Wednesday, April 6, 2016
Social Migration and Taxes
When they say it’s the climate, and not the taxes, it’s the taxes.
The United States has a highly mobile society. It moves to where the taxes are lower, opportunity is greater, government regulation is more equitable, the business and environment climate is warmer.
There are other factors as well – sources of loans and capital, pools of skilled workers, prominent educational institutions, an effective secondary education system, lower-cost housing, a friendlier political environment, a less-violent environment, greater access to a vibrant cultural activities, a sense of social equity, and a fair-minded balance between government and business cultures.
A frontier-like mentality where government regulation is frowned upon, free enterprise is prized, and income taxes are lower may be the most important single factor behind migration to other states, whether these destinations are within or outside the United States.
Taxes in the News
High taxes and their effect on population, businesses, and politics are very much in the news - Pfizer’s move to Ireland because of the 35% corporate tax has been cancelled because of the administration’s new tax laws, the Panama papers detailing where leaders to move their assets to tax havens has caused Iceland’s top politician to resign, Bernie Sanders is on a roll among the young and disenfranchised based on his socialistic tax policies, and the mass migration of Americans to low income states, generally in the South and West continues unabated.
In his classic book Megatrends (1982), John Nesbit prophesied a mass migration from the North to the South and from the East to the West was inevitable. It said three mega states – California, Florida, and Texas would emerge as powerhouses- with an inevitable shift of political and economic power to these states. This has proven to be the case, California is the base of Silicon Valley, Florida is now the 3rd largest state in population and the number one political swing state, and Texas is the center of the center of American energy production. In Florida and Texas, lower taxes have created a rising economic tide which ahs lifted the migratory waves. California is different because it is the Internet nerve center of the online universe and it move its facilities to lower cost states.
And much of this power shift can be traced to lower income taxes.
The 9 states with no personal income taxes – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming – gained $146 billion in tax revenues in recent years despite their lack of income taxes.
The 10 states with highest personal income taxes – New York, New Jersey, Connecticut, California, Wisconsin, Rhode Island, Minnesota, Massachusetts, Maine, and Pennsylvania – lost $139 billion in tax revenues as well as millions of their citizens moving South and West.
The biggest gaining states in tax revenues were Florida (+13.3 billion), Arizona (+17.7 billion), and Texas (+17.6 billion). The biggest losers were California (- $29.4 billion), New York (-8.6 billion), and Connecticut (-$ 4.2 billion).
As noted above, there are other factors involved in the move to other states and other countries – a friendly business climate, fewer punitive regulations, and, of course, the warm weather. In the case of physicians, lower malpractice rates are another potent factor. Since Texas reformed its malpractice system 10 years ago, physicians are flocking to the Lone Star State. Other states are seeking to retain physicians by building more medical schools, placing medical students into practice environments earlier, and granting lower cost loans for medical education, but in the end, a lower tax and friendlier economic environment is the most crucial physician-retention factor.