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Posts Tagged ‘Migration’

I’m obviously exaggerating when I write an “everything you need to know” column.

But I use that kind of title when sharing a story that highlights some sort of fundamental truth.

And one of my long-standing observations is that China’s economy is not nearly as strong as some people think. Which is why I’m sharing this chart from a recent Bloomberg report about China.

At the risk of understating, it’s good news if rich people want to migrate to your country and it’s bad news if they want to leave your country.

It’s easy to understand why rich people want to leave Russia. Putin is making the country an international pariah.

But look at China, which has the world’s second-largest number of high-net-worth emigrants.

The Bloomberg report, authored by Lisa Du, Amanda Wang, Zheng Li, elaborates on the exodus.

The big question now hanging over China’s rich is whether President Xi Jinping’s government will let them leave. …immigration lawyers say moving has become more difficult in recent months as passport processing times have increased and documentation requirements have become more onerous. Shifting large sums of money out of China has also become harder… That’s setting the stage for a fresh bout of tension between wealthy Chinese and the ruling Communist Party, which was already strained amid President Xi Jinping’s populist campaign for “common prosperity.”

As far as I’m concerned, the underlying issue is that China has been drifting back to authoritarian statism under President Xi

The fact that people and money have been escaping is a symptom of that problem.

Here are some more details.

The potential departures of people and capital are “a definite cost to the Chinese economy,” said Nick Thomas, an associate professor at the City University of Hong Kong… In another sign of the national mood, a recent note from Shanghai-based billionaire Huang Yimeng announcing to employees that he plans to move his family out of China went viral on social media. …Still, “there are lots of institutional barriers” to leaving China, said Jennifer Hsu, a research fellow at the Lowy Institute think tank in Sydney, Australia… Would-be emigrants also need to get savvier at moving money out of China. Citizens are only allowed to convert $50,000-worth of yuan into foreign currency each year. In the past, wealthier people have found ways around the rule, but some of those options are dwindling.

The bottom line is that the Chinese government presumably can make it more difficult for people to escape.

But that does not solve the underlying problem.

At the risk of oversimplifying is that China was horrendously poor under Mao’s doctrinaire socialism, but then enjoyed some growth after partially liberalizing its economy beginning in the last 1970s/early 1980s..

But there has not been any meaningful pro-market reform in the past 15-20 years and now China is losing ground.

No wonder successful people want to escape.

P.S. Encouraged by bad advice by the OECD and IMF, China has been pursuing bad policy in recent years.

P.P.S. Instead of threatening to invade Taiwan, Xi should by copying its small-government policies (or the pro-market policies of the other Asian Tigers).

P.P.P.S. Given China’s increased influence, I’m also not surprised that many successful people are now escaping Hong Kong.

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I’ve written many times about the importance of low tax rates, specifically low marginal tax rates on productive activity such as work, saving, investment, and entrepreneurship.

And I’ve explained that it is especially beneficial to have low tax burdens to attract people who play a big role in boosting economic growth.

The bottom line is that everyone should want their state or their country to be a magnet for the best and brightest.

Having more highly successful people is a great shortcut for boosting everyone’s income.

Today, we’re going to look at more evidence on this topic. In a working paper for the Harvard Business School, Sari Pekkala Kerr, Çağlar Özden, William Kerr, and Christopher Parsons examine the migratory patterns of highly skilled workers.

Highly skilled workers play a central and starring role in today’s knowledge economy. Talented individuals make exceptional direct contributions—including breakthrough innovations and scientific discoveries… The exceptional rise in the number of high-skilled migrants to OECD countries is the result of several forces, including increased efforts to attract them by policymakers as they recognize the central role of human capital in economic growth… For example, immigrants account for some 57 percent of scientists residing in Switzerland, 45 percent in Australia, and 38 percent in the United States (Franzoni et al. 2012). In the United States, 27 percent of all physicians and surgeons and over 35 percent of current medical residents were foreign born in 2010. …the global migration rate of inventors in 2000 stood at 8.6 percent, at least 50 percent greater in share terms than the average for high-skilled workers as a whole.

In the contest to attract skilled migrants, some nations do a better jobs than others.

…among OECD destinations, the distribution of talent remains skewed. Four Anglo-Saxon countries—the United States, the United Kingdom, Canada and Australia—constitute the destination for nearly 70 percent of high-skilled migrants (to the OECD) in 2010. The United States alone has historically hosted close to half of all high-skilled migrants to the OECD and one-third of high-skilled migrants worldwide.

Here’s a chart looking specifically at inventors.

So why do some nations get disproportionate numbers of skilled migrants.

As you might suspect, these highly productive people want to earn more money. And keep more money.

The core theoretical framework for studying human capital flows dates back to at least John Hicks (1932), who noted that “differences in net economic advantages, chiefly differences in wages, are the main causes of migration.” …the United States has a very wide earnings distribution and low tax levels and progressivity, especially compared to most source countries, including many high-income European countries. As a result, we can see why the United States would attract more high-skilled migrants, relative to low-skilled migrants and relative to other high-income countries.

Notice, by the way, that low-tax Singapore and low-tax Switzerland also are big winners in the above chart. Indeed, they may be ahead of the United States after adjusting for population.

The obvious takeaway is that the United States should not throw away its competitive advantage. Yet another reason to reject Joe Biden’s class-warfare fiscal agenda.

 

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Yesterday’s column discussed Caterpillar’s decision to move its headquarters from high-tax Illinois to low-tax Texas.

Today, we have more bad news for the Prairie State.

A major investment fund, Citadel, also has decided to leave Illinois.

Is the company moving to a different high-tax state, perhaps California or New York? Maybe Connecticut or New Jersey?

Nope. Citadel is going to Florida, a state famous for having no income tax.

The Wall Street Journal opined this morning about Citadel’s move.

The first step to recovery is supposed to be admitting you have a problem. But Illinois Gov. J.B. Pritzker still won’t, even after billionaire Ken Griffin on Thursday said he’s moving his Citadel hedge fund and securities trading firm to Miami from Chicago. …Meantime, Democrats in Springfield continue to threaten businesses and citizens with higher taxes… It’s no wonder so many companies and people are leaving, and mostly to low-tax states. …In 2020, $2.4 billion in net adjusted gross income moved to Florida from Illinois, about $298,000 per tax filer. …Mr. Griffin has spent tens of millions of his personal fortune trying to rescue Illinois from bad progressive governance. Maybe he figures it’s time to cut his losses.

Other (former) Illinois residents cut their losses last decade.

Scott Shackford of Reason shared grim data at the end of 2020 about the ongoing exodus from Illinois.

For the seventh year in a row, census figures show residents moving out of Illinois in significant numbers. …Perhaps demanding that your excessively taxed residents give the government even more money is not the best way to keep those residents in your state… Over the course of the last decade, Illinois lost more than a quarter-million people…not even California…has seen Illinois’ population loss. …Government leaders have responded not with better fiscal management (the state’s powerful unions blocked pension reforms), but with more taxes and fees, even as residents leave.

The bottom line is that Illinois is currently losing people and businesses.

Just as it lost people and businesses last decade.

And you can see from this map that taxpayers also were fleeing the state earlier this century.

I’m guessing the state’s hypocritical governor probably thinks this is a good thing because the people who left probably didn’t vote for tax-and-spend politicians.

But that’s a very short-sighted viewpoint.

After all, parasites need a healthy host. If you’re a flea or a tick, it’s bad news if you’re on a dog that dies.

As Michael Barone noted many years ago, that’s a lesson that Illinois politicians haven’t learned.

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Federalism is very desirable because it allows different parts of the country to make different decisions, and this helps to teach us about what works. And what doesn’t.

It also means Americans can “vote with their feet” by migrating across local borders and state borders.

This happens a lot, as illustrated by this map from the Census Bureau.

While this map is fascinating, it also can be deceiving because some counties have very few people and others have millions of people.

It appears that internal migration might be a wash for states such as California and New York, for instance, since parts of both states are both green and purple.

If you look at a state-level migration map, however, you’ll find that both states lost population.

Why? Because big losses in some heavily populated cities (circled in red above) easily outweighed population gains in rural counties.

So why are people leaving some places? Are there lessons to be learned?

One obvious takeaway is that Americans are fleeing states governed by the left, as Kerry McDonald explains for the Foundation for Economic Education.

US Census Bureau data released in December showed that restrictive states such as California, Illinois, New York, and Massachusetts lost population between July 2020 and July 2021, while states with less-restrictive virus policies like Texas, Arizona, and Florida gained population during that time. …Fight or flight is a tough choice for families, but at least it’s a choice that Americans can enjoy thanks to federalism and the ability to vote with our feet.

And Americans are fleeing localities governed by the left, as Michael Barone explains in the Washington Examiner.

…the biggest losses, in both population and percentage loss, came in four of the nation’s six largest metropolitan areas: San Francisco/San Jose (-2.6 percent), New York (-1.8 percent), Chicago (-1.1 percent) and Los Angeles/Riverside (-0.8 percent). Each of the first three, in just 15 months from April 2020 to July 2021, lost a population that equaled 20 percent of their total population gain in the 20 years between 2000 and 2020. …it’s also noteworthy, and probably more permanent, that people with modest educations and incomes have fled far beyond the exurbs. …the nation’s population growth and its economic dynamism had been concentrated disproportionately in the exurbs, which typically have reasonable tax rates and development-friendly regulations. …the self-harm that liberal and progressive politicians have inflicted…voters even in New York, Chicago, Los Angeles, and San Francisco are recoiling.

The moral of the story is that voters sometimes 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 policies.

P.S. Switzerland in the gold standard for federalism in the world, but Canada also deserves favorable attention. And I recently learned that there’s real federalism in Spain.

P.P.S. Sadly, federalism has declined in the United States.

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How do we know people don’t like taxes?

  • They tend to reject candidates who support higher taxes, as George H.W. Bush and other politicians have learned.
  • Then tend to vote against higher taxes when given an opportunity (though they sometimes will vote to tax other people)
  • They tend to migrate from high-tax jurisdictions to low-tax jurisdictions for direct and indirect reasons.

Today, we’re going to elaborate on the final reason.

Let’s start with this chart from one of the daily missives from the Committee to Unleash Prosperity. As you can see, it’s not just people that move. It’s their money as well.

The bottom line is that the two states – California and New York – with ultra-high tax rates are losing the most taxable income.

Let’s call this the revenge of the Laffer Curve because it shows us that high tax rates can backfire.

Jon Miltimore addressed this topic in a new column for the Foundation for Economic Education.

Here are some of the highlights, starting with some data on how some poorly governed cities are losing residents.

Three of the top five metros that saw sharp declines between July 1, 2020, and July 1, 2021 were in California. Leading the way was the Los Angeles-Long Beach metropolitan area, which lost 176,000 residents, a 1.3 percent drop. Next was the San Francisco-Oakland-Berkeley metro, which saw a decline of 116,000 residents (2.5 percent decline), followed by San Jose-Sunnyvale-Santa Clara, which shed some 43,000 residents (2.2 percent drop). …The New York-Newark-New Jersey metropolitan area saw a decline of 328,000 residents, the highest in the nation in raw numbers. The Chicago area, meanwhile, saw a decline of some 92,000 residents.

Here’s a chart from his article.

I’m definitely not surprised to see New York, San Francisco, and Chicago on the list. After all those cities have crummy governments.

The other two cities, by contrast, just have the misfortune of being in a poorly governed state.

Jon explains a big reason why this domestic migration is taking place.

…the reasons people choose to migrate tend to be complex and varied… However, we can see the US flight from its largest metropolitan is part of a bigger trend. North American Van Lines (NAVL), a trucking company based in Indiana, puts out an annual report that tracks migration patterns in the United States. The states with the most inbound migration in 2021 were South Carolina, Idaho, Tennessee, North Carolina, and Florida. The leading outbound states were Illinois, California, New Jersey, Michigan, and New York. The pattern here is clear. Americans are fleeing highly-regulated, highly taxed states. They are flocking to freer states. …We heard a great deal about “the Great Reset” during the pandemic. …It may be that “the reset” involves Americans abandoning high-tax, high-regulatory cities and states for freer ones.

To be sure, there are factors other than taxation. And there are factors other than government policy (people really like California’s wonderful climate, for instance, but they will escape when policy becomes unbearable).

The bottom line is that people are slowly but surely voting with their feet against statism. They are choosing red states over blue states. There’s a lesson for Joe Biden, though he’s probably not listening.

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I’ve written many times about how Americans are moving from high-tax states to low-tax states.

Now we have even more evidence because the Census Bureau has issued its annual report on state population changes, along with this accompanying map.

You don’t need to be an expert in map reading to see that California, Illinois, and New York are losing people at the fastest rate (orange states).

Likewise, the states gaining population at the fastest rate (purple states) include Texas.

This chart from the Wall Street Journal shows the biggest changes, as measured by the number of people moving in and out.

To be sure, taxes are not the only factor that drive internal migration.

