D. Dowd Muska


State Governments Do More Than Tax

May 15, 2014

Liberals believe that state taxes aren’t important -- individuals and businesses make location-selection decisions by weighing manifold factors, the talking point goes, and revenue grabbed by Olympia, Little Rock, Harrisburg, et al is hardly determinative.

An element within the pro-capitalism camp maintains that state taxes are monumentally influential -- when solons and bureaucrats extract too much from workers, families, and enterprises, the argument holds, economic disaster ensues.

The squabble’s latest skirmish is “State Taxes Have a Negligible Impact on Americans’ Interstate Moves,” a report by the far-left Center on Budget and Policy Priorities. According to author Michael Mazerov, “differences in tax levels” have “little to no effect on whether and where people move, contrary to claims by some conservative economists and elected officials.”

The paper’s specific targets are economists Arthur Laffer, Steve Moore, and Travis H. Brown, who “claim that people are leaving high-income-tax states for low- or no-income-tax states in large part because they want to be able to retain more of their wages rather than pay them to … governments.”

Who’s right? Both. And neither.

Mazerov has assembled an impressive compendium of stats. To begin with, he explains, most of us are homebodies. Interstate migration is not common. In the 1980s, fewer than 3 percent of Americans moved across borders each year, and the figure “averaged just 1.6 percent annually in the past 10 years.” Furthermore:

• Some high-tax states have stable populations. Between 1993 and 2011, moves in and out of Vermont were about even. Wisconsin, Maryland, and Minnesota posted similar results.

• During the same 18-year period, low-growth Wyoming, which lacks an income tax, “lost households via migration to its neighboring states of Colorado, Idaho, Montana, and Utah -- all of which levy income taxes.” Alaska and South Dakota do not tax incomes, but experienced overall outmigration.

• The data on affluent households show no propensity for flight from income taxes. For example, the “share of New York-to-Arizona migrants with incomes above $100,000 is the same as the share of New York-to-Florida migrants even though Arizona levies an income tax and Florida does not. A higher share of New Jersey-to-North-Carolina migrants had high incomes than did New Jersey-to-Florida migrants even though North Carolina has an income tax.”

• The elderly relocate to states “regardless of whether they have an income tax. Retirement-age migrants make up approximately the same share of Californians moving to income-tax levying Oregon and Arizona as they make up of retirement-age migrants to no-income-tax levying Nevada and Washington.”

Mazerov skillfully skewers some of the wilder assertions made by supply-side crusaders. But his paper’s value is limited, because it’s largely an assault on straw men. Yes, some right-leaning economists, public-policy analysts, activists, and pols get nutty over taxes, particularly when levies on wages, salaries, and investment income are imposed or raised. But thoughtful libertarians and conservatives understand that it’s intervention in toto -- not tax rates alone -- that matters. And when states in love with Unlimited Government face off against their fugal, pro-freedom competitors, liberal policy wonks’ narrative gets dodgy.

Under legislation passed over Harry Truman’s veto, states can ban the compulsory payment of tribute to “organized labor.” Unions use the bulk of their dues revenue for lobbying and electioneering, so states without right-to-work measures are reflexively inhospitable to free enterprise. The results are health, environmental, and safety regulations that are often far in excess of what’s needed for rational, science-based protections.

Little wonder, then, that the National Institute for Labor Relations Research documents economic dynamism in right-to-work states, which outperform their pro-union brethren in private-sector payrolls, compensation growth, housing starts, and several other key metrics.

Tax-happy states can also be counted on to embrace nannying of every variety, from mandates for “green” electricity to Byzantine land-use restrictions, minimum wages to anti-mobility “transportation” policies. In addition, there’s a strong correlation between enormous unfunded liabilities and high taxes. Deep-blue states such as California, New Jersey, Illinois, and Connecticut face staggering expenditures for pensions and post-employment healthcare. They lavished salaries and benefits on greedy government unions, and taxpayers have only just begun to pay the bill.

The evidence is clear: Taxation is not destiny. But the burden of state government is far greater than the amount of revenue raised by levies on incomes, corporate profits, sales, fuel, alcohol, and cigarettes. Investments unmade, homes not built, compliance costs that require hiring expensive experts, time lost to traffic congestion, unnecessarily high prices for essential goods and services -- all count as losses in a ledger the left ignores.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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