for state and local taxes.

Investor’s Business Daily shares a similar perspective.

New York Gov. Andrew Cuomo…we appreciate his recent frankness on taxes. …”I don’t believe raising taxes on the rich,” Cuomo said. “That would be the worst thing to do. You would just expand the shortfall. God forbid if the rich leave.” …In support of his comments, Cuomo cited “anecdotal” evidence that showed high-income earners are leaving the high-tax Empire State for other low-tax states. But the evidence isn’t merely anecdotal. It’s a fact. …From 2010 to mid-2017, New York had a net outmigration of over 1 million people, more than any other state. No, they’re not all rich. But many are. …the wealthy have choices that others don’t. One of those choices is to move if taxes become not merely burdensome, but punitive. That’s what’s happening in New York. …Many high-income taxpayers are leaving New York for low-tax states, tired of paying the state’s bills and then being demonized leftist activists for being “rich” and told they must give more.

Let’s close with some excerpts from a column in the Washington Times by Richard Rahn. He compares New York, Virginia, and Florida.

…many high-income New Yorkers have been moving their tax homes to Florida, undermining the New York tax base. …Florida imposes no state and local income taxes… Florida is booming, with a budget surplus, while New York is mired in debt. Only 50 years ago, New York had four times the population of Florida, and now Florida is larger than New York. …the state of Florida…created an environment where businesses could flourish without undue tax burdens and government interference. It went from being a poor state to a prosperous one. …citizens of New York should be asking: Why they are required to pay such high state and local income tax rates while the citizens of Florida get by perfectly well without any state income tax; Why they have three times more per capita debt than Floridians, and infrastructure that is in far worse shape; …Why it takes a third more of their citizens’ personal income to run the government than in Virginia or Florida; Why their state takes twice the percentage of per capita income in taxes than Virginia and Florida; …When it comes to taxes and government services, people’s feet tell more about how they feel than their mouths.

And if you want to know why so many people are traveling down I-95 from New York to Florida, this table from Richard’s column tells you everything you need to know.

For what it’s worth, there are people who are willing to pay extra tax to live in certain high-tax states. New York City has an allure for some people, as does California’s climate and scenery.

But are those factors enough to compensate for awful tax systems? Will they save those states from economic decay?

At best, they’ll delay the day of reckoning. For what it’s worth, I actually think New Jersey or Illinois will be the first state to fiscally self-destruct.

You can cast your vote by clicking here.

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I wrote a couple of days ago about America’s best and worst cities for pro-market policy, and I noted that there are several rankings of economic liberty for states and nations.

But what if you want to know the place with the most overall freedom? In other words, what is the most libertarian place to live based on both economic liberty and personal liberty?

If you don’t mind a bit of travel, the answer is New Zealand.

For those who prefer to stay in the United States, Will Ruger and Jason Sorens periodically crunch numbers to calculate Freedom in the 50 States.

Their previous edition had New Hampshire in first place, so let’s take a look at the newest version.

This 2018 edition of Freedom in the 50 States presents a completely revised and updated ranking of the American states on the basis of how their policies promote freedom in the fiscal, regulatory, and personal realms. …More than 230 policy variables and their sources are now available to the public on a new website for the study. …the 2018 edition provides annual data on economic and personal freedom and their components back to 2000. …Freedom in the 50 States is an essential desk reference for anyone interested in state policy and in advancing a better understanding of a free society.

The publication is loaded with data, as you’ll see from the following charts.

To put all this data in context, the report separately calculates fiscal freedom, regulatory freedom, and personal freedom.

We’ll start with the fiscal section, which includes variables about taxes and spending, as well as other measures such as debt and government employment.

For those interested, the report has plenty of analysis and explanation about the variables that are used and the weights that are assigned.

Most of us, though, simply want to see which states get good scores and which ones get bad scores.

I’m not surprised to see that zero-income-tax states – led by Florida – are at the top. And I’m also not surprised that flat-tax states – led by Pennsylvania – also are well represented.

I assume nobody is surprised to see New York in last place.

Now let’s shift to regulatory policy and see where the burden of red is most onerous.

This part of the ranking covers a range of issues, most notably controls on land use and restrictions on the use of markets in health care.

But there are other important variables, including the extent and burden of occupational licensing.

Indeed, before getting to the overall rankings for regulation, I want to share those scores because it is so galling and upsetting that politicians impose barriers that limit the freedom of people to earn income.

Colorado deserves hearty applause for being at the top, edging out Idaho by a narrow margin. And even though Vermont was near the bottom of the fiscal rankings, it merits a mention for being good on the issue of occupational licensing.

