The inter-state job search migration
The Internal Revenue Service created a bit of a kerfuffle last week when it announced that it would no longer publish data on interstate taxpayer migration and the income they take with them. This would be a huge disservice not just to economists and policy analysts but to all Americans.
This IRS migration data provides the best evidence that low-tax, limited-government states attract employers, families and individuals, while states pursuing the same policies as the White House – higher taxes, bigger government and more onerous regulations – drive businesses and taxpayers away. It’s not hard to fathom why the Obama administration, despite its promise to be the most transparent in history, would want the IRS to stop publishing this damning evidence.
California, Illinois and Maryland, which have some of the highest tax burdens and biggest state governments in the country, may have finally realized the deleterious economic effects that come with following President Barack Obama’s approach to governance.
From 1995 to 2010, California had a net loss of 1.7 million tax filers, who took with them $37.2 billion in income. Governor Jerry Brown’s recently approved $50 billion income-tax and sales-tax hike, coupled with the state legislature’s new Democratic supermajority, has opened the tax floodgates in Sacramento and is expected to exacerbate this outflow.
Over this same period almost a million people have left Illinois, a state that last year passed the largest tax increase in its history. These erstwhile Illinois citizens took $32 billion in income with them to friendlier tax climates. The state’s Democratic governor, Pat Quinn, had to grant special carve-outs from his massive 2011 tax hikes to some of the biggest corporations in the state, such as Sears Holding Corp. and the Chicago Mercantile Exchange, just to prevent them from leaving the state.
This strategy of shrinking the taxpayer base and raising tax rates on businesses and people who cannot afford to have a full-time lobbyist at the state capital is a surefire way to drive more individuals and employers out ‑ putting the state’s finances on even shakier ground.
Then there is Maryland Governor Martin O’Malley, a 2016 presidential hopeful. He is such a huge proponent of Obama’s high-tax, high-spending agenda that he has already implemented many of the same policies in his state.
The results have been less than stellar. In O’Malley’s first term, more than 57,000 taxpayers fled Maryland, taking almost $3 billion in income with them.
States that have gone in the opposite direction on taxes from where Obama and Senate Majority Leader Harry Reid (D-Nev.) want to take the country have seen quite different results. During the same 15-year period, from 1995 to 2010, Texas and Tennessee, states that do not tax wages and have relatively low per capita spending, have seen an influx of 345,000 and 989,000 people, respectively, bringing more than $30 billion in income with them to their new homes in the Lone Star and Volunteer states.
Joel Kotkin and others have pointed out that energy resources and the policies to fully exploit them are one big reason that states like Texas are flourishing. But having a business-friendly, low-tax environment is crucial.
Consider California. It is the third-largest oil-producing state – yet it is a fiscal basket case. It loses revenue and jobs by having policies that prevent the state from fully using its resources. There are 11 billion barrels of oil and 19 trillion cubic feet of natural gas now recoverable with current technology just waiting to be tapped in California.
As the economist Arthur Laffer emphasized in his 2010 report for the Texas Public Policy Foundation, “Texas benefits from its abundant oil reserves because, in addition to the other advantages reviewed, Texas also fosters an environment that allows businesses, individuals and entrepreneurs to work, save and invest without facing overly burdensome regulatory costs and delays — including businesses in the oil industry. The same is not true for California. California’s regulations make it more difficult for its people to harness the abundant natural resources available to its residents.”
States like California and New York, which has also suffered a loss of taxpayers, should be reaping the economic benefits of their natural resources just like Texas and North Dakota. But their unwelcoming tax and regulatory regimes prevent it.
Fortunately, it appears that the IRS data documenting interstate migration trends will continue to be available after all. The IRS on Monday issued a response, saying it will continue to provide migration data and that its unavailability is temporary. It is crucial that government officials be held to their commitment to continue publishing this important information.
“The IRS should be applauded for continuing to provide this data,” the Tax Foundation’s Joe Henchman wrote in a post for the non-partisan organization’s Website. “However, I’m immensely curious as to who ordered them to cancel it in the first place, and why.”
As are we.
In so many of these failed states, there is no political will to rectify their overspending problems and unfunded pension liabilities. Perhaps most disconcerting is that lawmakers in charge – including Brown, O’Malley and Quinn – appear to believe the federal government will continue to bail them out of their profligacy and irresponsibility.
Taxpayers from successful states should be wary of these failing states ‑ including California, Illinois and Maryland ‑ and the threat they pose to the fiscal health of the entire nation.
PHOTO (Top): A man visits a job booth at the Dallas Military/Veteran Career Fair in Dallas, Texas February 10, 2009. REUTERS/Jessica Rinaldi
PHOTO (Insert): A woman passes an advertisement at a career fair booth at the National Urban League’s Economic Empowerment Tour in Dallas, Texas June 13, 2009. REUTERS/Jessica Rinaldi