It’s not just Texas eating the economic lunch of basket-case states such as California and New York. Kansas City saw about 9,500 new jobs created between May 2012 and May 2013 — every one of them on the Kansas side of the border, where residents and businesses enjoy a significant tax advantage thanks in part to the leadership of Governor Sam Brownback and Kansas conservatives. Johnson County, Kan., gained nearly $800 million in adjusted gross income between 1992 and 2010, and the biggest chunk of it came from Jackson County, Mo., which is down some $1.78 billion in AGI over the same period. Money walks, which is the point of Travis H. Brown’s book How Money Walks, and his website, which contains a wealth of excruciatingly detailed data about where people are taking their families, their businesses, and their income.
From that data, here’s a five-point plan for destroying your state’s economy.
1. Make work expensive. The nine states with the highest personal-income-tax rates lost $100 billion in AGI from 1995 to 2010. The nine states without any personal-income tax gained $146 billion. In all, some $2 trillion has moved between the states during the years for which Brown has data, and the pattern consistently favors low-tax jurisdictions. Taxes are the direct motive factor in some of those decisions, especially for very wealthy people and retirees, though the more important factor probably is the availability of work. Businesses want to invest in lower-tax jurisdictions, and that creates jobs and brings families and their incomes. According to Census Bureau figures, nearly twice as many people move for jobs or job-seeking as for changes in marital status, and about as many people were moving for jobs as were moving because they were buying homes. Jobs move people.
Taxes may be here serving as a proxy for a bundle of pro-growth policies; the kinds of political leaders who keep a lid on taxation are also in the main the kind who are responsible about regulation, education, and related matters. But the figures are nonetheless striking.
These trends also hold true within states. It is no surprise that New York County (Manhattan) has lost AGI to nearby suburban areas such as Westchester County, N.Y., and Fairfield County, Conn., or that Philadelphia, which imposes a city income tax, has lost people and income to nearby suburban counties. But that doesn’t mean that these states are keeping it in the family: New York State has lost $68 billion in AGI, with Florida claiming the biggest piece and North Carolina in the No. 4 spot. Pennsylvania is getting beat out by (in order of magnitude) Florida, North Carolina, South Carolina, Virginia, and Arizona.
2. Attack lifetime savings. Florida is a good place to live and a great place to die. Its lack of a personal income tax is attractive, and so is its lack of an estate tax. By way of contrast, Minnesota imposes a significant estate tax, one that is more rapacious than the federal levy: Whereas the federal tax excludes $5.25 million per person, Minnesota excludes only $1 million. And if you try to give away some of your assets before you kick off, Minnesota imposes its own gift tax, too, at 10 percent. Minnesota lost nearly $4 billion in AGI from 1992, with the largest amounts going to Florida, Arizona, Wisconsin (which recently eliminated its estate tax), Texas, and Colorado.
3. Run up your state’s long-term liabilities. That means fat pensions for unionized state employees funded mostly by hopes and dreams and fairy dust. The states with the most serious unfunded-liability problems are basically ebola-infected hot zones for mobile capital and income. People in Detroit have known for a long time that the city’s 100,000 or so creditors were eventually going to come around looking to get paid, and nobody wanted to hang around to get stuck with the bill, which is one of the reasons why Wayne County has lost $9.57 billion in AGI. Michigan as a whole has lost $16.8 billion, with the largest share of it going to — stop me if this sounds familiar — Florida, Arizona, and Texas. Illinois is down $29.3 billion, and California is down a shocking $45.3 billion, with its incompetent leaders due thank-you notes from Nevada, Arizona, Oregon, Texas, and Washington. Within California, Los Angeles County — the Detroit of the West Coast — is down $36.4 billion.
4. Tax fanciful things. Maryland is the innovation leader here, with the ingenious leadership of Governor Martin O’Malley having decided to levy a tax on rain. Already down $7 billion in AGI largely ceded to Florida, North Carolina, and Virginia, Maryland has declared war on economic development, with its rain tax levying charges on every square inch of impervious surface — rooftops, parking lots, driveways — that will produce runoff in the event of rain. The tax has been so poorly thought out and implemented that it is expected to fall far short of early revenue estimates, meaning that the state will pay the price for the tax but realize relatively little of the hoped-for revenue. It’s harder to take business away from Maryland, because so much of its economy is based on its proximity to the hog trough in Washington, D.C., but it lost out to Virginia in its bid to secure the world headquarters for Northrop Grumman in 2010, and Virginia has made a play for Maryland’s biggest business, Lockheed Martin. Bechtel was considering uprooting its Maryland operations, probably for Virginia, and the state was reduced to offering the company a $9.5 billion sweetheart loan to stay put. The real impervious surface in Maryland is the thick skulls of its political class.
5. Don’t just be crazy — be California crazy. California is running out of things in the present to tax, and its future does not look terribly bright, so it has resorted to taxing the past. A combination of judicial shenanigans and legislative incompetence resulted in California’s reneging on tax incentives that had been offered to some businesses — and then demanding the retroactive payment of taxes for which businesses had never been legally liable. Small-business owners, some of whom had sold their businesses years ago, suddenly got demands for taxes running well into the six figures. And, California being California, it had the gall to charge those businesses interest on taxes they had never owed. Jim Fowler, a software entrepreneur, was hit with a bill for more than $600,000. “I think that’s the part that’s really going to ruin trust in the state of California,” he said. “You can’t do this to entrepreneurs. Entrepreneurs will stop coming here.”
There was a time — and it really wasn’t that long ago — when if you were a financial firm, you had to have an office in Lower Manhattan, when film studios had to have offices in Los Angeles, and high-tech firms really needed to be in Silicon Valley. If Travis Brown’s big data set shows us anything it is that those days are done. You can build very fine automobiles in the United States, but if you aren’t already in Detroit, you’d be a fool to set up shop there. For the feckless governors of high-tax, big-government states with Governor Perry and Governor Scott breathing down their necks, the only question is which Rick they’re going to get rolled by.