Wednesday, January 09, 2008

Taxes and Domestic Migration

Can policy stop brain drain? My position is that we (Pittsburgh or Pennsylvania or even the entire Rust Belt) can better attract talent, but that trying to keep people from leaving is a waste of resources. A column in the Toronto Globe and Mail picks up on an American study modeling US domestic migration in terms of disparities in state taxes:

Using data compiled by the major moving companies, they say that more than 1,000 U.S. families pack up their suitcases "every single day" and move from high-tax, low-growth states to low-tax, high-growth states.

Messrs. Laffer and Moore pay particular attention to top marginal tax rates because, they say, states with high marginal rates lose "their most wealthy and most productive citizens." The economic consequences for the low-growth states - New York, Michigan, Pennsylvania, Illinois, New Jersey and California - are devastating. "Symptoms of the economic despair in these declining states include lost population, falling house values, shrinking tax bases, capital flight, business out-migration, high unemployment rates and less money for schools, roads and aging infrastructure."

I read a chunk of the report and the authors also use US Census data to quantify the migration. The methodology is not all that compelling since the authors only consider net migration numbers. Also, we don't know where these alleged tax refugees went save that low-tax states are often winners and the high-tax states tend to be the losers in the domestic migration game.

I can think of a number of ways we might test their theory, but Laffer and Moore do not attempt any of them. The aim of the report is to convince people that we need lower taxes, not better explain migration patterns. I'm not at all convinced that "Americans vote on taxes - with their feet" unless we are discussing intraregional migration (urban to suburban) or the residential tendencies of people who work near a state border.

There are plenty of good reasons to cut taxes, but turning the tide of domestic migration isn't one of them. At least, I'm still waiting for a study that proves otherwise.

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