But it’s also clear that people tend to move to lower-tax states, either because they overtly want to keep more of their money, or because they are attracted to the job opportunities that tend to be more plentiful where taxes are lower.

As you might expect, the coverage from Fox News highlights the fact that people are leaving blue states and moving to red states.

Between 2020 and 2021, the country has seen the lowest population growth since its founding, at only a 0.1% increase, but the biggest declines have occurred in Washington, D.C., and Democrat-led states, according to a report Tuesday by the Census Bureau. …New York with a 1.6% decline, Illinois with a 0.9% decline, and Hawaii and California that both saw a 0.7% decline. Meanwhile, the states that saw the biggest increase in population growth were Republican-run states, starting with Idaho at a 2.9% increase, followed by Utah with 1.7%, Montana with 1.7%, Arizona with 1.4% and South Carolina with 1.2%. …Florida and Texas, each saw a population growth of 1%.

Citing a different report, he Wall Street Journal opined a few days ago about the implications of migration for Illinois.

The Land of Lincoln is one of only three states, including West Virginia and Mississippi, to have lost population since 2010. But its population over age 55 has grown as Baby Boomers have aged. …Illinois is losing young people while Florida is gaining them. State development specialist Zach Kennedy notes that “the U.S. population actually grew in the prime working age, young adult age cohorts, 25 to 29, 30 to 34 and 35 to 39 year olds.” Illinois was among the few states to see a decline in these age cohorts. …“Only New Jersey lost more college-aged individuals out of state who never returned,” Mr. Kennedy says. Hmmm. What do the two have in common? …a shrinking population of prime-age working people and children means a smaller tax base will have to support growing retirement liabilities. Folks who stick around will have to pay higher and higher taxes. …each Illinois household on average is on the hook for $110,000 in government-worker retirement debt, up from $90,000 in 2019. …The per-household pension burdens in Iowa and Wisconsin were $3,500 and $3,200, respectively. Both states have gained young people. State and local government in Illinois is run by public-worker unions, and people are fleeing the economic and fiscal consequences.

The most important sentence in the preceding excerpt points out that “Folks who stick around will have to pay higher and higher taxes.”

And that will encourage even more of them to leave, which leads to even-further pressure for higher taxes on the chumps who remain.

Needless to say, that won’t end well, for Illinois or other blue states. Either they go bankrupt or future politicians do a big blue-state bailout.

P.S. This helps to explain why curtailing the federal tax code’s subsidy for excessive state and local tax burdens was so important.

P.P.S. This is also why federalism is both good politics and good policy.

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At the risk of understatement, Illinois is not a well-governed state. Greedy (and hypocritical) politicians have taxed and spent the state into a fiscal hole.

Wow. No wonder people have overwhelmingly voted that it is the state most likely to go bankrupt.

As illustrated by the collection of links, there certainly is a lot of data to support the notion that Illinois is in a downward spiral.

But sometimes an anecdote can help drive home the point. The Wall Street Journal just published a story about the country in Illinois that has suffered the largest decline in population of anyplace in the United States.

What struck me most about the report was that it “buried the lede.” More specifically, it’s not until the 17th paragraph that we learn about the factor that is probably responsible for a big chunk of the out-migration.

This must be the journalistic equivalent of “Other than that, Mrs. Lincoln, how was the play?”

Though I’m sure the other factors listed in the article also are relevant.

I’ll close with some speculation about an oft-seen pattern in blue states, which is the way rural areas and poor urban areas keep falling farther and farther behind well-to-do suburbs and wealthy downturn business districts.

Is it random results or a consequence of policy choices? Do politicians in California only care about preserving quality of life for coastal elites? Do politicians in Illinois merely care about Chicago and its suburban counties? Do politicians in New York not care about upstate residents?

I don’t know the answer to those questions, but I do know that people are voting with their feet to escape the states with the most-punitive tax policy.

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For most of the world, American citizenship is highly coveted. Indeed, foreigners have even been willing to invest a lot of money to increase the odds of getting to the United States.

But changing one’s nationality is a two-way street. Beginning with the Obama years, there’s been a big jump in the number of Americans willing to give up U.S. citizenship.

This is mostly because of bad tax policy (high rates, double taxation, FATCA, etc).

Simply stated, these successful households make a completely rational assessment that the benefits of being an American aren’t worth the fiscal costs.

Especially if they already live overseas and are being victimized by “worldwide taxation.”

Sadly, it’s quite likely that more Americans will be giving up their citizenship if Biden is able to push through his class-warfare tax agenda.

Jennifer Kingson explains in an article for Axios.

The number of Americans who renounced their citizenship in favor of a foreign country hit an all-time high in 2020: 6,707, a 237% increase over 2019. …While the numbers are down this year, that’s probably because many U.S. embassies and consulates remain closed for COVID-19, and taking this grave step requires taking an oath in front of a State Department officer. …The people who flee tend to be ultra-wealthy, and many of them are seeking to reduce their tax burden. New tax and estate measures proposed by the Biden administration could, if implemented, accelerate this trend. …The IRS publishes a quarterly list of the names of people who have renounced their citizenship or given up their green cards. The numbers started swelling in 2010, when Congress passed the Foreign Account Tax Compliance Act, or FATCA, which increased reporting requirements and penalties for expats.

Here’s a chart from the article.

I speculated last year that the 2016-2019 drop was an indicator that Trump’s tax cut was having a positive impact.  But the spike in 2020 suggests I was being too optimistic.

Here’s some more analysis from the article.

As you can see, there’s a big backlog, so we only speculate how many Americans will be escaping the IRS in coming years.

David Lesperance, an international tax lawyer based…who specializes in helping people renounce U.S. citizenship, says that with coronavirus shutting down interviews for renunciation, the next lists will only contain relinquished green card holders, who can do it by mail. “There are probably 20,000 or 30,000 people who want to do this, but they can’t get the appointment,”…”It’s a year-and-a-half to get an appointment at a Canadian embassy,” he tells Axios. “Bern [Switzerland] alone has a backlog of over 300 cases.” …A lot of people who take this drastic step are tech zillionaires: Eric Schmidt, the former Alphabet CEO, has applied to become a citizen of Cyprus. …President Biden has proposed raising the top capital gains tax to 43.4%, and while it’s unclear whether that will pass, it did prompt a lot of calls to Lesperance from people wanting to find out which foreign countries might grant them citizenship.

By the way, this issue has macro consequences for the rest of us. Given the economic importance of innovatorsentrepreneurs, and inventors, it’s bad news for the United States when they move to low-tax nations such as Singapore.

P.S. Companies also move from one country to another so they can protect workers, consumers, and shareholders from bad tax policy.

P.P.S. One of the most odious parts of American tax law is the imposition of Soviet-style exit taxes on people who want to change citizenship.

P.P.P.S. Today’s column is about tax migration across national borders, but don’t forget there’s far more tax migration across state borders.

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The bad news is that federalism has declined in the United States as politicians in Washington have expanded the size and scope of the national government.

The good news is that some federalism still exists and this means Americans have some ability to choose the type of government they prefer by “voting with their feet.”

  1. They can choose states that tax a lot and spend a lot.
  2. They can choose states with lower fiscal burdens.

You won’t be surprised to learn that people generally prefer option #2.

Researchers have found a significant correlation between state fiscal policy and migration patterns.

And it’s still happening.

In a column for the Wall Street Journal a few days ago, Allysia Finley and Kate LaVoie discuss some research based on IRS data about taxpayer migration patterns.

Here’s some of what they wrote.

New IRS data compiled by research outfit Wirepoints illustrate the flight from high- to low-tax states. …Retirees in the Midwest and Northeast are flocking to sunnier climes. But notably, states with no income tax (Florida, Nevada, Tennessee and Wyoming) made up four of the 10 states with the largest income gains. On the other hand, five of the 10 states with the greatest income losses (NY, Connecticut, New Jersey, Minnesota, California) ranked among the top 10 states with the highest top marginal income tax rates. …Florida gained a whopping $17.7 billion in AGI including $3.4 billion from New York, $1.2 billion from California, $1.9 billion from Illinois, $1.7 billion from New Jersey and $1 billion from Connecticut. California, on the other hand, lost $8.8 billion including $1.6 billion to Texas, $1.5 billion to Nevada, $1.2 billion to Arizona and $700 million to Washington.

Here’s a very informative visual, showing the share of income that either left a state (top half of the chart) or entered a state (bottom half of the chart).

Our friends on the left say that this data merely shows that retirees move to states with nicer climates.

That is surely a partial explanation, but it doesn’t explain why California – the state with the nation’s best climate – is losing people and businesses.

Heck, I even have a seven-part series (March 2010February 2013April 2013October 2018June 2019, December 2020, and February 2021) on the exodus from California to Texas.

Let’s return to the Finley-LaVoie column, because there’s some additional data that deserves attention. They point out that states with better policy are big net winners when you look at the average income of migrants.

The average taxpayer who moved to Florida from the other 49 states had an AGI of $110,000… By contrast, the average taxpayer who left Florida had an AGI of just $66,000. In sum, high-tax states aren’t just losing more taxpayers—they are losing higher-income ones. Similarly, low and no income states are generally gaining more taxpayers who also earn more. …When blue states lose high earners, their tax base shrinks, but their cost base continues to grow due to rich government employee pay, pensions and other benefits. …The result is that low-tax states are getting richer while those that impose higher taxes are getting poorer.

As you can see, Florida is a big beneficiary.

And I shared data a few years ago showing that states such as Illinois are big net losers.

Let’s conclude by asking why some politicians, such as the hypocritical governor of Illinois, don’t care when they’re on the losing side of these trends?

I don’t actually know what they’re thinking, of course, but I suspect the answer has something to do with the fact that departing taxpayers probably are more libertarian and conservative. So if you’re a big-spending politician, you probably are not very upset when migration patterns mean your state becomes more left-leaning over time.

That’s a smart political approach.

Until, of course, those states no longer have enough productive people to finance big government.

In other words, every government is limited by Margaret Thatcher’s famous warning.

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When I ask my left-leaning friends what they think about the flight of investors, entrepreneurs, and business owners from high-tax states, I tend to get three responses.

  1. It isn’t actually happening (these are my friends who apparently don’t know how to read).
  2. It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant).
  3. It’s happening, but high-tax states will be better off without these selfish and greedy people.

The folks making the third point actually have a decent argument, at least in terms of short-run political outcomes. Democrats rarely have to worry about retaining control of states like California, New York, Illinois, and New Jersey now that many Republican-leaning voters have moved away.

But sometimes short-run benefits are exceeded by long-run costs, and the recent data on congressional redistricting from the Census Bureau is a good example.

As you can see, there’s a continuing shift of political power – as measured by seats in Congress – from blue states to red states.

Patrick Gleason of Americans for Tax Reform explains what this means in a column for Forbes.

Over the past decade Americans have been voting with their feet in favor of states with lower overall tax burdens… As a result, high tax states…are set to lose congressional clout for the next decade, to the benefit of low tax states… the seven states that will lose congressional seats due to stagnant population growth have higher top income tax rates and greater overall tax burdens, on average, than do the six states gaining seats. In fact, the average top personal income tax rate for states losing seats in congress is 6.5%, which is 46% greater than the 4.45% average top income tax rate for states gaining seats.

Some people may want to dismiss Mr. Gleason’s column since he works for a group that supports smaller government.

But you can find the same analysis in this column in the Washington Post by Aaron Blake.

…what does the new breakdown mean from a partisan perspective? All told, five seats will migrate from blue states to red ones — owing to population shifts from the Rust Belt, the Northeast and California to the South and other portions of the West. Five of the seven seats being added also go to states under complete GOP control of redistricting, with three of seven being taken away coming from states in which Democrats have some measure of control over the maps. …That should help Republicans… The Cook Political Report estimates the shifts are worth about 3.5 seats… As for the electoral college in future presidential elections, …Michigan and Pennsylvania…are states Democrats probably need to win in the near future, meaning it’s probably a bigger loss for them. …If we reran the 2020 electoral college with the new electoral votes by state, Biden’s margin would shrink from 306-232 to 303-235. That seems negligible. But if you overlay the 2000 presidential results — three reapportionments ago — on the current electoral vote totals, George W. Bush’s narrow win with 271 electoral votes becomes a much more decisive win with 290. That gives you a sense where things have trended.

Let’s now return to the hypothesis that tax-motivated migration is playing a role.

Here’s an instructive tweet from Andrew Wilford of the National Taxpayers Union.

I’ll wrap up today’s column by augmenting the data in Mr. Wilford’s tweet.

Because not only are there, on average, lower tax burdens in the states gaining congressional seats, but every one of them has some very desirable feature of its tax code.

To be sure, not all of the state-to-state migration is due to tax policy. There are all sorts of other policies that determine whether a state is an attractive place for people looking to relocate.

And there are other factors (family, climate, etc) that have nothing to do with public policy.

All things considered, however, being a low-tax state means more jobs, growth, and people, at least when compared with being a high-tax state.

P.S. If you’re interested in seeing how states rank in various indices, click here, here, and here.

