Taxes matter more than sunshine
A recent study from the left-wing Center on Budget and Policy Priorities (CBPP) concludes that taxes do not motivate people to leave high-tax states. The study’s authors argue that weather may have more of an effect on migration patterns than tax rates. As we argued recently in an editorial in the Daily Caller, this couldn’t be farther from the truth.
If that were true, wouldn’t people be moving to California and Hawaii in droves? Census data shows that this simply isn’t happening. Over the last 20 years, 3.6 million more Americans have moved out of California than have moved in, and 130,000 more Americans have moved out of Hawaii than have moved into the state. In striking contrast, Florida gained 2.3 million net residents during that same period.
The authors of the CBPP study point to the fact that Florida lost population in 2008 and 2009. This view ignores the big picture. Migration to Florida slowed when the real estate bubble burst, and it has since recovered. Moreover, Florida enjoyed a strong recovery in 2010, with a net gain of 55,000 domestic migrants, according to the latest data from the U.S. Census Bureau. In 2010 and 2011 both, Florida enjoyed positive net migration again.
What makes Florida different from California and Hawaii? It has a much better tax climate. The argument that weather matters more than taxes falls flat on its face when you consider Alaska (a state that doesn’t have an income tax) suffered only half the population loss Hawaii (the state with the highest personal income tax) did over the past decade.
If weather matters more than taxes, then why is Alaska performing so well compared to California and Hawaii? Alaska may have the worst climate in the country and California and Hawaii arguably have the best, but Alaska has out-performed both states on nearly every measure, according to Rich States, Poor States: ALEC-Laffer Economic Competitiveness Index.
Census data consistently show that people choose where to live, engage in commerce, and invest based on economic competitiveness. High taxes drive many people and businesses to move to lower-tax states, and those people take their tax revenues with them. State tax policies play a significant role in determining which states prosper and which states fall behind in terms of economic performance.
Over the last decade, on net, more than 4.2 million individuals have moved out of the 10 states with the highest state and local tax burdens (measured as a percentage of personal income). Conversely, during the same period, more than 2.8 million Americans migrated to the 10 states with the lowest tax burdens. Put differently, every day on average — weekends and holidays included — 1,265 individuals left the high-tax states, nearly one a minute.
State elected officials obviously have little control over their states’ 10-day forecasts, but they do control their states’ tax climates. We know tax policy is not the only reason people are motivated to live, invest or grow a business in a state, but it plays a significant role. State lawmakers should keep this in mind as they shape public policy.