California deserves hearty condemnation for being in last place. And I’m not surprised to see states like Illinois and New Jersey near the bottom.

I’m very disappointed, however, that Texas and Florida have such a dismal record.

But let’s not fixate on just one of the variables. If we look at the rankings for all regulatory issues, Kansas is in first place, followed by Nebraska and Idaho.

The worst states (hardly a surprise) are New York, New Jersey, and California.

Now let’s combine fiscal policy and regulatory policy and see the report’s ranking for overall economic freedom.

Florida is in first place by a comfortable margin, followed by three other zero-income-tax states (though the absence of a state income tax does not guarantee a good score, as you can see from the poor performance of Alaska, Wyoming, and Washington).

New York wins the Booby Prize by a large margin.

Hawaii and California also stand out in a bad way.

The above table tells us which state enjoys the most economic liberty, but that doesn’t tell us where to live if you want the maximum amount of overall freedom.

To identify the nation’s most libertarian state, we also need to look at rankings for personal liberty.

This means, in part, whether people are harassed and persecuted for victimless crimes, but it also includes measures of educational freedom and gun rights.

Speaking of which, I can’t resist sharing the data on which states most respect the 2nd Amendment.

Kansas gets the best score, followed by Vermont(!), Arizona, Idaho, and Mississippi.

Hawaii is the worst state by a significant margin and we (again) find California near the bottom.

Another issue which is near and dear to my heart is asset forfeiture.

I am nauseated and disgusted that governments are allowed to steal property from people who have not been convicted of any wrongdoing.

So let’s applaud New Mexico, Nebraska, and New Hampshire for putting limits on this awful practice.

And let’s heap unending scorn on Rhode Island for having the nation’s worst track record on this issue.

But what happens when we combine all issue relating to personal freedom?

Well, that’s exactly what the authors did, which means we get a comprehensive ranking for personal freedom. I’m not surprised that Nevada, Colorado, and New Hampshire are in the top 5, but I’m surprised to see that Maine leads the pack.

Likewise, I guess I’m not too surprised that Texas and other bible-belt states are socially conservative.

But Hawaii next to last?!?

In any event, the report combines economic freedom and personal freedom and tells us which state could be considered the most libertarian.

And the winner is the Sunshine State of Florida, followed by New Hampshire, Indiana, Colorado, and Nevada. I’m surprised that Florida does so well, though some of the other high-scoring states make sense (especially when I look at data on who reads these columns).

By contrast, the most dirigiste state is New York. That doesn’t surprise me, and I’m also not shocked by some of the other bottom dwellers.

I’m tempted to end here since we’ve already surveyed so much information.

But there’s one final chart which hopefully should be very fascinating.

We just looked at the data on how states currently rank for overall liberty.

This final selection tells us which ones have been moving in the right direction and wrong direction since the turn of the century.

Kudos to Oklahoma for adopting a lot of good reform. Same for New Mexico. And it’s also interesting to see that several states from the Great Lakes region boosted their scores (with Illinois being a laggard, of course).

Vermont has the dismal distinction of having moved the fastest in the wrong direction (No wonder it’s the Moocher State).

Hawaii also deserves an unfavorable mention, while the deterioration of New Jersey and New York is hardly a surprise.

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I’ve written many times about people and businesses escaping high-tax states and moving to low-tax states.

This tax-driven migration rewards states with good policy and punishes those with bad policy.

And now we have some new data.

The Wall Street Journal recently opined on the updated numbers.

…some states are booming while others are suffering a European-style sclerosis of population loss and slow economic growth. …The eight fastest-growing states by population last year…also experienced rapid employment and GDP growth spurred by low tax rates and policies generally friendly to business and job creation. Nevada, Arizona, Texas, Washington, Utah, Florida and Colorado ranked among the eight states with the fastest job growth this past year, according to the Bureau of Labor Statistics. Nevada, Texas, Washington and Florida have no income tax. …Then there’s California. Despite its balmy weather and thriving tech industry, the Golden State last year lost more people to other states than it gained from foreign immigration. Since 2010, a net 710,000 people have left California for other states. …New York Gov. Andrew Cuomo recently blamed cold weather for the state’s population exodus, but last year frigid New Hampshire with no income tax attracted 3,900 newcomers from other states. …Illinois’s population has declined by 157,000 over the past five years… Cold weather? While Illinois’s population has declined by 0.8% since 2010, Indiana’s has grown 3.1% and Wisconsin’s by 2.2%.

Here’s my favorite part of the editorial.