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The state of New York is an economic disaster area.

  • New York is ranked #50 in the Economic Freedom of North America.
  • New York is ranked #48 in the State Business Tax Climate Index.
  • New York is ranked #50 in the Freedom in the 50 States.
  • New York is next-to-last in measures of inbound migration.
  • New York is ranked #50 in the State Soft Tyranny Index.

The good news is that New York’s politicians seem to be aware of these rankings and are taking steps to change policy.

The bad news is that they apparently want to be in last place in every index, so they’re looking at a giant tax increase.

The Wall Street Journal opined on the potential tax increase yesterday.

…lawmakers in Albany should be shouting welcome home. Instead they’re eyeing big new tax increases that would give the state’s temporary refugees to Florida—or wherever—one more reason to stay away for good. …Here are some of the proposals… Impose graduated rates on millionaires, up to 11.85%. …Since New York City has its own income tax, running to 3.88%, the combined rate would be…a bigger bite than even California’s notorious 13.3% top tax, and don’t forget Uncle Sam’s 37% share. …The squeeze is worse when you add the new taxes President Biden wants. A second factor: In 2017 the federal deduction for state and local taxes was capped at $10,000, so New Yorkers will now really feel the pinch. As E.J. McMahon of the Empire Center for Public Policy writes: “The financial incentive for high earners to move themselves and their businesses from New York to states with low or no income taxes has never—ever—been higher than it already is.”

The potential deal also would increase the state’s capital gains tax and the state’s death tax, adding two more reasons for entrepreneurs and investors to escape.

Here are some more details from a story in the New York Times by Luis Ferré-Sadurní and .

Gov. Andrew M. Cuomo and New York State legislative leaders were nearing a budget agreement on Monday that would make New York City’s millionaires pay the highest personal income taxes in the nation… Under the proposed new tax rate, the city’s top earners could pay between 13.5 percent to 14.8 percent in state and city taxes, when combined with New York City’s top income tax rate of 3.88 percent — more than the top marginal income tax rate of 13.3 percent in California… Raising taxes on the rich in New York has been a top policy priority of the Democratic Party’s left flank… The business community has warned that raising income taxes could prompt millionaires who have left the state during the pandemic and are working remotely to make their move permanent, damaging the state’s tax base. Currently, the top 2 percent of the state’s highest earners pay about half of the state’s income taxes. …The corporate franchise tax rate would also increase to 7.25 percent from 6.5 percent.

There are two things to keep in mind about this looming tax increase.

That second item is a big reason why so many taxpayers already have escaped New York and moved to states with better tax policy (most notably, Florida).

And even more will move if tax rates are increased, as expected.

Indeed, if the left’s dream agenda is adopted, I wouldn’t be surprised if every successful person left New York. In a column for the Wall Street Journal, Mark Kingdon warns about other tax hikes being considered, especially a wealth tax.

Legislators in Albany are considering two tax bills that could seriously damage the economic well-being and quality of life in New York for many years to come: a wealth tax and a stock transfer tax. …Should New York enact a 2% wealth tax, a wealthy New Yorker could wind up paying a 77% tax on short-term stock market profits. And that’s a conservative estimate: It assumes that stocks return 9% a year. If the return is 4.4% or less, the tax would be more than 100%. …65,000 families pay half of the city’s income taxes, and they won’t stay if the taxes become unreasonable… The trickle of wealthy émigrés out of New York has become a steady stream… It will be a flood if New York enacts a wealth tax with an associated tax on unrealized gains, which would lower, not raise, tax revenues, as those who leave take with them jobs and related services, such as legal and accounting. …The geese who have laid golden eggs for years see what is happening in Albany, and they’ll fly south to avoid being carved up.

The good news – at least relatively speaking – is that a wealth tax is highly unlikely.

But that a rather small silver lining on a very big dark cloud. The tax increases that will happen are more than enough to make the state even more hostile to private sector growth.

I’ll close with a few observations.

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.

What politicians don’t realize (or don’t care about) is that people look at a range of factors when deciding where to live. This is especially true for successful entrepreneurs, investors, and business owners, who have both resources and knowledge to assess the costs and benefits of different locations. The problem for New York is that it looks bad on almost all policy metrics.

If the tax increases is enacted, expect to see a significant drop in taxable income as upper-income taxpayers either leave the state or figure out other ways of protecting their income. I don’t know if the state will be on the downward-sloping portion of the Laffer Curve, but it’s safe to assume that revenues over time will fall far short of projections. And it’s very safe to assume that the economic damage will easily offset any revenues that are collected.

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If you ask normal people about the biggest thing that happened in 2020, they’ll probably pick coronavirus, though some might say the 2020 election.

But if you ask a policy wonk, you may get a different answer. Especially if we’re allowed to tweak the question a bit and contemplate the most under-appreciated development of 2020.

In which case, my answer would be interstate tax migration.

I’ve been writing about this topic for years, but it seems that there’s been an acceleration. And, as illustrated by this map, people are moving from high-tax states to low-tax states.

The map comes from an article by Scott Sumner of the Mercatus Center, and here’s some of his analysis.

The movement of these industries is toward three states that have one thing in common—no state income tax. …Progressives often discount the supply side effects of tax changes, pointing to examples such as Kansas where tax cuts had little effect. But Kansas…tax cuts were relatively modest. If you are looking for a low tax state on the Great Plains, South Dakota has no state income tax at all. The top rate in Kansas (5.7%) is higher than in Massachusetts (5.0%). That won’t get the job done. …I’m certainly not a rabid supply sider who thinks that tax rates are all important. But a person would have to be pretty blind to ignore the migration of firms from places like New York, New Jersey and California, to lower tax places. …Washington State has no income tax, which is unique for a northern state with a big city. Washington is also home to the two of the three richest people on the planet (the other–Elon Musk–just announced he’s moving from California to Texas.) …Washington is also experiencing rapid population growth, which is also unique for a northern state with a big city. …last year more that half of the US population growth occurred in just two states—Texas and Florida. …Add in Tennessee and Washington and you are at nearly two thirds of the nation’s population growth.

Wow, four states (all with no income tax) accounted for the bulk of America’s population growth. That’s a non-trivial factoid.

And I also think his observations about Kansas are spot on. Yes, the state improved it’s tax system, but it should have been bolder, like North Carolina.

The Washington Examiner recently opined on internal migration and also noted that people are escaping high-tax states.

…the state of Illinois has been a laggard in population growth. It has lost eight congressional districts since the 1950s. But new census estimates show that this decade, something very special has happened. …the land of Lincoln has lost a net 308,000 residents over the last seven years… And Illinois’s rapid shrinkage is occurring even as the United States grew by nearly 7% since the last census. …Illinois is not alone. The same census data point to two other big states that are also driving away residents with similarly impractical, ideologically leftist policies ⁠— California and New York. …New York, as a consequence, has also lost about 42,000 residents in the last decade. Its population peaked in 2015, and in the time since, it has lost about 320,000. A similar phenomenon is occurring in California, …with about 70,000 net residents vanishing in 2020. …residents are actually giving up and abandoning its beautiful, scenic inhabited areas. …the same census numbers show that people are gravitating toward states that have low or no income tax.

The mess in jurisdictions such as New York, California, Illinois, New Jersey, and Connecticut is so severe that I wasn’t sure how to vote in the first-to-bankruptcy poll.

And a recent editorial in the Wall Street Journal echoed these findings.

California’s population shrank for the first time as far back as records go (-69,532). According to a separate state government survey, a net 261,000 residents moved to other states during the period…many large businesses are shifting workforces to other states. …Last year Charles Schwab announced it is relocating its corporate headquarters to the Dallas region from San Francisco. Apple is building a new campus in Austin. Facebook this fall bought REI’s headquarters outside of Seattle. Oracle and Hewlett Packard Enterprise recently announced relocations to Texas. …Over the last decade, Illinois has lost 243,102 in population, about the size of Peoria and Naperville combined. …Democratic states in the Northeast last year lost population, led by New York (-126,355), Connecticut (-9,016) and New Jersey (-8,887). …By raising taxes again and again to pay for generous collective-bargained benefits, public unions are making Democratic states less competitive.

The final sentence is the above excerpt is especially insightful.

Among the states facing fiscal challenges, a common theme is that politicians and bureaucrats have a very cozy and corrupt relationship resulting in absurdly lavish (and unaffordable) compensation levels.

Let’s close with a bit of humor from the great cartoonist, Eric Allie. With all the interstate migration that happened last year, no wonder Santa Claus had some problems.

P.S. I also recommend this Lisa Benson cartoon, this Redpanels cartoon strip, and this Steven Breen Cartoon.

P.P.S. Even though it would be a massive tax cut for the rich, Democrats want to restore the state and local tax deduction. Even if they are successful, though, I suspect that change would only slow down the decline of blue states.

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I asked a couple of years ago, “How long can California survive big government?”

Based on migration patterns, the answer is “Not much longer.” Simply stated, bad fiscal and regulatory policy have produced a long-run decline for the Golden State. So we shouldn’t be surprised that people are fleeing.

And it appears Californians like escaping to Texas, a state with no personal or corporate income tax.

I’ve written several times about the divergent performance of the two states.

So let’s make today’s column the sixth edition of Texas vs. California.

We’ll start with a column in the Wall Street Journal by Joe Lonsdale, a venture capitalist who explains why he and his company are moving to Texas.

I love California…and have spent most of my adult life in the San Francisco Bay Area, founding technology companies like Palantir and Addepar and investing in many others. In 2011 I founded 8VC, a venture-capital firm that today manages more than $3.6 billion in committed capital. …I am moving myself and dozens of my 8VC colleagues to a new land of opportunity: Texas. The harsh truth is that California has fallen into disrepair. Bad policies discourage business and innovation, stifle opportunity and make life in major cities ugly and unpleasant. …That’s not all. The California government is beholden to public-employee unions and spending is out of control. A broken environmental review process means it takes a decade of paying lawyers to build anything. Legislation makes it impossible for businesses to hire contractors without an exemption—granted by friends in the legislature, as with the music industry, or won by spending hundreds of millions on a referendum, as gig-economy companies with drivers just did. This isn’t how business is done in developed countries. …It’s tragic that California is no longer hospitable to that mission, but beautiful that Texas is. Our job as entrepreneurs and investors is to build the future, and I know of no better place to do so than Texas.

In a report for CNBC, Ari Levy and Lora Kolodny write about Elon Musk’s looming escape to the Lone Star State.

Tesla CEO Elon Musk put his California houses on the market this year while he was sparring with state lawmakers over Covid-19 restrictions. He’s simultaneously been expanding operations in Texas and cozying up to Republican Gov. Greg Abbott. Now, several of his close friends and associates say that Musk has told them he’s planning to move to the Lone Star State. …California, often condemned by the super rich for its high tax rates and stiff regulations, has seen an exodus of notable tech names… In May, as businesses across California were forced to remain closed because of the pandemic, Musk tweeted that he was moving Tesla’s headquarters and future development from California to Texas and Nevada. Getting out of California, with the highest income tax in the country, and into Texas, which has no state income tax, could save Musk billions of dollars.

Meanwhile, Hewlett Packard already has made the move, as reported by the Associated Press.

Tech giant Hewlett Packard Enterprise said it is moving its global headquarters to the Houston area from California, where the company’s roots go back to the founding of Silicon Valley decades ago. …”As we look to the future, our business needs, opportunities for cost savings, and team members’ preferences about the future of work, we are excited to relocate HPE’s headquarters to the Houston region,” CEO Antonio Neri said in a written statement… moving out of Northern California is a loss, at least symbolically, for the tech industry that electronics pioneers William Hewlett and David Packard helped start in a Palo Alto garage in 1939. A plaque outside the home where they worked on their first product, an audio oscillator, calls it the birthplace of Silicon Valley, the “world’s first high-technology region.”

To be sure, the three stories shared above are anecdotes.

But if you look at comprehensive data on both people and income, there’s a very clear pattern. Simply stated, Texas is winning and California is losing.

No, this doesn’t mean Texas is perfect. Or that California is always bad (it’s much better than Texas with regards to asset forfeiture, for instance).

But it’s hard to feel much optimism about the Golden State.

P.S. My favorite California-themed jokes (not counting the state’s elected officials) can be found hereherehere, and here. And here’s some tongue-in-cheek advice for California from the recently departed Walter Williams.

P.P.S. If you prefer comparisons of New York and Florida, click here, here, here, and here.

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Back in 2013, I wrote about Phil Mickelson escaping high-tax California and moving to zero-income tax Florida.

The famed golfer grew up in California, but decided that the 2012 decision to boost the top tax rate to 13.3 percent mattered more than beautiful climate and wonderful scenery.

Needless to say, Mickelson’s not the only tax exile. Florida, Texas, Nevada, and other zero-income tax states receive a steady stream of entrepreneurs, investors, business owners, and others who are tired of California’s predatory politicians.

And celebrities as well. Yahoo! Entertainment reports that a famous rock star is leaving the not-so-Golden State.

