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Voting With Their Feet!
by David Stanowski
24 April 2008


People move for many reasons, but the primary ones are to be close to family and friends; to live in a different climate or geographic setting (beach, mountains, desert); to be in a smaller town, bigger city, or in the country; to live in a more compatible political climate; or for better career/economic opportunities. Moving away from an area that is politically hostile, or offers dwindling economic opportunities has long been referred to as "voting with their feet". It shows a frustration with the government, and its effect on the economy that can't be solved at the ballot box; it can only be remedied by escaping.

A recent research report, Rich States, Poor States, by Arthur Laffer and Stephen Moore, found that the dominant reason most people move is for better economic opportunities. This report studies internal U.S. migration patterns between states that have high tax burdens, and anti-business climates, and those states with more favorable conditions.

The following table shows the states that have had the most in-migration and out-migration between 1996 and 2006.

Rank State Population Change
1 Florida +1,643,073
2 Arizona +769,679
3 Texas +667,810
4 Georgia +650,941
5 North Carolina +570,716
6 Nevada +491,325
7 Tennessee +258,838
8 South Carolina +258,109
9 Colorado +231,891
10 Washington +218,304
33 33 33
41 Connecticut -109,930
42 Pennsylvania -182,078
43 Michigan -317,389
44 Massachusetts -330,657
45 Ohio -362,601
46 Louisiana -402,745
47 New Jersey -409,409
48 Illinois -727,150
49 California -1,318,266
50 New York -1,955,023

This table clearly shows that Americans are leaving New England, the Rust-Belt States of the Mid-West, and California for the other regions of the country. Even though California is still the fifth largest economy in the world, its tax policies and business climate have started running people out of the place that has been viewed as the "land of opportunity" since the 1930's.  

This study found that it is often the people who are the highest achievers, and those with the most wealth, capital, and entrepreneurial drive who are the first to leave a state that becomes burdensome. As they leave, the least productive citizens are left behind, which speeds up the decline of the state.

California had about 25,000 millionaire households in the year 2000, but by 2006, 5,000 had left the state as they became fed up with the high taxes, and the anti-business climate.

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After examining the effect of taxes, and the business climate on migration patterns, the authors constructed a three-part Performance Index which ranks each state by equally weighting migration, the growth in personal income, and employment growth.

This Performance Index, detailed in the table below, shows how each state ranked during the period from 1996 to 2006, as far as its business climate, and the economic prosperity of its residents. By this measure, Texas was the best place to live; Michigan was the worst.

Overall
Rank
State Migration
Rank
Personal
Income
Growth
Rank
Employment
Growth
Rank
1 TX 3 12 7
2 FL 1 23 4
3 AZ 2 24 2
4 VA 12 7 12
5 MT 21 3 10
6 WY 27 1 6
7 CO 9 17 9
8 NM 28 10 8
9 OK 23 2 23
10 ID 13 33 3
11 WA 10 28 13
12 MD 35 4 15
13 SD 29 6 20
14 NV 6 48 1
15 DE 19 21 17
16 ME 20 18 27
17 VT 25 9 31
18 AL 18 8 39
19 NH 16 32 19
20 UT 34 31 5
21 SC 8 38 24
22 ND 36 14 22
23 GA 4 50 18
24 RI 33 13 29
25 NC 5 45 25
26 MN 24 26 28
27 TN 7 35 36
28 OR 11 46 21
29 CA 49 15 14
30 KY 14 34 32
31 AK 30 43 11
32 AR 15 37 33
33 WI 22 30 35
34 WV 26 22 41
35 MA 44 5 43
36 KS 40 19 34
37 HI 39 41 16
38 NJ 47 20 30
39 MO 17 42 42
40 CT 41 16 44
41 NE 37 39 26
42 MS 31 27 46
43 LA 46 11 49
44 PA 42 25 40
45 IA 38 36 37
46 IN 32 40 45
47 NY 50 29 38
48 IL 48 44 47
49 OH 45 47 48
50 MI 43 49 50


The authors looked at many factors that create an unfavorable business climate, and poor economic growth, but high personal income tax rates were by far the worst dis-incentives. The nine states with the lowest personal income tax rates (PITs) were compared to the nine states with the highest PITs, for the period 1996-2006.

Lowest PITs: AK, FL, NV, NH, SD, TN, TX, WA, WY.
Highest PITs: KY, HI, ME, OH, NJ, OR, VT, CA, NY.

Metrics Lowest PITs Highest PITs
State GDP Growth 85.6% 62.1%
Personal Income Growth 79.2% 59.6%
Personal Income
Per Capita Growth
52.6% 49.5%
Population Growth 17.3% 7.6%
In Migration as a % of
Population
4.1% -1.8%
Payroll Employment Growth 22.9% 12.1%

Another study looked at the 40 year period, between 1957 and 1997, and found that the ten states that raised income taxes the most had real total income growth of 190.94%, versus the ten states that raised income taxes the least that had real total income growth of 455.45%!

