Sunday, June 21, 2009

Death, Taxes and Migration

Like most Rust Belt counties, Washtenaw is aging. This big story for shrinking cities is, more often than not, ignored. Natural decline and retirement erode the tax base. That's the non-migration part of the problem. But the headlines typically cry that talent is leaving in droves. Brian Kelsey, blogging at Civic Analytics, takes the Wall Street Journal to task for its claim that high taxes are driving people out of California. Brian rationally tests, using IRS relocation data, the hypothesis that there is an exodus from the state. While the libertarians out there chew on the numbers, I'll tell you why the WSJ article is nothing more than a piece of political propaganda:

The best idea is his semi-endorsement of a flat tax for California. The state's budget problem has two main causes: The first is runaway spending and the second is a tax structure that smothers businesses and entrepreneurs. California's income tax is the most progressive of all 50 states, with the second highest top rate (10.55%) after New York City's 12.62%. The Governor's revenue office calculates that between 50% and 55% of the income tax in the state comes from Kobe Bryant and the rest of the richest 1% of taxpayers.

Tax reform isn't a bad idea and I consider myself to be a fiscal conservative. But why are the advocates for such policies spreading misinformation in order to make a point? The facts are harmless enough. The implication is feebleminded. Given the tax structure, you wouldn't expect to find Silicon Valley in California. Also, you wouldn't think that New York City would be such a talent magnet. Why are so many tech startups located in Taxachussetts? How can low tax states possibly be worried about brain drain?

I'll drill deeper into that last question. Revisiting the Kauffman Foundation's "analysis" of the NCR move from Dayton, OH to Atlanta, GA, there's an interesting detail concerning Georgia's pitch to entice the relocation:

The fast-moving, top-secret deal to extract NCR Corp. from its 125-year residency in Dayton and bring the Fortune 500 company to Georgia involved closed-door governor-to-CEO meetings, a new law authorizing millions in tax breaks and matter-of-fact presentations on the attributes of Hope Scholarships.

Brain drain is a concern in the South and Georgia is no exception. The Hope Scholarships are designed to address the exodus of talent from this relative tax haven (at least compared with Ohio). See, reducing taxes won't solve the shrinking city dilemma. If you just look at out-migration rates, then you'll find a surprise. For 2004-2005, here are the six states with the lowest rates of out-migration:

  1. Texas (1.8%)
  2. Wisconsin (1.8%)
  3. Pennsylvania (1.8%)
  4. Michigan (1.9%)
  5. Ohio (2.0%)
  6. California (2.1%)
You want to plug the brain drain? Raise taxes. Of course, that's silly. But this is the road libertarians are determined to go down because they refuse to take a closer look at the numbers. Please stop the ideological nonsense.

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