America as a whole can thank the Founders for creating a federalist system that allows the economic and political safety valve of interstate policy competition.

Amen. Federalism is great for a wide range of reasons, but I especially like that people have the freedom to escape when policy is decentralized.

Companies escape high taxes.

Honeywell International Inc. is snubbing New Jersey and heading south. …Honeywell’s move follows other companies that have moved corporate offices out of states with elevated costs of living and high taxes, including General Electric Co.’s relocation of its headquarter to Boston from Connecticut. Those costs were exacerbated by a new law last year that removed state income-tax deductions on federal taxes. North Carolina has a lower state income tax than New Jersey for higher-paid employees.

Former governors escape high taxes.

Gov. Paul LePage said Monday that he plans to move to Florida for tax reasons… LePage and his wife, Ann, already own a house in Florida and often vacation there. He said he would be in Maine from April to September. Asked where he would maintain his legal residency, LePage replied Florida. …”I have a house in Florida. I will pay no income tax and the house in Florida’s property taxes are $2,000 less than we were paying in Boothbay. … At my age, why wouldn’t you conserve your resources and spend it on your family instead of on taxes?” …LePage often has cited Maine’s income tax – currently topping out at 7.15 percent, down from a high of 8.5 percent when he took office – as an impediment to economic growth and attracting/retaining residents.

Even sports stars avoid class-warfare tax regimes.

Bryce Harper and Manny Machado…will “take home” significantly higher or lower pay depending on which teams sign them and the applicable income tax rates in the states where those teams are based. This impact could be worth tens of millions of dollars. …For example, assume the Cubs and Dodgers offer identical eight-year, $300 million contracts to Machado. Lozano would warn the Dodgers that their offer is decidedly inferior. As a Dodger, Machado’s million-dollar wages would be subject to the top bracket of California’s state income tax rate. At 13.3%, it is the highest rate in the land. In contrast, as a Cub, Machado would be subject to the comparatively modest 4.95% Illinois income tax rate. …the difference in after-tax value of these two $300 million contracts would be $14 million.

Though Lozano needs to warn Machado that the recent election results significantly increase the danger that Illinois politicians will finally achieve their long-held goal of changing the state constitution and replacing the flat tax with a class-warfare system.

Since we’re talking about the Land of Lincoln, it’s worth noting that the editors at the Chicago Tribune understand the issue.

Every time a worker departs, the tax burden on those of us who remain grows. The release on Wednesday of new census data about Illinois was alarming: Not only has the flight of citizens continued for a fifth straight year, but the population loss is intensifying. This year’s estimated net reduction of 45,116 residents is the worst of these five losing years. …Residents fed up with the economic climate here are heading for less taxaholic, jobs-friendlier states. …Many of them left because they believed Illinois is headed in the wrong direction. Because Illinois politicians have raised taxes, milked employers and created enormous public indebtedness that the pols want to address with … still more taxation. …How bad does the Illinois Exodus have to get before its dominant politicians understand that their debt-be-damned, tax-and-spend policies are ravaging this state?

Wow, no wonder Illinois is perceived to be the first state to suffer a fiscal collapse.

Let’s now zoom out and consider some national implications.

Chris Edwards took a close look at the data and crunched some numbers.

The new Census data confirms that people are moving from tax-punishing places such as California, Connecticut, Illinois, New York, and New Jersey to tax-friendly places such as Florida, Idaho, Nevada, Tennessee, and South Carolina. In the chart, each blue dot is a state. The vertical axis shows the one-year Census net interstate migration figure as a percentage of 2017 state population. The horizontal axis shows state and local household taxes as a percentage of personal income in 2015. …On the right, most of the high-tax states have net out-migration. …On the left, nearly all the net in-migration states have tax loads of less than 8.5 percent. …The red line is fitted from a simple regression that was highly statistically significant.

Here’s the chart.

Professor Glenn Reynolds wrote a column on tax migration for USA Today.

He starts by warning states that it’s a very bad recipe to repel taxpayers and attract tax consumers.

IRS data show that taxpayers are migrating from high-tax states like New York, Illinois, and California to low-tax states like Texas and Florida. …In time, if taxpayers tend to migrate from high-tax states to low-tax states, and if people receiving government benefits tend to stay in place or migrate from lower-benefit states to higher-benefit states, then over time lower-tax states will tend to accumulate more people with high earnings, while higher-benefit states will tend to accumulate more people who live on the dole. …if high-benefits states are also high-tax states (as is often the case) since then states with high benefits will accumulate more people who draw on them, while shedding the taxpayers they need to support them. The problem is that the result isn’t stable: High-tax, high-benefit states will eventually go bankrupt because they won’t retain enough taxpayers to support their welfare spending.

