Governments should work to ease taxes, not toward easy tax implementation. Why? Because Americans do not just vote with their hands at the ballot box. We also vote with our feet and moving vans.
Businesses are not so very different. Government population and tax figures indicate that more than 20 million residents moved from one state to another between 2002 and 2017. That shift in population is about 6% of the total American population or more than one in every twenty people. And that comes along with the associated commerce – a three trillion dollar shift in taxable income.
Do I have your attention?
What works
The late Supreme Court justice Louis Brandeis came up with the description of states as “laboratories of democracy.” By this, he was indicating they may “try novel and social and economic experiments without risk to the rest of the country.”
Some states are thriving, attracting new residents and investors. Others are experiencing stagnation and even decline. These economic experiments include tax policy (and regulatory burden) as the primary differentiators between states.
What do we learn from states with a thriving and economic growth? Success follows the easing of their citizens’ tax burdens.
Are we going to succumb to the agenda of regressive leftists pushing a tax everything that moves policy? They think the more taxes they raise the better solution for budgetary woes they have. But that just isn’t true.
Granite State vs. Green Mountain State
Vermont and New Hampshire took divergent paths 75 years ago or more. Back then both states had roughly equal populations and they were similar in many ways. Today New Hampshire is roughly double the population size of Vermont. Something changed dramatically since that point. It wasn’t geography and it isn’t access to power.
New Hampshire’s model of having no personal income tax while relying on implementing programs only after designating revenue sources for them has kept the state on solid financial footing. Vermont has essentially decoupled spending from designated revenue sources. It turns out the greater the disconnect between spending and revenue the slower the reaction time when spending outstrips the revenue stream.
The New Hampshire model attracts people and businesses. It brings more money to the state. It keeps the state financially strong. It’s not only “a great thing,” but also an accurate analysis. U.S. Census data indicates Vermont is actually shrinking in population. Fewer people were born in and moved to Vermont than died and left the Green Mountain State. People are dying to leave Vermont. In fact, they even instituted a bounty of $10,000 per head to move to Vermont and the program is not stemming the tide.
Is this one-off or part of a pattern?
So, what happens elsewhere? Is this a one-off local phenomenon? During the same period, only two states lost more than high-tax, big-spending Illinois. States always experience people coming and going, but 1 million more residents left Illinois than moved into the state during those 11 years.
The only other states with larger net losses than Illinois are California and New York. Both of those states also punish their citizens with high tax rates. This combined with opposition to common sense spending reforms weakens their economic competitiveness. Income taxes punish productivity. Thus, higher income taxes mean lower productivity.
When you tax something more you get less of it. When you tax something less you get more of it. It is funny how that works… but it does every time. That $3 trillion shift in taxable income indicates many entrepreneurs and wealth creators followed suit.
Think about this; hedge fund manager and Carolina Panthers’ owner David Tepper in 2016 caused all of New Jersey’s high-taxing state government to shudder. He made the decision to relocate to no-income-tax Florida. When he did he took hundreds of millions in tax revenue with him. Actions have consequences.
Conclusion
States embracing the more is less principle regarding tax policy are discovering it’s much more than a nice-sounding platitude. It’s key to their economic growth and vitality. A state’s tax burden “is most consequential” among the various policies used to determine economic performance.
It’s not coincidental that while New Hampshire has one of New England’s lowest overall tax burdens. It also enjoys healthy state and local revenues. And there is a reason it is currently experiencing substantial growth in population, employment, personal income, and manufacturing. The government’s chief strategy has been to ease taxes not create easy tax implementation.
