Thursday, June 11, 2009

Taxes drive the rich (and the not-so-rich) to Texas

Tonight just a quick pass-along from a recent Wall Street Journal op-ed titled "Soak the Rich, Lose the Rich", which has a lot of nice things to say about Texas:
The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.

...

States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be outsourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.

The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late.
Hat tip to Joel.

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20 Comments:

At 8:16 AM, June 12, 2009, Anonymous kjb434 said...

It's stories like this that continually makes me put my face in my hand every time a politician mentions "we need to tax the rich!". Why can't they understand that lowering taxes will actually increase their revenues since the businesses and populace will grow and be more productive.

On top of that, hard working citizens are the least burden on a government. They are less likely to want entitlements and other handouts.

 
At 9:26 AM, June 12, 2009, Anonymous Anonymous said...

O.K., the thing I always have to ask about these analyses is whether or not they disentangle the effect of the local industry mix and the business cycle. I mean, I'm in favor of low taxes and low regulations too, but it's not like they are the cause of $50-$150 oil. The decline of the American auto industry is a complicated story, but it's not exactly an income tax issue either.

jt

 
At 10:01 AM, June 12, 2009, Anonymous kjb434 said...

The major cause of oil prices trending upward right now is the fact the dollar is slowly becoming less valuable. Since oil on the world market is priced in dollars, the more debt and money we print to cover that debt will cause the dollar value to drop. It simply takes more dollars to buy the same amount of oil.

The next spike in gas prices won't be from demand, but instead from bad monetary policy.

The analysis Tory is pointing out details state fiscal policy and how it attracts or repels workers and industry/business. The decline of the US auto companies is because they are no longer car companies. They are now healthcare providers. That's where their biggest expense is. Just say thank you to UAW. State policy also puts these industries in a bind by forcing them to cater to the unions. That why so many foreign auto companies have built plants in "right to work" states where unions don't have much power at all.

 
At 1:00 PM, June 12, 2009, Anonymous Appetitus Rationi Pareat said...

Oh gosh, here we go, it's all the UAW's fault. Why don't you throw in "the liberals" and "the French" for good measure?

Anyway, back to reality, the biggest reason why companies like GM provide such expensive health care plans is because, unlike raises, they are untaxed. Our fiscal policy in this country encourages companies to provide expensive, often unneeded, health care plans to employees instead of simply paying them a higher salary. This is part of the reason why the United States spends more per person on health care than any other country in the world. And yet we still have a lower life expectancy and high infant mortality than other comparable countries that spend MUCH less.

 
At 3:21 PM, June 12, 2009, Blogger Michael said...

If we just lower the tax rates to 0%, we will maximize our revenues!

Also, I agree with Anon - there is a *much* stronger causal link between the high commodity / oil prices of 2008 and the fact that Texas created so many jobs than the fact that we have no state income tax.

I do agree that Texas is experiencing a lot of growth and some of that is due to being a business friendly climate and having a low cost of living - but you also have to look at the services you are getting in exchange for your tax dollars. I think Texas does relatively well here as well, but could do better. And sometimes raising taxes to provide better services is a good idea - not just as the state level but the federal level.

Also, we do have very high property taxes and sales taxes here.

 
At 7:51 PM, June 12, 2009, Blogger anthony said...

i have to disagree with Anon. While Houston is tied directly to energy, DFW, Austin and San Antonio are not. Just becouse you live in Houston you cannot just disregard the other major metros in the state.
The largest employer in Houston is not Energy.....it'healthcare.

Adios

 
At 8:04 AM, June 13, 2009, Anonymous Anonymous said...

I know one way my family moved away from taxes. We moved from a MUD tax district to an area without, simply because the MUD tax was incredibly high.

 
At 2:07 PM, June 16, 2009, Anonymous kjb434 said...

Have fun with these maps from Moody's posted on MSNBC.com

http://tinyurl.com/noc737

They are all nice maps and lend themselves to the idea that lower tax/regulation states will see recover faster.

The last map show various metros and whether their economies are mixed or single industry. It also depicts the industry if it's a single industry. Houston is listed as a diversified/mixed economy.

 
At 2:20 PM, June 16, 2009, Anonymous Appetitus Rationi Pareat said...

"They are all nice maps and lend themselves to the idea that lower tax/regulation states will see recover faster."

You mean like Oregon and Washington state?

 
At 6:01 PM, June 16, 2009, Blogger slinkydog said...