Gene Simmons has put his longtime Beverly Hills mansion on the market for $22 million, citing California’s “unacceptable” tax rates as the reason for his move. After 34 years at the home, the KISS rocker and his wife Shannon are heading to Washington state. …In an interview with the Wall Street Journal, Simmons explained, “California and Beverly Hills have been treating folks that create jobs badly and the tax rates are unacceptable. I work hard and pay my taxes and I don’t want to cry the Beverly Hills blues, but enough is enough.”

When I read stories like this, I wonder if my friends on the left will learn any lessons about tax competition, the Laffer Curve, or the economic consequences of bad tax policy.

But I also confess that I’m amused by stories like this.

And so are the folks at America’s top site for satire, the Babylon Bee.

Here are some of their recent articles about California, starting with Governor Newsom’s plan to hinder the exodus of taxpayers.

In a move to prevent Californians from fleeing by the millions, Gavin Newsom announced a ban on gasoline automobiles this week. The law will make it so that Californians can’t drive away and escape the state in a matter of hours… “Now, they’ll have to cross the desert on foot,” Newsom said as he handed down the order. “I’ll show them, trying to flee my progressive utopia! Ha ha ha ha ha!”

The Governor apparently forgot to also ban trucks.

And U-Haul is taking advantage with a new advertising campaign.

To help meet the demand of millions of people desperately trying to escape the dark, ravaged wasteland of California, U-Haul is introducing a new product in its moving van line-up: the War Rig. These weaponized, armored moving vehicles will ensure you and your belongings stay safe during the long and perilous journey out of the state. …said local U-Haul franchise owner Glax Destroyer, who manages 12 locations in Southern California. “We brought in the War Rig to supplement our completely depleted fleet of moving vans. With everyone leaving in droves, we don’t have much left. We’re pretty much salvaging old trucks from the junkyard and then adding armor plating and mounted weapons.”

One problem, though, is that the people escaping from California bring along their bad political preferences.

Which has convinced Texas officials to impose a ban on their ability to vote.

To the relief of Texans across the state, Governor Greg Abbott has signed a law prohibiting escaping Californians from voting after they move to Texas. Experts say this will prevent the happy and prosperous slice of heaven from sliding into the endless despair and crushing poverty of leftist policy. …According to sources, emergency legislation was drafted after it was discovered that 97% of Californians favor destroying every small business on the planet and salting the earth where the businesses once stood. They also favor mandatory gay marriage and banning all country music to avoid hurting the ears of sea turtles. …Californians have marched on the state capital to demand their voting rights back, and have promised they’ll move on to Oklahoma after they finish destroying Texas.

On a serious note, there’s actually some evidence that the folks moving into Texas are more conservative than average.

And with regards to the big-picture issue of California policy, I recommend these columns from 2016 and 2020.

P.S. If you want data comparing Texas and California, click herehereherehere, and here.

P.P.S. My favorite California-themed jokes (not counting the state’s elected officials) can be found herehere, here, and here.

P.P.P.S. Here’s some tongue-in-cheek advice for California from Walter Williams.

P.P.P.P.S. Even Bill Maher is upset about California taxes, though he hasn’t (yet) voted with his feet.

 

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When I opine about class-warfare taxation, I generally focus on the obvious argument that it’s not a good idea to penalize people for creating prosperity.

This argument against punitive tax policy is based on the fact that entrepreneurs, investors, business owners, and other successful people can choose to reduce their levels of work, saving, investment, and risk taking.

And it’s also based on the fact that they can shift their economic activity to tax-favored (but generally unproductive) sectors such as municipal bonds.

Moreover, I don’t want politicians to have more money to finance a bigger burden of government.

But we should also consider how class-warfare taxes also can cause the “geese with the golden eggs” to simply fly away.

The New York Times reports that one of the New York’s richest taxpayers is moving his business to Florida.

…on Wednesday, Mr. Singer, a billionaire who is one of the wealthiest people in the United States, revealed that he was moving his firm’s headquarters from Midtown Manhattan to West Palm Beach, Fla. …The departure by Elliott Management…follows a similar migration in recent years by other aging billionaire investors, including Carl C. Icahn, who left New York City for Florida, home to sunny weather, beaches and generous tax benefits… Mr. Singer’s move could bode ill for the city… New York City’s personal income tax revenue, which is heavily reliant on wealthy New Yorkers, is expected to drop by $2 billion this fiscal year. …For wealthy taxpayers, moving to Florida can provide a significant windfall. Unlike New York State, Florida has no individual income tax, estate tax or capital gains tax.

Singer’s move is just the tip of the iceberg.

A story in the Wall Street Journal earlier this year documented some of the tax-driven migration happening in the United States.

…the federal tax overhaul that Congress passed in late 2017…made it costlier to own a house in many high-price, high-tax areas… its effects are rippling through local economies and housing markets, pushing some people to move from high-tax states where they have long lived. Parts of Florida, for example, are getting an influx of buyers from states such as New York, New Jersey and Illinois. …the 2017 law…curbed how much homeowners can subtract from their federal taxes for paying local property and income taxes, by capping the state and local tax deduction at $10,000. …many residents in New York, New Jersey, Connecticut and California had been deducting well over $10,000 a year. …Mr. Lee estimates the move to Nevada, which has no state income tax, whacked his state tax bill by 90%. …Rick Bechtel, head of U.S. residential lending at TD Bank, lives in the Chicago area and said he recently went to a party where it felt like everyone was planning their moves to Florida. “It’s unbelievable to me the number of conversations that I’m listening to that begin with ‘When are you leaving?’ and ‘Where are you going?’ ” he said. …California has lost residents to Nevada for years, but that accelerated after the tax law passed. Nevada picked up a net of 28,000 people from California in 2018, according to the U.S. Census Bureau. …Mr. Belardi and Ms. LaPorte, who are planning to leave San Francisco, …have been growing tired of state and local politics, as well as the difficulty of running their two small businesses in California. …They estimate the move will save them tens of thousands of dollars annually. “I just hope all the Californians going to Nevada don’t turn Nevada into a California,” Mr. Belardi said.

By the way, there’s even tax-driven migration from some low-tax states to states with even lower taxes.

The dynamic is affecting even states typically thought to have low taxes. Mauricio Navarro and his family left Texas last year for Weston, Fla. Neither state collects its own income tax, but Mr. Navarro was paying more than $25,000 annually in property taxes in the Houston area, he said. …Filling out his 2018 tax returns helped motivate him to move with his wife and two children, said Mr. Navarro, who owns a software-development business.

And there’s tax-driven migration from high-tax nations to low-tax nations.

Here are some excerpts from some scholarly research in the Journal of Economic Perspectives, authored by Henrik Kleven, Camille Landais, Mathilde Muñoz, and Stefanie Stantcheva.

Here’s some of their background data.

Tax rates differ substantially across countries and across locations within countries. An important question is whether people choose locations in response to these tax differentials, thus reducing the ability of local and national governments to redistribute income… In this paper, we review what we know about mobility responses to personal taxation and discuss the policy implications. Our main focus is on the mobility of people, especially high-income people, but we will also discuss the mobility of wealth in response to personal taxes. It is clear that high-income individuals sometimes move across borders to avoid taxes. …The Rolling Stones left England for France in the early 1970s in order to avoid the exceptionally high top marginal tax rates—well above 90 percent—in the UK at the time. Many other British rock stars moved to lower tax jurisdictions, including David Bowie (Switzerland), Ringo Starr (Monte Carlo), Cat Stevens (Brazil), Rod Stewart (United States), and Sting (Ireland). In more recent years, actor Gérard Depardieu moved to Belgium and eventually Russia in response to the 75 percent millionaire tax in France, while a vast number of sports stars in tennis, golf, and motor racing have taken residence in tax havens such as Monte Carlo, Switzerland, and Dubai.

The authors point out that there are challenges, however, when trying to move from interesting anecdotes to statistically supported conclusions.

They overcome that challenge by examining a special tax regime in Denmark.

…the introduction of special tax schemes to foreigners provides such compelling quasi-experimental settings. Consider for instance the Danish tax scheme for foreigners… This scheme was enacted in 1992 and applied to the earnings of foreign workers from June 1991 onwards. Eligibility for the scheme requires annual earnings above a threshold located around the ninety-ninth percentile of the earnings distribution. Initially, the scheme offered a flat income tax rate of 30 percent in lieu of the regular progressive income tax with a top marginal tax rate of 68 percent. …The design of the scheme lends itself to a difference-in-differences approach in which we compare the evolution of the number of foreigners above the eligibility threshold (treatments) and below the eligibility threshold (controls). Such an analysis is presented in Figure 3. It shows the stock of foreigners between 1980–2005 in the treated earnings range and in two untreated earnings ranges, between 80–90 percent of the threshold and between 90–99 percent of the threshold. …The graph provides exceptionally compelling evidence of mobility responses.

Here’s a chart from the study showing a pronounced increase in migration from those (the red line) who could benefit from the lower tax rates.

The study also includes some evidence from the 1986 Tax Reform Act in the United States.

Can elasticities be sizable even for large countries that start with a large base of foreigners? Akcigit, Baslandze, and Stantcheva (2016) shed light on this question. They study the effects of top tax rates on the international mobility of “superstar” inventors—those with the most and best patents. …panel B considers the US Tax Reform Act of 1986 which sharply reduced the top marginal income tax rate. … the US Tax Reform Act of 1986 had a strong effect on the growth of foreign superstar inventors. In fact, the estimated mobility elasticity of top 1 percent superstar inventors for the US economy is extremely large, above 3.

Here’s the chart showing how lower tax rates in the United States helped to attract valuable inventors.

If you want more data, I wrote about the tax-driven mobility of super-entrepreneurs in 2015 and I wrote about the tax-driven mobility of super-inventors in 2016

There are two obvious lessons from all of the data and evidence in today’s column.

First, high tax rates are very costly because high-value taxpayers are far more likely to move. This means there are greater-than-ever penalties for bad policy and greater-than-ever rewards for good policy. Bad news for states like New Jersey and nations such as France. Good news for Florida and Switzerland.

Second, tax competition is a very valuable check on the greed of politicians (a.k.a., the “stationary bandits“). Simply stated, governments no longer have unconstrained ability to tax and spend. Which explains, of course, why international bureaucracies (acting at the behest of politicians) are working very hard to replace the liberalizing force of tax competition with some sort of global tax cartel.

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There’s a reason that Greece is almost synonymous with bad economic policy. The country has endured some terrible prime ministers, most recently Alexis Tsipras of the far-left Syriza Party.

Andreas Papandreou, however, wins the prize for doing the most damage. He dramatically expanded the burden of government spending in the 1980s (the opposite of what Reagan and Thatcher were doing that decade), thus setting the stage for Greece’s eventual fiscal collapse.

But Greek economic policy isn’t a total disaster.

Policy makers in Athens are trying a bit of supply-side tax policy, at least for a limited group of people.

The U.K.-based Times has a report on Greece’s campaign to lure foreigners with low tax rates.

“The logic is very simple: we want pensioners to relocate here,” Athina Kalyva, the Greek head of tax policy at the finance ministry, said. “We have a beautiful country, a very good climate, so why not?” “We hope that pensioners benefiting from this attractive rate will spend most of their time in Greece,” Ms Kalyva told the Observer. Ultimately, the aim is to expand the country’s tax base, she added. “That would mean investing a bit — renting or buying a home.” …The proposal goes further than other countries, however, with the flat tax rate in Greece to apply to other sources of revenue as well as pensions, according to the draft law. “The 7 per cent flat rate will apply to whatever income a person might have, be that rents or dividends as well as pensions,” said Alex Patelis, chief economic adviser to Kyriakos Mitsotakis, the prime minister. “As a reformist government, we have to try to tick all the boxes to boost the economy and change growth models.”

Here are excerpts from a Reuters report.

Greece will offer financial incentives to encourage wealthy individuals to move their tax residence to the country, part of a package of tax relief measures… Greece’s conservative government is keen to attract investments to boost the recovering economy’s growth prospects. …The so-called “non-dom” programme will offer qualified wealthy investors who opt to shift their tax residence to the country a flat tax of 100,000 euros ($110,710) on global incomes earned outside Greece annually. “The tax incentive will run for a duration of up to 15 years and will include the benefit of no inheritance tax for assets outside Greece,” a senior government official told Reuters. One of the requirements to qualify will be residing in Greece for at least 183 days per year and making an investment of at least 500,000 euros within three years. …Investments of 3 million euros will reduce the flat tax to just 25,000 euros. There will also be a grandfathering clause protecting investors from policy changes by future governments.

By the way, Greece isn’t simply offering a flat-rate tax to wealthy foreigners. It’s offering them a flat-amount tax.

In other words, because they simply pay a predetermined amount, their actual tax rate (at least for non-Greek income) shrinks as their income goes up.

And since tax rates matter, this policy is luring well-to-do foreigners to Greece.