He then makes a very interesting observation about the risk that people who leave states such as New York, Illinois, California, and New Jersey may bring their bad voting habits to their new states.

…migrants from high tax states might bring their political attitudes with them, moving to new, low-tax states for the economic opportunity but then supporting the same policies that ruined the states they left. This seems quite plausible, alas, and I’ve heard Coloradans lament that the flow of Californians to their state involved a lot of people doing just that. …If I were one of those conservative billionaires…I might try spending some of the money on some…sort of welcome wagon for blue state migrants to red states. Something that would explain to them why the place they’re moving to is doing better than the place they left, and suggesting that they might not want to vote for the same policies that are driving their old home states into bankruptcy.

Glenn makes a very good point.

As part of my work on defending TABOR in Colorado, I often run into people who fret that the state has moved in the wrong direction because of migration from left-leaning states.

Though Chuck DeVore shared some data on how migrants to Texas are more conservative than people born in the state.

I’ll close today’s column with a helpful map from the Tax Foundation.

All you really need to know is that you should move if you live in a blue state and you should erect a no-leftists-allowed sign if you live in a gray state.

P.S. Everything I wrote about the benefits of tax migration between states also applies to tax migration between nations.

I will never stop defending the right of labor and capital to escape high-tax regimes. I especially enjoy the hysterical reactions of folks on the left, who think that my support of fiscal sovereignty means that I’m “trading with the enemy,” being disloyal to my government, or that I should be tossed in jail.

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Like any sensible person, I want victimless crimes to be legalized. In part because I believe in freedom, but also for utilitarian reasons.

  • I don’t approve of drugs and I’ve never used drugs, but I think the social harm of prohibition is greater than the social harm of legalization.
  • I don’t particularly like alcohol and I am almost a teetotaler, but I’m glad there’s now a consensus that the social harm of prohibition was greater than the social harm of legalization.
  • I don’t approve of prostitution and I’ve never consorted with a prostitute (other than the political ones in DC), but I think the social harm of prohibition is greater than the social harm of legalization.

So it won’t surprise you to learn that I want gambling to be legal because the social harm of prohibition is greater than the social harm of legalization.

But that definitely doesn’t mean I want government to be in charge, which is why I’m not a fan of state-sponsored lotteries.

Joe Setyon, in a column for Reason, points out that politicians are the only group that actually benefits from these schemes.

At some point in the near future, the record-high Mega Millions jackpot is going to make someone very, very rich. But as is usually the case when it comes to the lottery, the biggest winner will be the government. …there are a few things us suckers need to keep in mind about the lotto. First, the majority of lottery revenue goes back to the government. In 2015, The Atlantic estimated that 40 percent of all lottery ticket sales are allocated to state governments. …Meanwhile, some states that allow lotteries crush their competition with strict gambling regulations. In Texas, for instance, most forms of gambling are illegal. This means the government has a near-monopoly. The double standard for public and private gambling operations is obvious. Ultimately, the lottery system is a kind of regressive tax on low-income earners. “If the promised return is by far illusory—and it is—it would be hard to argue that those purchases do not constitute a tax on those who believe the state’s hype,” Fiscal Policy Institute research associate Brent Kramer wrote in 2010.

And here’s an article from CNBC that reveals the unpalatable tax consequences for the “lucky” people who happen to win a big prize.

…there’s at least one guaranteed recipient of a chunk of the loot — the IRS. …If you happen to beat the astronomical odds and hit all winning numbers in either game, be aware that the taxation of your prize starts before even reaching you. Whether you take your haul as a lump sum or as an annuity spread out over three decades, your win is reduced by a 24 percent federal tax withholding… The immediate cash option for Mega Millions is $904 million. The federal withholding would reduce that by $217 million. For the $354.3 million Powerball lump sum, it would mean $85 million getting shaved off the top. …However, that’s just the start of what you’d owe. The top income tax rate for individuals is 37 percent… That rate applies to adjusted gross income of $500,000 or more. In other words, hitting either jackpot would mean facing that top rate. …On top of the federal withholding, you’ll owe state taxes on the money unless you live where lottery wins are untaxed. …Translation: You might pay north of 45 percent altogether in taxes, depending on where you purchased the ticket and where you live.

In other words, the government pillages people when they buy tickets.

And then the government pillages the tiny fraction of people who actually win something.

As I wrote above, the only real winners are politicians.