ARP, if you're interested in discussion, quit playing gotcha games, right?

 
At 7:20 PM, June 16, 2009, Blogger Michael said...

Yeah ARP, quit pointing out things that contradict conservative dogma.

 
At 11:49 PM, June 16, 2009, Blogger slinkydog said...

Michael, please explain why. I don't see that as how the questions break down at all; it's a much more interesting learning opportunity: Oregon and Washington have a clear position. Better than one of every ten Americans on the face of the earth are in high-priced cities within a hundred miles of the California coast. But Californian urban society is shaped to an unusual degree in the direction of catering services to the state's unusually large class of tech and media billionaires and millionaires. There's an equally disproportionate presence of multiple families bunking under the same roof just to get a piece of the action in high-demand areas with lots of these services to provide. Third, and interrelated, the state's public services are insolvent: the rich alone, even the largest contingent of them anywhere, cannot cover the public externalities of this arrangement, while a proportionally smaller than average middle class exists where there is an exaggerated upperclass and exaggerated underclass. The squeezed middle is increasingly called on for tax support to keep CA a leader in one thing or another, and can only feel increasingly squeezed. This is why California, with its productive economy, has a higher rate of domestic emigration than do economically washed-out states. But there's a catch. If your lifetime circle of family and friends live on the East Coast, you have many job centers to choose from within a couple of hours' radius - if not on the ground, then at least by a discount flight. If instead you're a Californian, the West has many fewer job centers for you to choose from: Arizona (small, but many chose it), Denver (small, yet many chose it), Boise (small, yet many are choosing it), or Oregon and Washington. If you want to have anything to do with the Pacific trade, or you need a metro job center near more than just a couple million people and whose economy is not based on old people, then your choices are simple. Oregon, Washington, suck it up (see your loved ones twice a year) and leave the West, or cough it up and stay in California with little hope of improvement. It managed to string along for a decade or so while programs could be funded with revenue from property valuations that reflected supposedly astronomical demand (although the astronomical growth of the cities a couple hours from CA during that time suggests that a different policy would have brought CA much more benefit and much more retention of the middle class). But the source of OR and WA's bright prospects is as simple as California.

 
At 11:55 PM, June 16, 2009, Blogger slinkydog said...

Credit where credit is due: the last half of that post references something said to Andrew by a commenter on neohouston. I don't remember whether ARP was involved in that thread, but Andrew's answer was to stick with a just-so story about Boulder growing because it is clearly what people want.

 
At 11:08 AM, June 17, 2009, Blogger jay C said...

Tory,

Do you have any idea where Governor Perry is getting this "Texas added more jobs than 49 other states combined" number? I found a million references to it on far right blogs, but not a one mentions where this information comes from, which makes it impossible to refute.

There are a bunch of interesting possible explanations for this factoid, some discussed in the comments above, but others that would be more about checking into the Governor's method for making that talking point.

For example, does he mean that other states that lost jobs are counted against states that gained jobs? That would seem to make the "more than 49 other states" disingenuous.

Also, it would be instructive to compare how many jobs were added in 2008 compared to the last five years. If we added a tiny fraction of the jobs we had been adding, but the rest of the country was in a horrible situation, that makes the statement a little desperate.

So it would be nice to know what he's talking about, and it was surprisingly (or I guess not) hard to find any claim of the source of the talking point.

And I agree with the others who have commented that the claim of a causal relationship between our regressive tax structure and job growth is pretty thin. In fact, its kind of insulting to all the Texans who value our land, our people, and our culture, instead of ideology.

Thanks,
Jay

 
At 11:41 AM, June 17, 2009, Blogger Tory Gattis said...

I do not know where you can find the hard data, but I believe it does involve combining all 49 other states, including those with losses. So if Texas adds 100K jobs, and all the loser states lose 1 million jobs, and all the other winner states add 1.05 million jobs combined (for a net of +50K jobs), then, yes, we did better than all other 49 states combined. We have definitely been the strongest single state by far.

The Chronicle today has a story showing 5 of the top 6 least affected metros by the recession are in TX (from a Brookings study).
http://www.chron.com/disp/story.mpl/business/6483542.html

The fact remains that the implosions in finance and housing have hit much of the country, but TX has been relatively immune plus the energy boost (until recently). I have also seen graphs in the Fed reports showing that over the last many years (2 decades+), TX has consistently outperformed the country as a whole (on a proportionate index basis).

 
At 1:03 PM, June 17, 2009, Blogger slinkydog said...

