| October 4, 2012
Voting with Their Feet
We’ve looked at the income-tax evidence for more than two decades, with data dating back to 1960, and we’ve found that in any 10-year period you look at, America’s no-income-tax states consistently outperform the equivalent number of the highest-income-tax states.
We and lots of other people also have examined Internal Revenue Service (IRS) and Census Bureau data covering at least two decades on people who move from one state to another.
Looking at the past six years’ worth of data—from 2005 to 2010—we have the number of tax filers who moved from the nine highest-tax states to the nine no-income-tax states, their aggregate adjusted gross income, and the average income per filer. We then have these same data for filers who moved from the nine no-income-tax states to the nine highest-tax states.
It should come as no surprise that far more tax returns—416,000 more—are from people moving to the no-income-tax states from the highest-income-tax states than the reverse. Not only are there more tax returns moving from the highest-income-tax states to the no-income-tax states than the reverse, but the average adjusted gross income of those moving to the no-income-tax states is far higher than is the average adjusted gross income of those moving from the no-income-tax to the highest-income-tax states.
The data show clearly that Americans are packing up and moving into low-tax states and moving away from high-tax states—and taking their incomes along with them (see Table 1).
We’ve also examined the United Van Lines data on where people move from and where they move to. Low-tax states are huge net destination points and high-tax states are population repellers (see Tables 1 and 2).
In fact, reflecting net migration patterns, the rates charged by moving van companies (such as U-Haul) are sometimes far lower for the few people who move to a high-tax state like California from a low-tax state like Tennessee than for the large number of people who move in the opposite direction. In 2008, for example, the cost to rent a full-sized U-Haul truck to move from Los Angeles to Nashville was $4,285—more than six times the $557 cost of moving in the opposite direction.
Similarly, it cost $4,254 to rent a full-size truck from Los Angeles to Austin, yet only $407 for the reverse trip.
Today, it costs $2,312 to rent a U-Haul truck from Trenton, New Jersey, to Houston, Texas, but only $905 going the opposite way. Philadelphia to Nashville costs $1,380, but Nashville to Philadelphia costs only $788.12. Price data don’t lie.
In analyses of Oklahoma’s recent prosperity, University of Central Oklahoma business-school dean Mickey Hepner and his academic colleagues in Oklahoma don’t give any credit to Oklahoma’s major income tax rate cuts from 2005 to 2009, or the adoption of right-to-work by Oklahoma in 2001. And yet they all, to a person, use Oklahoma’s recent period of economic prosperity as a reason not to cut tax rates rather than as proof of what tax rate cuts can do. To quote Professor Hepner:
[W]e see that the Oklahoma economy is already doing pretty well. In fact, we are doing better than most of the states that don’t have a personal income tax … Since 2000, Oklahoma’s per capita personal income has grown at the seventh-fastest pace in the nation, faster than seven of the nine states that lack a personal income tax … So, I am concerned that eliminating the income tax won’t generate the payoffs that the proponents are claiming that it will generate.
What Professor Hepner doesn’t say is that the Oklahoma economy underperformed the aggregate U.S. economy in the years 1998, 1999, 2000, 2002, 2003, 2004, and 2005—seven out of the eight years from 1998 through 2005. And what happened after the Oklahoma tax cuts? The Oklahoma economy outperformed the aggregate U.S. economy in 2006, 2007, and 2008, and tied in 2009 and then fell behind again in 2010 and 2011.
For the whole period 1997 through 2005, prior to Oklahoma’s income tax rate cut, Oklahoma’s real GSP grew 18.9 percent versus U.S. growth of 28.2 percent. And after Oklahoma’s income tax rate cut from 2005 to the present, Oklahoma’s real GSP grew by 11.3 percent versus U.S. growth of 5.4 percent. Coincidental? We don’t think so. Tax cuts help.
But now let’s take Hepner’s chosen mortal combatant for Oklahoma: Texas. Hepner states: “And I can tell you with great glee and with great joy, that by all three of those metrics, per capita growth and the state economy, per capita personal income growth, median household growth, we are thumping Texas and it’s not even close.”
Here’s the real record from 1998 through 2011 (see Figure 1). Texas outperformed Oklahoma in the 1998 to 2005 period by 28.4 percent to 18.9 percent, respectively. And then in the 2005 to 2011 period, Texas once again outperformed Oklahoma by 18.7 percent to 11.3 percent, respectively.
Using IRS data from U.S. income tax returns for the six years 2005 through 2010 (the latest data available), 2,217 more tax filers moved from Oklahoma to Texas than from Texas to Oklahoma (see Table 3). The average adjusted gross income of the filers who moved from Oklahoma to Texas was $3,455 higher than the average adjusted gross income of filers who moved from Texas to Oklahoma.
Art Laffer (Ph.D., Stanford University) was a member of President Reagan’s Economic Policy Advisory Board.
Stephen Moore (M.A., George Mason University) is a senior economics writer at The Wall Street Journal.