That’s good news. I’m a big fan of cross-border tax migration, both inside countries and between countries. And I’ve specifically applauded “citizenship by investment” programs that offer favorable tax rates to foreigners who bring much-needed investment to countries wanting more growth.

But I want politicians to understand that if low tax rates are good for newcomers, those low rates also would be good for locals.

But here’s the bad news. Fiscal policy in Greece is terrible (ranked #158 for “size of government” out of 162 nations according to the latest edition of Economic Freedom of the World).

What’s especially depressing is that Greece’s score has actually declined ever since the fiscal crisis began about 10 years ago.

In other words, the country got in trouble because of too much government, and politicians responded by actually making fiscal policy worse (aided and abetted by the fiscal pyromaniacs at the IMF).

And the bottom line is that it’s impossible to have overall low tax rates with a bloated public sector – a lesson that applies in other nations, including the United States.

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After Barack Obama took office (and especially after he was reelected), there was a big uptick in the number of rich people who chose to emigrate from the United States.

There are many reasons wealthy people choose to move from one nation to another, but Obama’s embrace of class-warfare tax policy (including FATCA) was seen as a big factor.

Joe Biden’s tax agenda is significantly more punitive than Obama’s, so we may see something similar happen if he wins the 2020 election.

Given the economic importance of innovators, entrepreneurs, and inventors, this would be not be good news for the American economy.

The New York Times reported late last year that the United States could be shooting itself in the foot by discouraging wealthy residents.

…a different group of Americans say they are considering leaving — people of both parties who would be hit by the wealth tax… Wealthy Americans often leave high-tax states like New York and California for lower-tax ones like Florida and Texas. But renouncing citizenship is a far more permanent, costly and complicated proposition. …“America’s the most attractive destination for capital, entrepreneurs and people wanting to get a great education,” said Reaz H. Jafri, a partner and head of the immigration practice at Withers, an international law firm. “But in today’s world, when you have other economic centers of excellence — like Singapore, Switzerland and London — people don’t view the U.S. as the only place to be.” …now, the price may be right to leave. While the cost of expatriating varies depending on a person’s assets, the wealthiest are betting that if a Democrat wins…, leaving now means a lower exit tax. …The wealthy who are considering renouncing their citizenship fear a wealth tax less than the possibility that the tax on capital gains could be raised to the ordinary income tax rate, effectively doubling what a wealthy person would pay… When Eduardo Saverin, a founder of Facebook…renounced his United States citizenship shortly before the social network went public, …several estimates said that renouncing his citizenship…saved him $700 million in taxes.

The migratory habits of rich people make a difference in the global economy.

Here are some excerpts from a 2017 Bloomberg story.

Australia is luring increasing numbers of global millionaires, helping make it one of the fastest growing wealthy nations in the world… Over the past decade, total wealth held in Australia has risen by 85 percent compared to 30 percent in the U.S. and 28 percent in the U.K… As a result, the average Australian is now significantly wealthier than the average American or Briton. …Given its relatively small population, Australia also makes an appearance on a list of average wealth per person. This one is, however, dominated by small tax havens.

Here’s one of the charts from the story.

As you can see, Australia is doing very well, though the small tax havens like Monaco are world leaders.

I’m mystified, however, that the Cayman Islands isn’t listed.

But I’m digressing.

Let’s get back to our main topic. It’s worth noting that even Greece is seeking to attract rich foreigners.

The new tax law is aimed at attracting fresh revenues into the country’s state coffers – mainly from foreigners as well as Greeks who are taxed abroad – by relocating their tax domicile to Greece, as it tries to woo “high-net-worth individuals” to the Greek tax register. The non-dom model provides for revenues obtained abroad to be taxed at a flat amount… Having these foreigners stay in Greece for at least 183 days a year, as the law requires, will also entail expenditure on accommodation and everyday costs that will be added to the Greek economy. …most eligible foreigners will be able to considerably lighten their tax burden if they relocate to Greece…nevertheless, the amount of 500,000 euros’ worth of investment in Greece required of foreigners and the annual flat tax of 100,000 euros demanded (plus 20,000 euros per family member) may keep many of them away.

The system is too restrictive, but it will make the beleaguered nation an attractive destination for some rich people. After all, they don’t even have to pay a flat tax, just a flat fee.

Italy has enjoyed some success with a similar regime to entice millionaires.

Last but not least, an article published last year has some fascinating details on the where rich people move and why they move.

The world’s wealthiest people are also the most mobile. High net worth individuals (HNWIs) – persons with wealth over US$1 million – may decide to pick up and move for a number of reasons. In some cases they are attracted by jurisdictions with more favorable tax laws… Unlike the middle class, wealthy citizens have the means to pick up and leave when things start to sideways in their home country. An uptick in HNWI migration from a country can often be a signal of negative economic or societal factors influencing a country. …Time-honored locations – such as Switzerland and the Cayman Islands – continue to attract the world’s wealthy, but no country is experiencing HNWI inflows quite like Australia. …The country has a robust economy, and is perceived as being a safe place to raise a family. Even better, Australia has no inheritance tax

Here’s a map from the article.

The good news is that the United States is attracting more millionaires than it’s losing (perhaps because of the EB-5 program).

The bad news is that this ratio could flip after the election. Indeed, it may already be happening even though recent data on expatriation paints a rosy picture.

The bottom line is that the United States should be competing to attract millionaires, not repel them. Assuming, of course, politicians care about jobs and prosperity for the rest of the population.

P.S. American politicians, copying laws normally imposed by the world’s most loathsome regimes, have imposed an “exit tax” so they can grab extra cash from rich people who choose to become citizens elsewhere.

P.P.S. I’ve argued that Australia is a good place to emigrate even for those of us who aren’t rich.

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I’ve been in Panama with some friends for the past two weeks, in part to enjoy warm sunshine.

But I’m also here because I wanted to research possible options in case the United States somehow wound up with a hard-core leftist in the White House.

With “Crazy Bernie” fading and “Looney Liz” out of the race, that no longer appears to be an immediate threat.

That being said, America’s grim long-run fiscal outlook, combined with the other factors such as young people’s senseless support of socialism, suggests that it may just be a matter of time before the U.S. morphs into a stagnant, European-style welfare state.

(And don’t forget that Joe Biden is actually farther to the left than Barack Obama and Hillary Clinton.)

So let’s investigate whether Panama is a good option, not just for Americans, but also for people from other nations as well.

The place to start is the Fraser Institute’s Economic Freedom of the World. Based on their comprehensive rankings of economic liberty, Panama gets a 7.66 on a 0-10 scale, which places it at #31 out of 162 nations.

That puts the country comfortably in the top quartile of “most free” jurisdictions. Moreover, it is the second-freest nation in Latin America, trailing only Chile (#13).

Here’s how Panama does when looking at specific components of economic policy.

  • The good news is that the country gets a solid score for fiscal policy (#19) and excellent scores for monetary policy (#8) and trade (#5).
  • The not-so-good news is that Panama has a middling score for rule of law and property rights (#80) and a weak score for regulation (#95).

These scores are only a snapshot for the most-current year, so it’s also worth noting that Panama has been very stable.

For the past couple of decades, its score has ranged between a low of 7.27 and a high of 7.88. Going back further in time, it’s even been ranked in the top 10 a couple of times.

In other words, Panama has not been susceptible to wild policy swings. Or Venezuelan-style foolishness.

To be sure, the politicians in Panama are prone to populist measures, but bad policies are adopted for vote-buying reasons (i.e., public choice) rather than ideology. Indeed, there is not a successful left-wing party in the country.

Because Panama gets good-but-not-great scores for economic liberty, you won’t be surprised to learn that the people of Panama enjoy decent-but-not-great living standards.

According to World Bank calculations, Panama qualifies as a “high income” nation, but that category is very broad (basically $14,000 and up). For perspective, per-capita income in Panama is only about one-fourth of U.S. levels.

And, notwithstanding convergence theory, that gap probably won’t shrink much in the near future since the United States currently has significantly more economic liberty (ranked #6 compared to #31).

But this column is for people who fear that America’s score may tumble in the future because of a frightening development (perhaps a President AOC?).

Here’s a few final thoughts to consider.

  • Panama’s currency (from the country’s inception) is the dollar.
  • There is a large community of expats already in Panama, including thousands of Americans.
  • The government has done a good job of managing the Panama Canal.
  • The nation is making slow but steady progress on problem areas such as infrastructure.
  • Crime and personal security are not major concerns.
  • The tax burden is very reasonable, particularly for people with non-Panamanian income.

The bottom line is that Panama is a good place for foreigners. The government has a welcoming attitude so long as immigrants are self-sufficient. And you don’t need to be rich to live a nice life in Panama.

P.S. In the past, I’ve suggested that Australia is the best long-run option if the United States suffers a Greek-style economic decline. That’s still true, especially since the Aussies have a mostly private Social Security system. Switzerland is always a good option, along with the Cayman Islands, especially for people with more assets (everyone should keep in mind that those jurisdictions may not be ideal if the the U.S. and most of Europe are in decline and American readers should remember the IRS’s odious exit tax).

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I pointed out yesterday that Donald Trump has increased domestic spending at a faster rate than Barack Obama, Bill Clinton, or Jimmy Carter.

The day before, I castigated him for proposing a budget that expands the burden of government spending by $2 trillion over the next decade.

And two days before that, I explained that he hasn’t really changed the trend line on jobs.

So it’s safe to say I don’t go out of my way to say nice things.

But I’m also very fair. I don’t hesitate to praise politicians whenever they do good things, or to point out evidence that their policies are having a desirable effect.

And here’s a tweet that suggest Trump has made a positive difference.

This is an amazing shift.

Especially since Trump hasn’t actually fixed the problems that lead some successful people to expatriate.

But he has moved policy in the right direction is some of those areas thanks to the 2017 tax legislation.

His other achievement, which is probably even more important, is that he’s not Hillary Clinton. In other words, we’re not getting the bad tax policies that might have occurred in a Clinton Administration.

So it’s understandable that there’s been a big drop in the number of expatriates. The type of people who might move (the “canaries in the coal mine“) now think things are getting better rather than worse.

By the way, we’re talking about small numbers of people. But they’re often exactly the type of people – entrepreneurs, inventors, and innovators – that help drive growth.

P.S. I’ll add today’s column to my collection of noteworthy tweets.

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People underestimate the importance of modest long-run trends.

  • A small boost in economic growth, if sustained, can have a major effect on long-run living standards.
  • A small shift in the growth of government spending, over time, can determine a nation’s fiscal viability.
  • A small change in birthrates, in the long run, has a huge impact on a country’s population and finances.

Another example is state-level migration.

This is occurring for many reasons, including demographics and weather.

But it’s also happening because many people are moving so they can benefit from the better opportunities that exist in lower-tax states.

The Tax Foundation has an article on interstate migration based on data from United van Lines.

States compete with each other in a variety of ways, including attracting (and retaining) residents. Sustained periods of inbound migration lead to greater economic output and growth. Prolonged periods of net outbound migration, however, can strain state coffers… While it is difficult to measure the extent to which tax considerations factor into individuals’ moving decisions, there is no doubt that taxes are important in many individuals’ personal financial deliberations. Our State Business Tax Climate Index uses over 100 variables to evaluate states on the competitiveness of their tax rates and structures. Four of the 10 worst-performing states on this year’s Index are also among the 10 states with the most outbound migration in this year’s National Movers Study (New Jersey,  New York, Connecticut, and California).

Here’s the map showing states ranked my migration status.

Similar data also is collected by U-Haul.

Mark Perry of the American Enterprise Institute put together this visual on the states with the most in-migration and out-migration.

He looked at the data based on voting patterns. I’m more interested in the fact that states without income taxes do very well.

By the way, we don’t have to rely on moving companies.

And here are some excerpts from an editorial by the Wall Street Journal on the topic, based on data from the IRS and Census Bureau.

Slowing population growth will have significant economic and social implications for the country, but especially for high-tax states. The Census Bureau and IRS last week also released state population growth and income migration data for 2018 that show the exodus from high-tax to low-tax states is accelerating. …New York was the biggest loser as a net 180,000 people left for better climes. Over the last decade New York has lost more of its population to other states (7.2%) than any other save Alaska (8%), followed by Illinois (6.8%), Connecticut (5.6%) and New Jersey (5.5%). Hmmm, what do these states have in common? Large tax burdens… Where are high-tax state exiles going? Zero income tax Florida drew $16.5 billion in adjusted gross income last year. Many have also fled to Arizona ($3.5 billion), Texas ($3.5 billion), North Carolina ($3 billion), Nevada ($2.3 billion), Colorado ($2.1 billion), Washington ($1.7 billion) and Idaho ($1.1 billion). Texas, Nevada and Washington don’t have income taxes.

Here’s an accompanying visual.

Once again, we see a pattern.

Tax policy obviously isn’t the only factor that drives migration between states, but it’s clear that lower-tax states tend to attract more migration, while higher-tax states tend to drive people away.

And keep in mind that when people move, their taxable income moves with them.