Jay C - the Bureau of Labor Statistics (in this case http://www.bls.gov/news.release/laus.toc.htm ) is usually the place to look.

 
At 1:22 PM, June 17, 2009, Blogger Michael said...

>>I have also seen graphs in the Fed reports showing that over the last many years (2 decades+), TX has consistently outperformed the country as a whole (on a proportionate index basis).

How about the rest of the sunbelt? I think a lot of Texas's growth is due to factors much simpler than taxation or regulation: there is a lot of good land, our building boom didn't come until the 1950's or 1960's at the earliest so we are still *very* young in terms of our evolutionary growth - which usually includes a rapid growth phase as you have mentioned in your articles on the 4 waves of American migration, we have very high exposure to some industries like energy and health-case which are counter-cyclical or resistant to recent recessions, and we now have air conditioning which allows us to put up with this heat.

Did Texas have high tax rates in the 1920's and Detroit had low tax rates, explaining Detroit's phenomenal growth earlier in the 20th century? I don't believe so, and I really think looking at taxation and regulation only is so superficial as to be nearly useless. You get what you pay for - if our tax dollars are going to pay for useless things, then I agree it is harmful. Otherwise, it is potentially beneficial.

If people want low tax rates and no regulation, their choices are increasingly going to lie outside of the US in places like China. I don't know if we want to or can compete on that - it is a dangerous race to the bottom that also entails environmental destruction and dangerous products.

Slinky,

I agree, Seattle is only benefiting because millions of people like Bill Gates got fed up with the high tax rates in California and moved to Seattle, because it was the only alternative (um... j/k). And similarly, maybe Texas is benefiting because millions of people from Ohio and Michigan are out of work now and they are giving Texas a chance. So Texas's gain is as simple as the misfortune of other surrounding states (and in the case of Mexico - nations).

-Mike

 
At 2:12 PM, June 17, 2009, Blogger Tory Gattis said...

It's not always the deciding factor, but it is a factor. There are certainly plenty of studies that show the correlation. I think state govts tend to think they have a safe "lock" on something - like MI and autos or CA and tech+others - and start jacking up taxes and public benefits because "we can afford it, and they can't go anywhere." And, they can, for a while. It's a slow erosion (like the auto industry moving south to right-to-work states, or filming leaving SoCal). Until it all collapses. But by then, too many groups have their hands in the public trough (often unions, public or private) to roll back any of the taxes/regs to more competitive levels. So they just go into permanent slow decline. They make a show of using public subsidies to lure sexy new companies (like MI is trying to do with biotech), but it's all for show - the macro stats show the big picture - and most companies do not consider high-tax, pro-union, high-reg states for expansion or new facilities.

I also think there is a citizen side too (not just businesses). If you get used to a certain lifestyle with low taxes, then move to a high-tax/high-CoL state (regs drive up costs), you naturally yearn to return to the place where you lived better for the same income (same if you see it with friends/family). Over time, that's a migratory advantage at all education/talent levels. I've heard plenty of people complain about Houston - until they move elsewhere for a while - then they start to talk about getting back where they had it better than they thought.

 
At 3:51 PM, June 17, 2009, Blogger Michael said...

>>I think state govts tend to think they have a safe "lock" on something - like MI and autos or CA and tech+others - and start jacking up taxes and public benefits because "we can afford it, and they can't go anywhere." And, they can, for a while.

I don't disagree with some aspects of what you say. But when you look at a specific case like janitorial workers in Houston who in the past few years have tried to unionize and be paid a "living wage", I think that's more of a grey area. Would Houston be better off if we could pay these janitors minimum wage, or maybe even *less* than minimum wage? Or would we be better off if they had a few decent benefits and pay so that they can take their kids to the doctor or help their kids go to college? I tend to think you maximize societal benefits in some of these cases by having unions or workers rights.

Also, I hardly think film world is leaving SoCal or the financial world is leaving New York - and most of the problems with finance in NYC stem from a lack of regulation, not over-regulation. Michigan could have been helped by reduced pension plans or from coming around in the age of the 401k instead of pension plans based on unfavorable demographic trends, and a single-payer health care system.

 
At 4:22 PM, June 17, 2009, Blogger Tory Gattis said...

Unions are just monopolies on labor, and most people agree monopolies are bad. Economists debate the minimum wage, but it seems ok if it's not too high. We can certainly up the welfare state at a national level, but then we risk becoming like slow-growth Europe. It's a balancing act.

 

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