The biggest losers, by the way, are poor people.

Arthur Brooks of the American Enterprise Institute summed up this sad state of affairs in a column for the Wall Street Journal.

Powerball—the lottery shared by 44 states, the District of Columbia and two territories—is just one of the sweepstakes run by 47 jurisdictions in the U.S. These games produce nearly $70 billion a year in government revenue and enjoy profits of about 33%—much higher than margins in the private gambling industry. Who are these lotteries’ most loyal customers? Poor people. …the poorest third of Americans buy more than half of all lotto tickets… Scholars have dug up evidence that states intentionally direct such ads at vulnerable citizens. A marketing plan for Ohio’s lottery some years back recommended scheduling campaigns to coincide with the distribution of “government benefits, payroll and Social Security payments.” …the average return from $1 spent on lottery tickets is 52 cents… After a state introduces the lotto, the bottom third of households shift about 3% of their food expenditures and 7% of their mortgage payments, rent and other bills. Effectively, the lottery works like a regressive tax. …Is there any set of policies more contradictory than pushing lotto tickets on poor people, and then signing them up for welfare programs that make them financially dependent on the government?

Here’s some additional analysis from the Wall Street Journal, this time from Holman Jenkins.

Gambling is what economists call an “inferior good”—demand is higher among those at the lower end of the income scale. As economist Sam Papenfuss argued in a 1998 paper, state-sponsored gambling became popular as a way for high-income taxpayers to recoup some of the money spent on programs for the poor. State-sponsored gambling in the form of lotteries (now in 44 states) arrived on the same antitax wave that gave us property-tax caps and other antitax measures in the 1970s and ’80s. It should not surprise anyone that Democrats, as big supporters of the welfare state, have been the biggest supporters (though by no means exclusively so) of gambling as a way to finance it.

Last but not least, here are excerpts from a column I wrote for the Washington Times more than 20 years ago.

…government-run lotteries represent bad public policy. The No. 1 objection is that they lead to more government spending. …Perhaps even more disturbing, government lotteries victimize the poor. More than any other group, lower-income residents are the ones who play the lottery, often shelling out hundreds of dollars each year in the hope of striking it rich. Yet these are precisely the people who should avoid lotteries. As an investment, lotteries are lousy, paying out only about half of what they take in. …why should state governments be running lotteries? If nothing else, lotteries show how much better consumers are treated by the free market system. Private gambling operations pay out about 90 cents for every dollar wagered (even higher for games such as blackjack), a far better deal than the miserly return provided by government-run lotteries. …This analysis applies to illegal gambling as well. Bookies traditionally allow customers to bet against the point spread for sporting events, and they make their money by applying a 10 percent charge on the money wagered by those who make losing bets.

Two decades later and I wouldn’t change a single thing I wrote.

I don’t like when politicians mistreat rich people, but I get far more upset when they do things that impose disproportionate costs on poor people. This is one of the reasons I don’t like government flood insurance, Social Security, the Export-Import Bank, the mortgage interest deduction, or the National Endowment for the Arts.

And lotteries definitely belong on that list as well.

I’m not a paternalist. I support legal gambling and I don’t want to prohibit poor people from making (what I think) are misguided decisions.

But at least leave the gambling to the private sector so poor people will get back, on average, 90 cents of every dollar they bet.

P.S. I just had a horrifying thought. What if politicians decided to legalize prostitution because they wanted more revenue. But instead of legalizing and taxing (like they do – often to excess – with marijuana), what if they followed the lottery approach and we wound up with government-run brothels?!?

P.P.S. To be fair, the government will continue to give you food stamps if you become a lottery millionaire.

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I recently wrote about the Tax Foundation’s State Business Tax Climate Index, which is a snapshot of current competitiveness (New Jersey is in last place, which shouldn’t surprise anyone).

But what if we want to know which states are moving in the right direction or wrong direction?

If so, the best document to review is Chris Edwards’ Fiscal Policy Report Card on America’s Governors.

The new edition just came out, so I immediately looked at the rankings. The nation’s best governor – by a comfortable margin – is Susana Martinez of New Mexico.

She is joined by four other governors who earned top marks.

Eight governors, including two Republicans, were in the cellar.

The report has some other data worth sharing.

Here’s a chart that shows what has happened to state spending this century. What caught my eye is the boom-bust cycle of excessive spending growth when the economy is growing (and generating lots of revenue) and cutbacks during the downturn.

Yet another argument for spending caps, such as TABOR in Colorado.

Last but not least, the report included some analysis on tax-driven migration (the topic we covered last week).

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