Which brings me back to my opening analysis about trends. Over time, the uncompetitive states are digging themselves into a hole. Migration (at least by people – the Golden Geese – who earn money and pay taxes) in any given year may not make a big difference, but the cumulative impact will wind up being very important.

P.S. Speaking of which, feel free to cast your vote for the state most likely to suffer fiscal collapse.

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When non-libertarian audiences ask my opinion about immigration, I generally point out that it is a very good sign that so many people want to come to the United States.

Almost everyone agrees with that statement, but that doesn’t put them in the pro-immigration camp. Instead, I find that many people have a “what’s in it for us” attitude.

  1. They like the underlying concept of programs such as the EB-5 visa that attract immigrants with money, and they are broadly sympathetic to immigrants with skills and education. At the risk of over-simplifying, they want immigrants who won’t rely on handouts and they like immigrants who presumably will increase the nation’s per-capita GDP (and there certainly is strong evidence that this happens).
  2. They’re skeptical of mass immigration by people with low incomes. This is mostly because they fear such migrants will impose higher costs on taxpayers, though Republican types also seem motivated by concerns about future voting patterns. The notable exception to this pattern is that business audiences are somewhat sympathetic to mass migration because they believe labor costs will fall.

When I deal with people in category #2, I sometimes ask them about Tyler Cowen’s idea of allowing limitless migration from nations with bigger welfare states. After all, I doubt people such as “Lazy Robert” will move from Denmark to the United States.

But what about poor people from poor nations? Would they like to migrate to rich nations to get handouts, rather than for economic opportunity?

Taxpayers in many nations are worried about that possibility and are not very welcoming to immigrants who will collect benefits.

Indeed, that’s motivated the Trump Administration to consider tightening rules for who gets in the country.

The Trump administration announced long-awaited “public charge” immigration regulations this week, and the furor immediately kicked up to derangement level. …But immigration regulation of this sort has been a part of our laws for more than a century…the 1882 act declared that “any convict, lunatic, idiot, or any person unable to take care of himself or herself without becoming a public charge…shall not be permitted to land.” …The 1952 revisions to immigration law maintained the idea that the government may exclude “paupers, professional beggars, or vagrants” and those who are “are likely at any time to become public charges.” …In 1996, Congress strengthened the public charge provisions…why would anyone call the Trump administration’s interpretation “un-American?” …the regulations—which do not apply to refugees, asylum-seekers, and various other groups—propose guidance to determine if an immigrant would be likely to use the welfare system for more than 12 months during a three-year period.

But it’s not just a controversy in the United States.

Taxpayers in the Netherlands, for instance, are becoming less tolerant of immigrants who want handouts rather than work.

Non-Western immigrants and their descendants also depend on welfare to a much greater extent than the native Dutch. They are half of all welfare recipients but only 11% of the total population. Among recent Somali refugees granted asylum, 80% are on welfare. Holland is truly a welfare state, and the Dutch are proud of it. …This type of open and yet highly regulated society can function only if it is carried by a disciplined and well-educated citizenry… That is what the fuss is about. To put it in abstract terms: Can a welfare state become an immigration state? You know the answer: A welfare state with open borders will one day run out of money.

I can’t imagine that stories like this make German taxpayers happy.

As early as 2016, German newspapers have been reporting on migrants with recognized refugee status having holidays in countries that they “fled,” such as Afghanistan, Lebanon, and Syria. Because Hartz IV, the welfare system that certain migrants granted refugee status receive, permits 21 days per year of “local absence,” those who have recognized refugee status and have no income or assets simply leave Germany for vacation and continue to receive money from German taxpayers.

There are also concerns that welfare spending hinders economic integration and independence in Sweden.

…only 20 percent of the Somali immigrants in Sweden have jobs, according to a report released on Monday by the government’s Commission… In an opinion article published in the Expressen newspaper, the author of the report, Benny Carlsson of Lund University, explained that Sweden would be well served to let community-based organizations do more…rather than relying on public agencies… Carlsson explained that…Sweden’s rigid labour market and labour protection laws also create “higher risks” for employees which amount to “higher thresholds” for Somali jobseekers. …Carlsson also cited Sweden’s social safety net which “lets people live at a decent level even if they don’t work, while the same can’t be said of the United States”.

Speaking of Sweden, stories of welfare dependency help to explain this report in the New York Times.

…four years after the influx, growing numbers of native-born Swedes have come to see the refugees as a drain on public finances. …Antipathy for immigrants now threatens to erode support for Sweden’s social welfare state. “People don’t want to pay taxes to support people who don’t work,” says Urban Pettersson, 62, a member of the local council here in Filipstad, a town set in lake country west of Stockholm. “Ninety percent of the refugees don’t contribute to society. These people are going to have a lifelong dependence on social welfare. This is a huge problem.” …Under the Nordic model, governments typically furnish health care, education and pensions to everyone. The state delivers subsidized housing and child care. When people lose jobs, they gain unemployment benefits… But the endurance of the Nordic model has long depended on two crucial elements — the public’s willingness to pay some of the highest taxes on earth, and the understanding that everyone is supposed to work. …Sweden’s sharp influx of immigrants — the largest of any European nation, as a share of the overall population — directly tests this proposition. …The unemployment rate was only 3.8 percent among the Swedish-born populace last year, but 15 percent among foreign-born… Roughly half of all jobless people in Sweden were foreign-born. …these sorts of numbers are cited as evidence that refugees have flocked here to enjoy lives of state-financed sloth. …The average refugee in Sweden receives about 74,000 Swedish kronor (about $7,800) more in government services than they pay into the system, Joakim Ruist, an economist at the University of Gothenburg, concluded in a report released last year and commissioned by the Ministry of Finance. Over all, the cost of social programs for refugees runs about 1 percent of Sweden’s annual national economic output

But is it true that migrants are looking for handouts? Are the afore-cited stories just random anecdotes, or do they suggest some countries are “welfare magnets”?

I’ve already shared some evidence that welfare recipients inside the United States gravitate to places that provide bigger benefits.

And this seems to be the case for migrants that cross national borders. Here are some findings from some new academic research showing that the generosity of Denmark’s welfare state has a significant impact on migration choices.

We study the effects of welfare generosity on international migration using a series of large changes in welfare benefits for immigrants in Denmark. The first change, implemented in 2002,lowered benefits for immigrants from outside the EU by about 50%, with no changes for natives or immigrants from inside the EU. The policy was later repealed and re-introduced. The differential treatment of immigrants from inside and outside the EU, and of different types of non-EU immigrants, allows for a quasi-experimental research design. We find sizeable effects:the benefit reduction reduced the net flow of immigrants by about 5,000 people per year, or 3.7percent of the stock of treated immigrants, and the subsequent repeal of the policy reversed the effect almost exactly. Our study provides some of the first causal evidence on the widely debated “welfare magnet” hypothesis. …our evidence implies that, conditional on moving, the generosity of the welfare system is important for destination choices.

Here’s the relevant graph from the study, based on two different ways of slicing the data.

As you can see from the red lines, migration fell when benefits were reduced, then immediately jumped when benefits were increased, and then immediately fell again when they were again lowered.

For what it’s worth, scholars believe that support for the welfare state in Europe is declining for these reasons. Taxpayers are tolerant of subsidizing their long-time neighbors, but are much less sympathetic when giving away money to newcomers.

From my perspective, the solution is obvious. I generally like immigration and generally don’t like redistribution.

So why not reduce benefits, ideally for everyone, but just to migrants if that’s the only possible outcome. That way nations are more likely to attract people (especially from low-income societies) who are seeking economic opportunity.

P.S. If you want to enjoy some immigration-related humor, we have a video about Americans migrating to Peru and a story about American leftists escaping to Canada.

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California is suffering a slow but steady decline.

Bad economic policy has made the Golden State less attractive for entrepreneurs, investors, and business owners.

Punitive tax laws deserve much of the blame, particularly the 2012 decision to impose a top tax rate of 13.3 percent.

I’ve already shared some anecdotal evidence that this tax increase backfired.

But now we have some scholarly evidence from two Stanford Professors. Here’s what they investigated.

In this paper we study the question of the elasticity of the tax base with respect to taxation using microdata from the California Franchise Tax Board on the universe of California taxpayers around the implementation of Proposition 30 in 2012. This ballot initiative increased marginal income tax rates… These increases came on top of the 9.3% rate that applied to income over $48,942 for singles and $97,884 for married couples, and also in addition to the 1% mental health tax that since 2004 had applied to incomes of over $1 million. The reform therefore brought the top marginal tax rate in California to 13.3% for incomes of over $1 million.

For those not familiar with economic jargon, “elasticity” is simply a term to describe how sensitive taxpayers are when there are changes in tax policy.

A high measure of elasticity means a large “deadweight loss” since taxpayers are choosing to earn and/or report less income.

And that’s what the two scholars discovered.

Some high-income taxpayers responded to the big tax increase by moving.

We first study the extensive margin response to taxation, and document a substantial one-time outflow of high-earning taxpayers from California in response to Proposition 30. Defining a departure as a taxpayer who went from resident to non-resident filing status, the rate of departures in 2013 over 2012 spiked from 1.5% after the 2011 tax year to 2.125% for those primary taxpayers earning over $5 million in 2012, with a similar effect among taxpayers earning $2-5 million in 2012.

By the way, you won’t be surprised to learn that California taxpayers increasingly opted to move to states with no income tax, such as Florida, Nevada, and Texas.

Other taxpayers stayed in California but they chose to earn and/or report less income.

We combine these results on the extensive margin behavioral response with conclusions of analysis of the intensive margin response to Proposition 30. …we use a differences-in-differences design in which we compare upper-income California resident taxpayers to a matched sample of non-resident California filers, for which there is relatively rich data… Our estimates show a substantial intensive margin response to Proposition 30, which appears in 2012 and persists… We find that California top-earners on average report $522,000 less in taxable income than their counterfactuals in 2012, $357,000 less in 2013, and $599,000 less in 2014; this is relative to a baseline mean income of $4.15 million amongst our defined group of California top-earners in 2011. …the estimates imply an elasticity of taxable income with respect to the marginal net of tax rate of 2.5-3.3.

In the world of public finance, that’s a very high measure of elasticity.

Wonky readers may be interested in these charts showing changes in income.

By the way, guess what happens when taxpayers move, or when they decide to earn less income?

The obvious answer is that politicians don’t collect as much revenue. Which is exactly what the study discovered.

A back of the envelope calculation based on our econometric estimates finds that the intensive and extensive margin responses to taxation combined to undo 45.2% of the revenue gains from taxation that otherwise would have accrued to California in the absence of behavioral responses. The intensive margin accounts for the majority of this effect, but the extensive margin comprises a non-trivial 9.5% of this total response.

We can call this the revenge of the Laffer Curve.

By the way, it’s quite likely that there has been a resurgence of both the “extensive” and “intensive” responses to California’s punitive tax regime because the 2017 tax reform restricted the deductibility of state and local taxes. This means that the federal government – for all intents and purposes – is no longer subsidizing California’s backwards fiscal system.

P.S. Makes me wonder if California politicians will turn Walter Williams’ joke into reality.

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Like most libertarians, I’m a bit quirky.

Most people, if they watch The Great Escape or Rambo II, cheer when American POWs achieve freedom.

I’m happy as well, but I also can’t stop myself from thinking about how I also applaud when a successful taxpayer flees from a high-tax state to a low-tax state.

It’s like an escape from oppression to freedom, though I confess it might not be the best plot for a blockbuster movie.

In any event, here are two recent feel-good stories about this phenomenon.

Here’s a report about two members of the establishment media who are protecting their family’s finances from greedy Connecticut politicians.

After reports that married MSNBC anchors Joe Scarborough and Mika Brzezinski have been mysteriously broadcasting their show from Florida — sources speculated that the location is to benefit Scarborough’s tax situation. The “Morning Joe” anchors have been reportedly on a home set in Jupiter, Fla., but using Washington, DC, backdrops. Sources said the reason for the locale was a “tax dodge” — albeit a completely legal one — since Scarborough has a home in Florida and would need to spend a certain amount of the time there for any tax benefit. …Scarborough, who’s still presently registered to vote in Connecticut., on Oct. 9, 2018 registered to vote in Palm Beach County, Fla. according to public records. …By moving to Florida, he’d reduce his tax burden by roughly $550,000. Scarborough reportedly makes $8 million a year and would pay 6.99-percent state income tax in Connecticut, while there’s no state income tax in Florida, the Post’s Josh Kosman reports. To qualify as a Florida resident, he’d need to be there 183 days a year.

According to the story, Scarborough and Brzezinski are only making the move to be close to aging parents.

That certainly may be part of the story, but I am 99.99 percent confident that they won’t be filing another tax return with the Taxnut State…oops, I mean Nutmeg State.

Meanwhile, another billionaire is escaping from parasitic politicians in New York and moving to zero-income tax in Florida.

