A new book suggests that competition between states for residents is alive and well. It seems over the past 15 years people have overwhelming moved out of states with higher income taxes, and into states with lower tax burdens. The author says that between “1995 and 2010 over $2 trillion in adjusted gross income moved between the states.”
Obviously wealth is going to move between states as people change jobs and scenery. What makes this move of wealth suggestive of state competition on tax burdens is the net loss/ gain of residents in states with high/ low taxes respectively. “[T]he nine states without a personal income tax gained $146 billion in new wealth while the nine states with the highest income tax rates lost $107 billion.”
It should not be surprising, but states that continue to raise the tax burden on their citizens lose more residents, and have economies that are stagnating. Blue states can whine that the competition between states isn’t fair because of “aging infrastructures, large pensions to pay, and entrenched trade unions” in the more liberal states, but that is the point; these big government tax and spend policies are not sustainable or good for the economy.
Wisconsin however, proves it is never too late to reform. Governor Scott Walker cut taxes and reined in the unions, and since then Wisconsin has been on the rise. An attempted recall of Governor Walker failed to oust him, and he claims that since Wisconsin Democrats “refuse to pledge to roll [reforms] back”, this shows that the electorate sees the success and is unwilling to risk the economy to go back to failing liberal governing policies.
And this is precisely why states need to have more control over their affairs than the federal government. State competition means better policies in states, because people can easily move within the US. Blanket policies that affect all of the US can do more damage when there is nowhere to escape to. Being from Massachusetts, I am from one of the high tax states slowly killing their economy. Massachusetts lost a congressional seat after the 2010 census (as it did after the 2000 and 1990 censuses) because our population didn’t grow as quickly as the rest of the country.
I’ve known multiple young people with engineering degrees who have left the state for economic opportunity elsewhere, at least one nurse, and other skilled workers who have moved to New Hampshire, the Carolinas, and Florida. Family members who want to start a business plan to move to a more business friendly climate down south within a year and a half. As the economy is still the number one issue for voters, the lesson should be clear. Freer states with less restriction and lower taxes are more attractive to workers and business owners, and will therefore be the homes of more economic opportunity.