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Back when the Democrats were showing their earnest desire to kill job creation by taxing the rich, we noted that rich people were leaving high-tax states for friendlier jurisdictions. Governments have a long history of driving productive citizens away to their hurt as Hitler thoughtfully drove out the Jewish scientists who gave America the atomic bomb.
We've believed for a long time that the economies of low tax states will grow faster than high-tax economies, but the evidence until now was limited to really high tax places like New York state. The New York Post reported:
New Yorkers are fleeing the state and city in alarming numbers -- and costing a fortune in lost tax dollars, a new study shows. More than 1.5 million state residents left for other parts of the United States from 2000 to 2008, according to the report from the Empire Center for New York State Policy. It was the biggest out-of-state migration in the country.
The vast majority of the migrants, 1.1 million, were former residents of New York City -- meaning that one out of seven city taxpayers moved out... [emphasis added]
That study was limited to New York, but fortunately, our Constitution calls for a nationwide study of the entire population every ten years. The results of the 2010 census have been crunched and we now have data on which states gained taxpayers and which lost. The Wall Street Journal reports:
The Census is in. There are now 308.74 million Americans, an increase of 27 million, or 9.7%, since 2000. Americans are still multiplying, one of the best indicators that the country's prospects remain strong.
Although the Journal is correct that a growing population is a sign that people, particularly the 13 million immigrants, believe in the country's prospects, growth of less than 1% per year won't provide enough future taxpayers to pay off the Obama deficit. The census reveals that most people are moving into conservative red states rather than into progressive, union-dominated states:
In order the 10 states with the greatest population gains were Nevada, Arizona, Utah, Idaho, Texas, North Carolina, Georgia, Florida, Colorado and South Carolina. Their average population gain was 21%. In the fast-growing states, the average income tax rate is 4% versus 6.9% in the slowest growing states.
The average population gain of the bottom 10 states was 2%. They include most of the states now famous for fiscal distress: Michigan, Ohio, New York, Illinois. Michigan was the one state that actually had a net loss of population in the past decade.
Particularly troubling is that three of America's traditionally high-octane states—California, New Jersey and New York—are in the population and economic doldrums. [emphasis added]
These three states are in trouble because productive citizens are leaving. In the case of New York, Mayor Michael Bloomberg explained the problem:
One percent of the households that file in this city pay something like 50% of the taxes. In the city, that's something like 40,000 people. If a handful left, any raise would make it revenue neutral. The question is what's fair. If 1% are paying 50% of the taxes, you want to make it even more?
In Ayn Rand's novel Atlas Shrugged, the productive people led by John Galt went on strike and the entire national economy collapsed. In real life, productive citizens are leaving states that steal an unfair amount of their earnings for other states which don't.
The good news is that the blogosphere is spilling enough ink about why people move from one state to another that voters may be catching on. It's possible that enough voters will understand the long-term effect of high taxes and unreasonable exactions by public-sector unions to force a change.
The Obama administration and surviving Democrats, in contrast, seem to be determined to keep spending as high as they possibly can. No matter how many spending cuts or how much regulatory relief the Republicans pass through the House, the majority Senate Democrats can keep those bills from even coming to the floor for a vote.
It remains to be seen how many of the Senate Democrats who face the voters in 2012 will want the Republicans to label them "The party of 'No!'" when it comes to cutting back government. If 2012 is anything like 2010, though, there's at least a chance of effectively devastating campaign ads.
History suggests that people who leave high-tax states for low-tax states don't always realize why they had to leave. New Hampshire, which has no sales tax or income tax, is located between Maine, Vermont, and Massachusetts, three high tax states.
Under our federal system, there's nothing wrong with the politicians of a given state voting in any taxes they like, provided that people are free to leave. In the past, low-tax New Hampshire made Massachusetts excesses possible - rather than agitate for change, a discontented voter moved over the border. Moving conservatives off the Massachusetts voting rolls made it possible for Massachusetts to put in ever more expensive programs which drove more conservatives to New Hampshire, and so on.
At first, high taxes drove out productive, hard-core conservatives which was good for New Hampshire. Then semi-conservatives started moving out, too. With the passage of time, even liberals found that taxes and house prices were higher than they could pay, but when they got to New Hampshire, they wondered where the municipal tennis courts were.
They forgot why they'd had to leave and started voting for higher taxes to pay for all the wonderful public services they'd left behind in Massachusetts. Over time, New Hampshire turned blue.
Before the recent election, New Hampshire had a Democratic governor, House, Senate, congressional delegation, and one Republican senator. State spending went up by about 30% in three years. New Hampshire legislators were firmly in the "We don't have a spending problem, we have a revenue problem" camp and tried to soak those selfish wealthy businessmen whom the feds were already plucking. The Journal pointed out where that leads:
The Census numbers are one way to judge which public policies are working in the country and which aren't. Texas is looking like the new California. And California, Michigan, New Jersey and New York need to look deep into themselves to discover a more promising result 10 years from now.
2010 reminded us why we have elections. New Hampshire voters realized that tax-and-spend benefited no one but greedily corrupt public-sector union bosses and their pet pols. Although the Democratic governor survived, the new Senate has 19 Republicans out of 24, there are more Republicans in the House, and the Congressional delegation has gone Republican. The voters seem to have changed their minds about the virtues of spending.
On the other hand, about 35% of the New Hampshire state budget goes for welfare and 28% is spent on schools of one form of another. As a practical matter, there are only two choices: a) reduce public sector pay including welfare payments or b) reduce public sector head count and cut welfare rolls. Either course will be controversial; and, really, both are needed for long-term growth.
As we've pointed out before, changing government spending patterns is a long-term process.