Billionaire Carl Icahn is planning to move his home and business to Florida to avoid New York’s higher taxes, according to people familiar with the matter. …The move is scheduled for March 31 and employees who don’t do so won’t have a job… Hedge fund billionaires have relocated to Florida for tax reasons for years — David Tepper, Paul Tudor Jones and Eddie Lampert being among the most prominent. But Florida officials have been aggressively pushing Miami as a destination for money managers since the Republican-led tax overhaul. …Florida is one of seven states without a personal income tax, while New York’s top rate is 8.82%. Florida’s corporate tax rate is 5.5%, compared with 6.5% in New York. Icahn’s move was reported earlier by the New York Post. The difference could mean dramatic savings for Icahn, who is the world’s 47th richest person.

These two stories are only anecdotes. And without comprehensive data, there’s no way of knowing if they are part of a trend.

That’s why the IRS website that reports the interstate movement of money is so useful (it’s not often I give the IRS a compliment!). You can peruse data showing what states are losing income and what states are gaining income.

Though if you want a user-friendly way of viewing the data, I strongly recommend How Money Walks. That website allows you to create maps showing the net change in income and where the income is coming from, or going to.

Since our first story was about Connecticut, here’s a map showing that the Nutmeg State has suffered a net exodus (red is bad) over the 1992-2016 period.

In other words, the state is suffering from fiscal decay.

And here’s a map for New York, where we see the same story.

Now let’s look at the state that is reaping a windfall thanks to tax refugees.

Florida, to put it mildly, is kicking New York’s derrière (green is good).

And you can see on the left side that Florida is also attracting lots of taxpayers from New Jersey, Illinois, Pennsylvania, and Connecticut.

By the way, some of my leftist friends claim this internal migration is driven by weather. I suspect that’s a partial factor, but I always ask them why people (and their money) are also migrating out of California, where the weather is even better.

P.S. Tax migration is part of tax competition, and it’s a big reason why left-wing governments sometimes feel compelled to lower taxes.

P.P.S. When the IRS releases data for 2017 and 2018, I’m guessing we’ll see even more people escaping to Florida, in large part because there’s now a limit on deducting state and local taxes.

P.P.P.S. I also cheer when people escape high-tax nations.

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My friends on the left hold two impossible-to-reconcile views about taxation.

  • First, they say taxes don’t really have any effect on incentives to work, save and invest, and that governments can impose high tax rates and punitive double taxation without causing meaningful economic damage or loss of national competitiveness.
  • Second, they say differences in taxes between jurisdictions will cause massive tax-avoidance behavior as jobs and investment migrate to places with lower taxes, and that national and international tax harmonization is required to prevent that ostensibly horrible outcome.

Huh?!? They’re basically asserting that taxes simultaneously have no effect on taxpayer behavior and lots of effect on taxpayer behavior.

Well, they’re half right.

Taxpayers do respond to incentives. And when tax rates are too high, both money and people will escape high-tax regimes.

In other words, people do “vote with their feet.”

And it seems pro athletes are not “dumb jocks” when contemplating the best places to sign contracts.

Looking at baseball, taxes presumably had an effect on Bryce Harper’s decision to play for the Phillies.

For Major League Baseball players, three teams are at the bottom of the standings on state taxes: the Los Angeles Dodgers, San Diego Padres and San Francisco Giants. That’s because California is in a league of its own on personal income taxes. We’ve got by far the highest state rate in the nation, topping out at 13.3%. By contrast, Pennsylvania has a low flat rate for every taxpayer regardless of income. It’s just 3.07%. That’s one reason why superstar slugger Bryce Harper signed an eye-popping 13-year, $330-million contract last week with the Philadelphia Phillies, spurning the Dodgers and Giants. …Harper will save tens of millions in taxes by signing with the Phillies instead of a California team. …“The Giants, Dodgers and Padres are in the worst state income tax jurisdiction in all of baseball,” Boras adds. “Players really get hit.” …To what extent do California’s sky-high taxes drive players away? “It’s a red light,” agent John Boggs says. “I’ve had players in the past say they don’t want to go to certain states because they’re going to get hammered by taxes. Obviously, that affects the bottom line.”

Another argument for states to join the flat tax club!

If we cross the Atlantic Ocean, we find lots of evidence that high tax rates in Europe create major headaches in the world of sports.

For example, I’ve previously written about how the absence of an income tax gives the Monaco team a significant advantage competing in the French soccer league.

And there are many other examples from Europe dealing with soccer and taxation.

According to a BBC report, we should highlight the impact on both players and management in Spain.

Ex-Manchester United boss José Mourinho has agreed a prison term in Spain for tax fraud but will not go to jail. A one-year prison sentence will instead be exchanged for a fine of €182,500 (£160,160). That will be added to a separate fine of €2m. …He was accused of owing €3.3m to Spanish tax authorities from his time managing Real Madrid in 2011-2012. Prosecutors said he had created offshore companies to manage his image rights and hide the earnings from tax officials. …In January, Cristiano Ronaldo accepted a fine of €18.8m and a suspended 23-month jail sentence, in a case which was also centred around tax owed on image rights. …Another former Real Madrid star, Xabi Alonso, is also facing charges over alleged tax fraud amounting to about €2m, though he denies any wrongdoing. Marcelo Vieira, who still plays for the club, accepted a four-month suspended jail sentence last September over his use of foreign firms to handle almost half a million euros in earnings. Barcelona’s Lionel Messi and Neymar have also found themselves embroiled in legal battles with the Spanish tax authorities.

Let’s cross the Atlantic again and look at the National Football League.

Consider Christian Wilkins, who was just drafted in the first round by the NFL’s Miami Dolphins. He’s very aware of how lucky he is to have been picked by a football team in a state with no income tax.

The Miami Dolphins picked Clemson defensive tackle Christian Wilkins with the 13th overall pick in Thursday night’s first round of the NFL draft. …He’ll be counted on to help usher in a new era of Miami football under first-year head coach Brian Flores. …Wilkins said he “knew they were interested” in him and is happy to be headed to Miami. He also joked that he’s happy he’ll be playing football in Florida, where there is no state income tax. “Pretty excited about them taxes,” he said. “A lot of guys who went before me, I might be making just a little bit more, but hey, it is what it is.”

As he noted, his contract may not be as big as some of the players drafted above him, but he may wind up with more take-home pay since Florida is a fiscally responsible state.

College players have no control over which team drafts them, so Wilkins truly is lucky.

Players in free agency, by contrast, can pick and choose their new team.

And if we travel up the Atlantic coast from Miami to Jacksonville, we can read about how the Jaguars – both players and management – understand how they’re net beneficiaries of being in a no-income tax state.

Hayden Hurst got excited after he received a phone call from someone he trusted who told him the Jaguars were targeting him with the No. 29 overall pick. …Though Hurst…was happy when the Baltimore Ravens took him four slots before the Jaguars, he also knew in advance of the financial consequences that most rookies don’t notice. Since Florida is one of four NFL states (Tennessee, Texas and Washington being the others) with no state income tax, Hurst, who played at South Carolina, understood he’d see a big chunk of his $6.1 million signing bonus disappear on the deduction line when he received his first bonus check. …“I thought about how much of my money was going to be impacted depending on which state I played in,” Hurst said. “I’m paying a pretty hefty percent up in Maryland. To see the amount get taken away right off the bat kind of hurt, it was pretty sickening.” With the NFL free agent market set to open Wednesday, Hurst’s situation illustrates a potential competitive advantage for the Jaguars of being in an income tax-free state when they court free agents.

Yes, the flat tax club is good, but the no-income-tax club is even better.

I’ll close with an observation. Way back in 2009, I speculated that high tax rates could actually hurt the performance of teams in high-tax states.

It turns out I was right, as you can see from academic research I cited in 2017 and 2018.

The bottom line is that teams in high-tax states can still sign big-name players, but they have to pay more to compensate for taxes. And this presumably means less money for other players, thus lowering overall quality (and also lowering average win totals).

P.S. I normally only cheer for NFL athletes who played for my beloved Georgia Bulldogs, but I now have a soft spot in my heart for Christian Wilkins (just like Evan Mathis).

P.P.S. I also have plenty of sympathy for Cam Newton, who paid a tax rate of almost 200 percent on the income he earned for playing in the 2016 Super Bowl.

P.P.P.S. Taxes also impact choices on how often to box and where to box.

P.P.P.P.S. And where to run track.

P.P.P.P.P.S. And where to play basketball.

P.P.P.P.P.P.S. While one can argue that there are no meaningful economic consequences if athletes avoid jurisdictions with bad tax law, can the same be said if we have evidence that high tax burdens deter superstar inventors and entrepreneurs?

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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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The most persuasive data, when comparing the United States and Scandinavia, are the numbers showing that Americans of Swedish, Danish, Finnish, and Norwegian descent produce much more prosperity than those who remained in Sweden, Denmark, Finland, and Norway.

This certainly suggests that America’s medium-sized welfare state does less damage than the large-sized welfare state in Scandinavian nations.

But maybe the United States also was fortunate in that it attracted the right kind of migrant from Scandinavia.

Let’s look at some fascinating research from Professor Anne Sofie Beck Knudsen of Lund University in Sweden.

If you’re in a rush and simply want the headline results, here are some excerpts from the abstract.

This paper examines the joint evolution of emigration and individualism in Scandinavia during the Age of Mass Migration (1850-1920). A long-standing hypothesis holds that people of a stronger individualistic mindset are more likely to migrate as they suffer lower costs of abandoning existing social networks. …I propose a theory of cultural change where migrant self-selection generates a relative push away from individualism, and towards collectivism, in migrant-sending locations through a combination of initial distributional effects and channels of intergenerational cultural transmission. …the empirical results suggest that individualists were more likely to migrate than collectivists, and that the Scandinavian countries would have been considerably more individualistic and culturally diverse, had emigration not taken place.

If you’re interested in more detail, here are passages from the study.

We’ll start with the author’s description of why she studied the topic and what she wanted to determine.

People of Western societies are unique in their strong view of themselves… This culture of individualism has roots in the distant past and is believed to have played an important role in the economic and political development of the region… differences in individualism and its counterpart, collectivism, impact processes of innovation, entrepreneurship, cooperation, and public goods provision. Yet, little is known about what has influenced the evolution of individualism over time and across space within the Western world. …I explore the relationship between individualism and a common example of human behavior: migration. I propose a theory, where migration flows generate cultural change towards collectivism and convergence across migrant-sending locations.

Keep in mind, by the way, that societies with a greater preference for individualism generate much more prosperity.

Anyhow, Professor Knudsen had a huge dataset for her research since there was an immense amount of out-migration from Scandinavia.

During the period, millions of people left Europe to settle in New World countries such as the United States. Sweden, Norway, and Denmark experienced some of the highest emigration rates in Europe during this period, involving the departure of approximately 25% of their populations. …Total emigration amounted to around 38% and 26% in Norway and Sweden respectively.

Here are some of her findings.

I find that Scandinavians who grew up in individualistic households were more likely to emigrate… people of individualistic mindsets suffer lower costs of leaving existing social networks behind… the cultural change that took place during the Age of Mass Migration was sufficiently profound to leave a long-run impact on contemporary Scandinavian culture. …If people migrate based, in part, on individualistic cultural values, migration will have implications on the overall evolution of cultures. Emigration must be associated with an immediate reduction in the prevalence of individualists in the migrant-sending population.

Here is her data on the individualism of emigrants compared to those who stayed in Scandinavia.

As an aside, I find it very interesting that Scandinavian emigrants were attracted by the “American dream.”

…historians agree that migrants were motivated by more than hopes of escaping poverty. Stories on the ‘American Dream‘ and the view of the United States as the ‘Land of Opportunities‘ were core to the migration discourse. Private letters, diaries, and newspaper articles of the time reveal that ideas of personal freedom and social equality embodied in the American society were of great value to the migrants. In the United States, people were free to pursue own goals.

And this is why I am quite sympathetic to continued migration to America, with the big caveat that I want severe restrictions on access to government handouts.

Simply stated, I want more people who want that “American dream.”

But I’m digressing. Let’s now look at the key result from Professor Knudsen’s paper.

When the more individualistic Scandinavians with “get up and go” left their home countries, that meant the average level of collectivism increased among those remained behind.

Several observations are worth mentioning in light of the revealed actual and counterfactual patterns of individualism. First, one observes a general trend of rising individualism over the period, which is consistent with accounts for other countries… Second, the level of individualism would have been considerably higher by the end of the Age of Mass Migration in 1920, had emigration not taken place. Taking the numbers at face value, individualism would have been between 19.0% and 20.3% higher on average in Sweden, 17.8% and 27.9% in Norway, and 7.6% and 12.5% in Denmark, depending on the measure considered.

These charts capture the difference.

To wrap this up, here’s a restatement of the key findings from the study’s conclusion.