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Finally, the authors identified 16 policy variables which they believe are the best predictors of the future economic performance of each state.
  • Highest marginal personal income tax rate
  • Highest marginal corporate income tax rate
  • Progressivity of the personal income tax system
  • Property tax burden
  • Sales tax burden
  • Tax burden from all remaining taxes
  • Estate tax/inheritance tax (Yes or No)
  • Recent tax policy changes 2005-2006
  • Debt service as share of tax revenue
  • Public employees per 10,000 residents
  • Quality of the state legal system
  • State minimum wage
  • Workers' compensation costs
  • Right-to-work state (Yes or No)
  • Tax/Expenditure limit
  • Education Freedom Index
By using an equal weighting of each of these variables, they produced their 2007 Economic Competiveness Rankings, shown in the table below.
 
Predicted Performance Rank for the next few years State
1 UT
2 AZ
3 SD
4 WY
5 TN
6 VA
7 CO
8 GA
9 ID
10 TX
11 NV
12 IN
13 OK
14 FL
15 AR
16 MI
17 MO
18 AL
19 NC
20 NH
21 LA
22 DE
23 MS
24 ND
25 SC
26 MA
27 IA
28 NM
29 KS
30 WI
31 WA
32 MD
33 MT
34 NE
35 MN
36 OR
37 PA
38 AK
39 CT
40 WV
41 CA
42 IL
43 NJ
44 ME
45 HI
46 KY
47 OH
48 RI
49 NY
50 VT

Unfortunately, since this report was completed, many states have taken a major turn for the worse due to the fallout from the housing bubble, and will  not perform as well as anticipated.

Bankruptcy

More info:
Rich States Poor States: Individual State Data

Is Your State in Recession?
State by State Income Trends.
Current Economic Distress of States.

Ohio Job Losses: 2000 to 2007 - Worst Since The Depression.
Pennsylvania Jobs Market: 2001 to 2008.

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At the end of their report, the authors addressed the issue that there certainly are things that are more important that mere economic prosperity. However, accurately measuring the level of one's "quality of life" is very difficult. To get some sort of quantitative measurement, they chose to look at GDP per capita versus Life Expectancy.

This study was done using national data, from countries around the world, rather than as a state to state comparison. The graph below shows that the richest countries enjoy 25 more years of life span than the poorest countries! Of course, this is merely a measure of the "quantity" of life, and not strictly the "quality"; but it is something.

Life
 

Texas:
Those of us who have chosen to live in the State of Texas can be very pleased with the fact that
the Rich States, Poor States performance index says that, from 1996-2006, Texas offered more economic opportunities than any other state! However, Texas is projected to slip to tenth place in the future. The reasons for this prediction can be obtained by looking at the detailed analysis for the State of Texas.

Here are the problem areas/areas needing improvement in the State of Texas:
  • Property taxes are too high
  • Sales taxes are too high
  • Miscellaneous taxes are too high
  • There is too much government debt
  • There are too many government employees
  • Tort reform and more judicial impartiality are needed
  • Workmens' compensation costs are too high
Hopefully, the Texas legislature will address these issues before the state declines too far from its recent number one ranking.

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Galveston:
Rich States, Poor States does not offer any data on cities, but the principles that the authors used for states can be applied to smaller government entities like counties and cities.

Discovering the fact that the City of Galveston lost 7% of its population from 1980 to 2005, while the state population grew by 61% is the first clue that something is terribly wrong with the Galveston economy! Using the concepts in this report, an analysis must be done to see how the City government is stifling business activity.

A study of available economic data confirms the fact that the City does not share the robust economic performance of the State of Texas. (See "State of the City"). The obvious question is why.

City residents pay no state, county or city income tax, but property taxes are high, and the sales tax rate is pegged at the maximum amount. However, it is not clear that property taxes, and sales taxes present a burden significantly higher than in most parts of the state.

This shifts the focus to City government policies towards business. The study makes it clear that the state governments that are most likely to create the economic conditions that make people want to leave, set high tax rates,  and have a clear anti-business attitude.

The attitude of our City government appears to be disinterest, and benign neglect towards the business community. It is a situation that has been allowed to fester for so many years that the private sector has become apathetic and discouraged. The problems posed by the building-permit process, lack of uniform building code enforcement, cooperation with vacation schedules, and special events, etcetera, are legendary.

Considering how many people truly want to live in Galveston, the fact that people are still voting with their feet, and leaving, is sending a powerful message that the local economy does not offer many opportunities to them. This should be deeply disturbing to everyone! 

Rich States Poor States: Full Report


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