It’s often said that “money talks; BS walks,” but previous guests on my show have marshaled hard evidence that money walks, too. IRS data shows that it tends to walk from places with high taxes and poor quality governance to places with lower taxes and a better business climate.
Back in 2013, when I interviewed Travis Brown on his book How Money Walks, the caravan of Californians to lower-tax states had already begun. Hundreds of thousands of former residents of the Golden State have traded fools gold for silver — leaving for Nevada, not to mention Texas, Florida, and Oregon. This mass exodus of citizens is hitting California’s state budget especially hard, since our state relies on the income tax more than most.
Five years later, I thought it was time to revisit the subject with the Cato Institute’s director of tax policy studies, Chris Edwards, who has a new white paper out grading every state governor on fiscal performance. Governor Jerry Brown of California gets a “D.” I think this is generous, yet I still choose to live here. Perhaps my decision, and that of millions of others like me who have stuck around, explains why the government hasn’t been more responsive — yet.
Edwards also recently published an analysis of the recent Federal tax reform and its effects on interstate migration. One of the key findings is that tax competition among states has increased since the passage of the Tax Cuts and Jobs Act of 2017. The bill reduced overall income taxes and increased the standard deduction, but it also capped the state and local tax deduction at $10,000. This means that upper and middle class residents of states like California and New York feel a greater burden from the state income tax and have an even stronger incentive to join the outbound bandwagon.
Edwards also found that in 2016, even before the tax policy change, 600,000 people earning a total of $33 billion moved from states with above-average taxes to those with below average taxes. California had a net loss of over 25,000 households. In a state where the top 1 percent of earners pay 50 percent of state income taxes, all it takes is a handful of households to significantly reduce the budget.
The secret is out, as many news outlets have begun reporting on the “best states to move to for lower taxes.” Just as lower prices incentivize demand in a free market, lower taxes with the same quality of governmental services are spurring a competitive marketplace among states. May the best states win!
I interviewed Chris for the full hour on Sunday 10/28 about his findings, and will also be introducing my new compilation of transcribed interviews on the closely related subject of “Federalism 2.0.” The book launched this weekend to commemorate the 231st anniversary of the publication of the first Federalist Paper. Sign up for my weekly liberty digest to receive transcripts of past shows, teasers of upcoming shows, and a free PDF of the first 3 chapters of my forthcoming book, Power to the States: How Federalism 2.0 Can Make America Governable Again.