I find that people of an individualistic mindset were more prone to migrate than their collectivistic neighbors. …Due to self-selection on individualistic traits, mass emigration caused a direct compositional change in the home population. Over the period this amounted to a loss of individualists of approximate 3.7%-points in Denmark, 9.4%-points in Sweden, and 13.6%-points in Norway. …The cultural change that took place during the Age of Mass Migration was sufficiently profound to impact cross-district cultural differences in present day Scandinavia. Contemporary levels of individualism would thus have been significantly higher had emigration not occurred. …The potential societal implications of the emigration-driven cultural change are of great importance. The period of the Age of Mass Migration was characterized by industrialization, urbanization, and democratization in Scandinavia. Individualism was generally on the rise, in part due to these developments, but it seems conceivable that the collectivistic turn caused by emigration played a role in subsequent institutional developments. While economic freedom is high in contemporary Scandinavia, the region is known for its priority of social cohesion and collective insurance. This is particularly clear when contrasting the Scandinavian welfare model with American liberal capitalism.

This is first-rate research.

Professor Knudsen even understands that Scandinavian nations still have lots of economic freedom by world standards.

Imagine, though, how much economic freedom those countries might enjoy if the more individualism-minded people hadn’t left for America? Maybe those nations wouldn’t have dramatically expanded their welfare states starting in the 1960s, thus dampening economic growth.

The obvious takeaway is that migration from Denmark, Sweden, and Norway to the United States was a net plus for America and a net minus for Scandinavia.

P.S. When she referred in her conclusion to “American liberal capitalism,” she was obviously referring to classical liberalism.

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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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Back in April, I chatted with Stuart Varney about how some states were in deep trouble because they were being squeezed by having to finance huge unfunded liabilities for bureaucrats, yet they were constrained by the fact that taxpayers have the freedom to move when tax burdens become excessive.

I now have a reason to share the interview because Chris Edwards described this phenomenon of tax-driven migration in a new column for the Daily Caller.

New Jersey’s richest person, David Tepper, moved with his hedge fund business to Florida in 2016. That single move cost the state of New Jersey up to $100 million a year in lost income taxes. Yet, this year, New Jersey’s Democratic governor Phil Murphy hiked the top income tax rate from 8.97 to 10.75 percent. Murphy wanted to raise revenue, but the hike won’t do if it prompts more of the rich to leave. The top 1 percent in New Jersey pay 37 percent of the state’s income taxes. Connecticut is also losing its wealthiest residents after tax hikes by Democratic governor Dan Malloy. In recent years, the state has lost stock trading entrepreneur Thomas Peterffy (worth $20 billion), executive C. Dean Metropoulos ($2 billion), and hedge fund managers Paul Tudor Jones ($4 billion) and Edward Lampert ($3 billion). Those folks all fled to Florida, which has no income tax or estate tax. …High taxes are driving the wealthy out of California. Ken Fisher moved Fisher Investments from California to Washington state, which also has no income tax. The billionaire said he wanted a lower-tax location for his 2,000 employees. Mark Spitznagel moved his Universal Investments from California to Florida, saying that “Florida’s business-friendly policies, which are so different from California’s, offer the perfect environment for this.” The “tax freedom exodus” will accelerate in the wake of the 2017 federal tax law. The law capped the deduction for state and local taxes, which subjected 25 million mainly higher-income households to the full tax burden imposed in high-tax states.

It’s important to ask, though, whether these moves are a trend or just random.

In a more detailed study he produced, Chris crunched that national data and found there is a relationship between tax burdens and migration patterns.

It’s not a perfect relationship, of course, since there are many factors that might lead households to move across state lines.

But tax is definitely part of the equation, especially since high-tax states no longer receive a big indirect subsidy from Uncle Sam.

A column in the Wall Street Journal explores this aspect of the issue.

…real-estate professionals say they are beginning to see early signs of an exodus to low-tax states. “I’ve seen a huge increase in the number of clients who want to purchase in Palm Beach to establish residency in Florida,” says Chris Leavitt, director of luxury sales at Douglas Elliman Real Estate in Palm Beach. …Real-estate developer David Hutchinson, president of Ketchum, Idaho-based VP Cos., is touting the tax advantages of living in Nevada on his company website… The border between California and Nevada bisects Lake Tahoe. Californians to the west can pay a state income-tax rate of up to 13.3%, while Nevada residents just 30 minutes to the east pay no state income taxes.

A Democratic political consultant warns that his party could be hurt.

With state deductions now capped at $10,000, the cost of living in states such as California and New York – where state taxes are notoriously high – is increasing substantially. This has the potential to lead both middle-class families, and even the wealthy, to begin questioning whether it is time to move to a more tax-friendly state. …In one high-profile example of the impact of high taxes, professional golfer Phil Mickelson recently slammed California’s taxes and threated to leave the state. “If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate’s 62, 63 percent,” Mickelson said. …New York Gov. Andrew Cuomo – seeking re-election this year and a potential 2020 Democratic presidential contender – recognizes the threat that tax migration may pose. “If you lose the taxpayers, you lose the revenue,” Cuomo said in December.

Though maybe it would be better for Governor Cuomo to say “lost the revenue.”

Here’s another chart from Chris Edwards’ study. The light-blue states are attracting the most new residents (i.e., taxpayers) while the bright-red states (like New York) are losing the most residents (former taxpayers).

Needless to say, the states with better tax policy tend to be net recipients of taxpayers, and taxable income.

In closing, it’s important to understand that tax-motivated migration also exists between countries.

Here are some excerpts from a column in the New York Times.

When a country begins to fall into economic and political difficulty, wealthy people are often the first to ship their money to safer havens abroad. The rich don’t always emigrate along with their money, but when they do, it is an even more telling sign of trouble. …In a global population of 15 million people each worth more than $1 million in net assets, nearly 100,000 changed their country of residence last year. …In 2017, the largest exoduses came out of Turkey (where a stunning 12 percent of the millionaire population emigrated) and Venezuela. As if on cue, the Turkish lira is now in a free fall. There were also significant migrations out of India under the tightening grip of its overzealous tax authorities… Millionaire migrations can be a positive sign for a nation’s economy. The losses for India, Russia and Turkey were gains for havens like Canada and Australia, joined lately by the United Arab Emirates. …Millionaires move money mainly out of self-interest, to find more rewarding or safer havens. There aren’t a lot of them, but they can tell us a great deal about what is going wrong — and right — in a country’s economic and political ecosystems. Leaders who create the right conditions to keep millionaires home will find that all of their residents — not just the wealthy ones — are richer for it.

I like footloose millionaires because – as discussed in the article – they act as canaries in the coal mine. When they start moving, that sends a helpful signal to the rest of us.

And I also cheer migrating millionaires since they can cause big Laffer-Curve effects. And that puts an external constraint on the greed of politicians.

Which helps ordinary taxpayers like you and me since politicians generally use higher tax burden on the rich as a softening-up tactic before grabbing more money from the masses.

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New Jersey is a fiscal disaster area.

It’s in last place in the Tax Foundation’s index that measures a state’s business tax climate.

It’s tied for last place in the Mercatus Center’s ranking of state fiscal conditions.

And it ranks in the bottom-10 in measures of state economic freedom and measures of unfunded liabilities for bureaucrat pensions.

All of this led me, last October, to warn that the state was suffering from fiscal decay.

Then, two months ago, James Freeman of the Wall Street Journal wrote about how New Jersey’s uncompetitive fiscal system was encouraging highly productive taxpayers to leave the state.

The Garden State already has the third largest overall tax burden and the country’s highest property tax collections per capita. Now that federal reform has limited the deduction for state and local taxes, the price of government is surging again among high-income earners in New Jersey and other blue states. Taxpayers are searching for the exits. …says Jeffrey Sica, founder of Circle Squared, an alternative investments firm. “We structure real estate deals for family offices and high-net-worth individuals and at a record pace those family offices and individuals are leaving the TriState for lower-tax states. Probably a dozen this year at least,”…In the decade ending in 2016, real economic growth in New Jersey clocked in at a compound annual percentage rate of 0.1, just slightly higher than John Blutarsky’s GPA and less than a tenth of the national average for economic growth. The Tax Foundation ranks New Jersey dead last among the 50 states for its business tax climate. …Steven Malanga calls Mr. Murphy’s plan “the U-Haul Budget” for the new incentives it gives New Jersey residents to flee.

You would think that New Jersey politicians would try to stop the bleeding, particularly given the impact of federal tax reform.

But that assumes logic, common sense, and a willingness to put the interests of people above the interests of government. Unfortunately, all of those traits are in short supply in the Garden State, so instead the politicians decided to throw gasoline on the fire with another big tax hike.

The Wall Street Journal opines today on the new agreement from Trenton.

Governor Phil Murphy and State Senate leader Steve Sweeney have been fighting over whether to raise tax rates on individuals or businesses, and over the weekend they decided to raise taxes on both. Messrs. Murphy and Sweeney agreed to raise the state’s income tax on residents making more than $5 million to 10.75% from 8.97% and the corporate rate on companies with more than $1 million in income to 11.5% from 9%. This will give New Jersey the fourth highest marginal income tax rate on individuals and the second highest corporate rate after Iowa.

New Jersey is pursuing class warfare, but the politicians don’t seem to realize that the geese with the golden eggs can fly away.

The two Democrats claim this will do no harm because about 0.04% of New Jersey taxpayers will get smacked. But those taxpayers account for 12.5% of state income-tax revenue and their investment income is highly mobile. The state treasurer said in 2016 that a mere 100 filers pay more than 5.5% of all state receipts. Billionaire David Tepper escaped from New Jersey for Florida in 2015, and other hedge fund managers could follow. Between 2012 and 2016 a net $11.9 billion of income left New Jersey, according to the IRS. The flight risk will increase with the new limit of $10,000 on deducting state and local taxes on federal tax returns. …About two-thirds of New Jersey’s $3.5 billion income outflow last year went to Florida, which doesn’t have an income tax. …The fair question is why any rational person or business that can move would stay in New Jersey.

That’s not merely a fair question, it’s a description of what’s already happening. And it’s going to accelerate – in New Jersey and other uncompetitive states – when additional soak-the-rich schemes are imposed (unless politicians figure out a way to put fences and guard towers at the border).

A few months ago, I conducted a poll on which state would be the first to suffer a fiscal collapse. For understandable reasons, Illinois was the easy “winner.” But I won’t be surprised if there are a bunch of new votes for New Jersey. Simply stated, the state is committing fiscal suicide.

P.S. What’s amazing (and depressing) is that New Jersey was like New Hampshire as recently as the 1960s, with no state sales tax and no state income tax.

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Even though I wrote about proposed tax increases in Illinois just 10 days ago, it’s time to revisit the issue because the Tax Foundation just published a very informative article about the state’s self-destructive fiscal policy.

It starts by noting that the aggregate tax burden is higher in Illinois than it is in adjoining states.

Just what are Illinois’ neighbors doing on taxes? They’re taxing less, for starters. In Illinois, state and local taxes account for 9.3 percent of state income. The state and local taxes in Illinois’ six neighboring states account, in aggregate, for 8.0 percent of the income of those states.

Here’s the table showing the gap between Illinois and its neighbors. And it’s probably worth noting that the tax gap is the largest with the two states – Indiana and Missouri – that have the longest borders with Illinois.

While the aggregate tax burden is an important measure, I’ve explained before that it’s also important to focus on marginal tax rates. After all, that’s the variable that determines incentives for productive behavior since it measures how much the government confiscates when investors and entrepreneurs generate additional wealth.

And this brings us to the most important point in the article. Illinois politicians want to move in the wrong direction on marginal tax rates while neighboring jurisdictions are moving in the right direction.

Except for Iowa, all of Illinois’ neighbors have cut their income taxes since Illinois adopted its “temporary” income tax increases in 2011—and Iowa is on the verge of adopting a tax reform package that cuts individual income tax rates… Over the same period, Illinois’ single-rate income tax was temporarily raised from 3 to 5 percent, then allowed to partially sunset to 3.75 percent before being raised to the current 4.95 percent rate. A 1.5 percent surtax on pass-through business income brings the rate on many small businesses to 6.45 percent. Now there are calls to amend the state constitution to allow graduated-rate income taxes, with proposals circulating to create a top marginal rate as high as 9.85 percent (11.35 percent on pass-through businesses).

Here’s the chart showing the top rate in various states in 2011, the top rates today, and where top tax rates could be in the near future.

What’s especially remarkable is that Illinois politicians are poised to jack up tax rates just as federal tax reform has significantly reduced the deduction for state and local taxes.

For 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 accelerate).

Normally, when I write that a jurisdiction is committing fiscal suicide, I try to explain that it’s a slow-motion process. Illinois, however, could be taking the express lane. No wonder readers overwhelmingly picked the Land of Lincoln when asked which state will be the first to suffer a fiscal collapse.

P.S. Illinois politicians claim they want to bust the flat tax so they can impose higher taxes on the (supposedly) evil rich. High-income taxpayers doubtlessly will be the first on the chopping block, but I can say with 99.99 percent certainty that class-warfare tax increases will be a precursor to higher taxes on everybody.

P.P.S. Illinois residents should move to states with no income taxes. But if they only want to cross one border, Indiana would be a very good choice. And Kentucky just shifted to a flat tax, so that’s another potential option.

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