The End of Prosperity by Arthur B. Laffer & Stephen Moore & Peter J. Tanous

Author:Arthur B. Laffer & Stephen Moore & Peter J. Tanous
Language: eng
Format: epub
Publisher: Threshold Editions
Published: 2008-07-15T00:00:00+00:00

Moving Up and Moving Out

We need to digress for a moment from the woes of the Golden State and make a broader point here.

California isn’t the only example of how states that raise taxes lose people—not by a long shot. Americans vote every day on the economic policies of states by moving from one state to another. In the past decade a record number of Americans have moved across state lines, with 8 million packing their bags and relocating in 2007 alone. That’s twenty thousand people every day who are on the move—mostly in search of greener pastures and greater opportunities. In the time it takes you to read this chapter, another five hundred people will have moved from one state to another. We agree with Rich Karlgaard, the publisher of Forbes magazine, who recently wrote: “The most valuable natural resource in the twenty-first century is brains. Smart people tend to be mobile. Watch where they go. Because where they go, robust economic activity will follow.” 22

The liberal-leaning northeastern states and to a lesser extent the old industrial unionized Midwestern states are being bled day after day of their most precious commodity: their human capital. The steady erosion in the power base of the northeastern states is a compelling illustration of what happens when politicians advance one reckless policy agenda item after another. The northeastern elites have been assuring their citizens for years that imposing some of the highest tax rates in the nation, forced union laws, and runaway government spending won’t chase people out of the region. But over the past decade there are some 5 million Americans who have voted with their feet and abandoned this region who would beg to differ.

States with the highest income tax rates—California and New York, for example—are significantly outperformed by the nine states with no income tax, such as Texas and Florida. That is to say, these low-tax states have more economic activity and jobs than their higher-tax neighbors, as shown in Table 8-1. As a study from the Atlanta Federal Reserve Board put it not too long ago: “Relative marginal tax rates have a statistically significant negative relationship with relative state growth.” 23 To put that in plain English: High taxes are like economic depressants. They slow you down.

The divergent experiences of America’s four largest states illustrates that when it comes to growth, it is the quality of the economic policies that matters, not necessarily size. California and New York have little in common other than that they have been moving in a pro-government-intervention direction in recent years. They both stand out as flashing billboards for what states should not do if they want to gain income and wealth. See Figure 8-2 (page 170).

Some of the most compelling evidence comes from the moving van companies. The United Van Lines Company, for example, keeps meticulous track of the shipments it makes moving a family into and out of each state. Figure 8-3 (page 171) shows the geographical distribution of this internal migration for 2007.

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