As the Thunder gears up for its showdown with the San Antonio Spurs for the right to compete in the NBA Finals, Oklahoma’s state legislature is in the midst of tax-reform negotiations that will help determine Oklahoma’s economic competitiveness with neighboring states, such as Texas.
A common phrase in economics is that people “vote with their feet.” This means that sufficiently motivated individuals move to jurisdictions that best satisfy their preferences. Given a choice between a state with higher taxes and a state with lower taxes, people with higher levels of education and income will generally choose the lower-taxed state. A study conducted by Jacob M. Feldman, the Searle Research Fellow at the Mercatus Center at George Mason University, reveals that citizens migrate from high-tax states to low-tax states at an alarming pace.
In his paper, “State Income Migration and Border Tax Burdens,” Feldman focuses on the migration of annual income as a result of aggregate tax differences. By examining the tax burden differences among states, Feldman’s study reveals which states gain and lose most significantly from their neighbors. According to Feldman, regardless of a state’s general party affiliation, having a higher tax burden relative to all neighboring states causes income to leave the state.
The study estimates the income migration in 2012 for each state, and includes a disturbing prediction for Oklahoma. Feldman predicts Oklahoma will lose a total of $104.891 million in income to our neighbors in 2012. While we gain income from Arkansas, Kansas, and Missouri, we lose income to Colorado, New Mexico, and Texas. Feldman estimates that we will lose a whopping $119.394 million in income to Texas in 2012 alone.
A net income loss of more than $100 million is simply unacceptable. When we allow that amount of income to go to our neighbors we lose much more than just potential tax revenue; we lose the most valuable resource our state possesses—our people. When our citizens move to other states because of lower taxes, we lose highly educated, productive people who participate in local community activities that benefit the state as a whole.
Regardless of what happens during this legislative session, our goal should be making Oklahoma’s tax code the most competitive in the region by decreasing tax burdens even further, with the ambition of one day eliminating the state income tax altogether.
OCPA intern James Hall (B.S. in economics, Oklahoma State University) is a law student at the University of Virginia.