We all know that birds, vacationers, retirees and the like all head south this time of year to escape the colder weather. More recently however, it seems the only ones returning once the sun comes out are the birds. The reason? Taxes and other economic variables that make the Northeast and Midwest states less desirable for both personal and business residences relative to other states.
Doug’s recent blog, A Risky Time for Tax Increases, points out the potential competitive downside to the US raising taxes while others around the globe are lowering their respective tax rates. A recent study by Arthur Laffer (long-time friend and colleague of ours) and Stephen Moore (currently a senior economics writer for the WSJ) shows that at a state level businesses and individuals alike migrate to those areas with more favorable economic variables.
The Wall Street Journal editorial, The (Tax) War Between the States (subscription required), discusses the findings from their 2007 Economic Competitiveness Rating of the 50 States. In the study, Art and Stephen look at sixteen economic policy variables, including taxes, regulation, the legal system, educational freedom and government debt. The two found that over the past decade, the ten states with the highest taxes and spending have half the growth in jobs and population and one-third slower income growth than the ten most economically free states.
The biggest losers? Those states in the Northeast and Midwest, Ohio included. The states in the South and West (except California) are and continue to be the big winners. Would potential federal tax increases show the same results over the coming decade for the US relative to its global competitors? Most likely depending on the magnitude and duration of the hikes.