Friday, September 17, 2010

Lower Taxes Boondoggle

I have a hard time taking seriously anyone advocating for lower taxes and offering up migration data as support for her or his policy position. The analysis offered is embarrassingly shoddy. The Tax Foundation is one of the more notorious practitioners of the brain drain boondoggle. The New Jersey press continues to eat it up:

More people moved out of New Jersey than all but four other states between 2000 to 2008, underscoring broader demographic shifts and, some say, a decline in the state’s attractiveness.

Even with a constant influx of newcomers, the Garden State had a net loss of nearly 304,000 residents over the eight-year-period, who took combined annual incomes of $12.3 billion with them to other states, according to figures accessed through a database launched today by the Tax Foundation, a policy research group in Washington, D.C. that advocates for lower taxes.

The data confirms residents are leaving for states like Florida, New York, Pennsylvania and the Carolinas faster than they are being replaced — a phenomenon that economists attribute to factors such as climate, high taxes and a lack of job opportunities. ...

... The Tax Foundation, which ranks New Jersey 50th in the nation for tax climate, said the database shows there is a general trend for residents to leave the Northeast for the South, possibly for weather-related reasons.

But Gerald Prante, a senior economist at the foundation, said there are many other reasons why people could be leaving New Jersey, such as high taxes and a feeling that they are not getting a "good bargain" for government services.

The first thing I would do is look at the top destination states for New Jersey outmigrants. Why do people leave those states? What are the push factors? The Tax Foundation is hyping the balance of numbers and doesn't control for population size. The figures are useless and intentionally misleading.

Testing for the influence of tax regime on migration would be easy to do. The Tax Foundation isn't interested in getting to the bottom of that variable's significance. It is pushing a policy agenda and has learned that outmigration is a useful red herring. New Jersey would be poorer for paying any attention to Tax Foundation propaganda.

I started a presentation at the West Michigan Policy Forum with a thought experiment. Which of two state economies would you prefer for Michigan? State A per capita income $43,000, unemployment rate of 6.8%, poverty rate of 9.6% or State B per capita income $34,000, unemployment rate of 9.7%, poverty rate of 15.7%? Pretty easy. But now add that State A is a reasonably high tax state and not right to work and State B is the lowest tax state in the country and a right to work state. Change your mind? What matters? Far better economic results or the “right ” policy regime?

The Tax Foundation is trying to get New Jersey and Michigan to choose State B as a policy model. The game is to lower taxes for the sake of lowering taxes. Forget your state's fiscal crisis. There is an exodus of people!

I can play, too. The Tax Foundation ranks Nevada highly for tax climate (4th). But there is an exodus of people from Nevada! Florida is 5th. How well is that state recovering from the recession? I've read that migration to Florida has collapsed. Why would New Jersey want to be more like Nevada and Florida? That's exactly what the Tax Foundation is advocating.

No comments: