More from the Q Poll — Taxes and Migration

TThe Quinnipiac Poll was not all about Rell and Dodd — they also touched upon the effects of taxing the “rich.” (See it here: http://www.quinnipiac.edu/x1296.xml?ReleaseID=1352 )

The key points are these: “By a 60 – 30 percent margin, Connecticut voters would rather cut services than raise taxes to balance the state budget. But voters support 71 – 27 percent raising the state income tax for individuals making at least $265,000 per year and couples making at least $500,000. The measure wins 90 – 9 percent support from Democrats and 71 – 26 percent support from independent voters, while Republicans oppose it 57 – 40 percent. Voters reject 55 – 42 percent the argument that raising taxes will force wealthier residents to move out of Connecticut. Voters also support 51 – 45 percent raising taxes on corporations….”

Interestingly, most voters want to cut spending to balance the budget, but then think that raising taxes is OK, especially on the rich. Why? Because expert after expert has told legislature after legislature, across the counrty, that raising taxes on the rich does not motivate them to leave a state.

Now, let’s state some facts. We all know that tax policy is both a motivator and a de-motivator. That is why if we like something (e.g., green cars), we lower taxes on them and of we don’t like something (e.g., cigarettes) we raise taxes on them. Clear as day. Liberals and Conservatives alike, by now, seem to understand this feedback relationship.

But time and again, experts (usually pro-tax-hike experts, of course), tell us of that of all people, wealthy people’s behavior is not particularly impacted by tax policy effecting them. I would rejoin that, of all people, those who have worked hard and made some money are those who are especially likely to want to protect their nest egg.

Now, we have data proving this to be the case.

First, we all know California’s and New York’s reputation as high-tax states, along with Massachusetts. If you have a look at this data from the Census Bureau, you will see that indeed, the out-migratiom from those states is alarming. In one year, 2007, alone, more people moved out of California and New York than live in Bridgeport, Hartford, New Haven and Stamford combined!

See it here: http://www.census.gov/population/www/socdemo/state-to-state.html (Click on Domestic Migration Flows for States 2005 Tables, that is the most recent full national data).

That list tells us a lot — the high-tax (NY, CA, MA, etc.), or slow-growth (MI, OH, etc.) states have sent their residents fleeing in droves.

Now, we have much more recent data, too. This Wall Street Journal article – http://online.wsj.com/article/SB124329282377252471.html

details how a recent increase in taxes on the “rich” in MD led to less income from the million-dolar-plus income level. Now, some of it was due to the financial meltdown of Sept. 2008, but some of it has to do with the proximity of Maryland to Delaware, Virginia and the Carolinas. In short, people voted with their feet – they left, establishing residency in states with lower taxes, and thus depriving Maryland of ANY support at all.

Thus my thesis, raising taxes on high-earners is counter-productve, for one simple reason – wealthy people are more mobile than poor folks, and they can catch a plane to Boca and buy a house pretty quick, and Boom! That’s it — one less rich girl or guy to lay a tax bat on. (More on Maryland here: http://www.aipnews.com/talk/forums/thread-view.asp?tid=4891

The same goes for corporations – they are by nature mobile, so if you whack them hard enough, they will eventually find their way to a low-tax haven as surely as water finds it level. (Thus, the population growth through in-migration in states like South Carolina, Florida, Arizona, Delaware, etc. And for those of you who found some data showing those states have similar tax burdens to CT or MA, get over it — the property taxes in SC or FL, for example, are often less than 10% of what they would be here in the Northeast. People are moving there directly because of the contrast in tax policies.)

So to those voters who suggest balancing the budget through spending cuts rather than tax increases, I agree because I want keep our people and our businesses in this state. And to those who say it’s just fine to whack some rich folks in Greenwich or Litchfield, procede with caution, lest you find those guys have moved to Hilton Head, and the state received less, not more, from them.

Advertisements

15 responses to “More from the Q Poll — Taxes and Migration

  1. Quick apologies — the year in questions was 2005, not 2007, and the links would not come up as clickable. Sorry, but they are worth cutting and pasting into a browser, I promise.

  2. It’s a trap question by nature…..

    The problem is that the question assumes you can balance the budget solely by cutting services. This isn’t the case this year since we’ve seen in Rell’s budget a bunch of borrowing in conjunction with cutting services that balances a budget that’s still over a billion dollars short of the OFA estimates. The option for the question should have said “borrowing and cutting services”.

  3. Stating that this data “proves” your thesis is significantly overstating it. Ignoring for a moment the countless other variables that may be at play, it seems to me that you ignore the critical distinction between correlation and causation (assuming for a moment that these “results” are statistically significant).

    I think we would be better served in starting with a rigorous review of all the data to determine if any conclusions are possible, rather than starting with the conclusion and then look for data to that fits with the conclusion.

    Call me picky, but I generally find that reality is a far more complicated thing than thesis – couple of selected data points – proof.

  4. Redcoat: Nothing will ever prove to a “taxes-are-good’ type that taxes are bad. I know, I’ve been trying for years. So yes, all of us can observe a direct correlation between low growth and/or high taxes and high levels of outmigration, but yes, just for you, there is no causal or correlational relationship between the two. No, there are “countless other variables” to take into consideration, like whether or not one’s mother-in-law lives in Texas or Hawaii, and whether or not particular states have good baseball teams. Of course!! That must be it!

    Now go back to wondering if eclipses are caused by big extraterrestrial whales floating by the sun.

  5. I was hoping for more Vincent. You’re correct, the only other relevant variables are relatives and baseball teams. What’s more, I suspect that your “direct correlation” is something less than that (what’s the r-value?).

    Taxes are neither “good” nor “bad,” they are a tool used by a democratically elected governments to fund services. Virtually every individual will agree that some government services, and by extension, some taxes, are necessary. The question is what is the appropriate level of services/taxes. This question is subject to disagreement by intelligent individuals. Unfortunately, as long as we insist on simplistically characterizing the discussion as “taxes are good” and “taxes are bad” we won’t arrive at an intelligent resolution.

  6. AndersonScooper

    I just want to point out that State Income Taxes are deductible on one’s Federal return.

    So in effect top earners would be saving about 1/3 of any increase….

  7. Here is a great WSJ article from 2006.

    http://online.wsj.com/public/article_print/SB114670305012743294.html
    From above…
    “With the House and Senate preparing to vote on extending George W. Bush’s investment tax cuts, it’s no surprise the cries against “tax giveaways to the rich” grow increasingly shrill. Just yesterday Senate Minority Leader Harry Reid charged that the Bush tax plan “offers next to nothing to average Americans while giving away the store to multi-millionaires” and then fumed that it will “do much more for ExxonMobil board members than it will do for ExxonMobil customers.”

    Oh really. New IRS data released last month tell a very different story: In the aftermath of the Bush investment tax cuts, the federal income tax burden has substantially shifted onto the backs of the wealthy. Between 2002 and 2004, tax payments by those with adjusted gross incomes (AGI) of more than $200,000 a year, which is roughly 3% of taxpayers, increased by 19.4% — more than double the 9.3% increase for all other taxpayers.

    Between 2001 and 2004 (the most recent data), the percentage of federal income taxes paid by those with $200,000 incomes and above has risen to 46.6% from 40.5%. In other words, out of every 100 Americans, the wealthiest three are now paying close to the same amount in taxes as the other 97 combined. The richest income group pays a larger share of the tax burden than at anytime in the last 30 years with the exception of the late 1990s — right before the artificially inflated high tech bubble burst.
    Of course, in the real world, financial incentives through tax policy changes matter a great deal in altering economic behavior. And we now have the evidence to confirm that the latest round of tax cuts worked — five million new jobs, a 25% increase in business spending, 4% real economic growth for three years and a $4 trillion gain in net wealth. So now the very class-warfare groups who, three years ago, swore that the tax cuts would tank the economy rather than revive it, pretend that this robust expansion would have happened without the investment tax cuts. Many Democrats on Capitol Hill recite this fairy tale over and over.

    One final footnote to this story: Just last week, the Department of the Treasury released its tax receipt data for March 2006. Tax collections for the past 12 months have exploded by 14.4%. We are now on course for a two-year increase in tax revenues of at least $500 billion, the largest two-year increase in tax revenue collections after adjusting for inflation ever recorded. So why are the leftists complaining so much? George Bush’s tax rate cuts have been among the most successful policies to soak the rich in American history.”

    It was reported in Bloomberg a couple of months ago, that 40,000 people out of 8 million in New York City pay 50% of the taxes there, what happens if 10,000 leave? Someone’s not paying theior fair share, hope some of these people move to CT.

  8. It’s not just taxes. Taxes do matter,but conservatives need to also focus on other things — some of which can be controlled and some of which cannot be — which contribute to stagnant population growth or even exodus of people from certain states to others.

    Even if Connecticut managed to fund itself with zero taxes on residents (for instance, suppose that people in Mass and RI decided to play the slots intensely, and slot machine taxes generated all our tax revenues), the population (and economy) would not be soaring. It’d be better for sure, but there’d still be stuff holding us back.

    First, we’re crowded. There are a lot of people living in Connecticut. 3.5 million people: about 700 per square mile. Oklahoma has close to our population: 3.6 million, but they have lots more space, so only about 53 people per square mile. So as you might guess, real estate is a lot more expensive here. Like a lot more. Which means that when you buy a house, your mortgage is a lot higher. There’s also a more difficult zoning process here to building additional houses. Some towns in Fairfield County mandate large acreage zoning, basically to prevent people from building more houses. We can debate the merits of this, but at the end of the day, it has the effect of reducing the potential supply of housing, which in turn raises the price.

    Take a professional earning $150,000. By focusing on his 6% taxes, that’s $9,000 or $750 per month. So yes, if he moves to another state that could employ him for the same amount, and if that state had no income tax, then he’d save $750 per month. But if he could sell his house here and buy one there for $133,000 less, he’d save another $750 (assuming 5.5% mortgage rates). So hosuing prices are a big factor that keep people out of this state, or that make people want to leave this state. In Fairfield county, housing prices are still much much higher than the rest of the country.

    Now, outside of Fairfield County, or even at the fringes of that county, housing prices are much more reasonable (but still much higher than the national average), but we’ve made it almost impossible to expand the area from which people can have an acceptable commute to where the jobs are. The reasons for this are complex, but basically it’s because we don’t have a good transportation infrastructure. Vital arteries like Super 7 repeatedly get blocked. 95 is basically too expensive to widen or expand. The Merritt could be but has a bunch of historical charters and such as some people are determined to keep the highway at its 1930s capacity and not modernize it for the 21st century and our current population density. Commuter rail offers some relief, but parking is often difficult at commuter rail stations, and even when available, it requires reasonable schedules (which are largely in place) and a reasonable walk from the station to the places of employment.

    We have higher electrical rates than most states: unlike most states, we don’t generate much power with coal (due to both environmental concerns and a lack of a good freight rail infrastructure). This does have an impact on some businesses, particularly some manufacturers.

    Since real estate is more expensive, most stores are more expenisve than in other parts of the country. Restaurants, grocers, clothing stores, etc. have to either make the rent payments through higher volume, higher prices, or a mixture of the two.

    Since real estate (and thus mortgages) are more expensive, and since most other things are more expensive, this means that people that live here want higher salaries than people that live where land and everything else is cheaper. So for businesses looking to locate here, they have to justify paying these higher salaries. In some cases, people that have special skills have congregated in CT: people that have in demand skills. For instance, hedge funds. If you wanted to start a hedge fund in Fairfield County, you could instantly find 25 competent people. They’d demand high salaries, but finding them wouldn’t be a problem. Now, if you were dead set on setting up a hedge fund in Tulsa, you might have some trouble finding 25 competent people for that line of work there.

    There are certain business segments that we are guaranteed to lose. While CT used to have a fair number of manufacturers, there’s just almost no way that’s competitive any more. Certainly not with our high costs. And you can find factory workers in a lot of places that are a lot cheaper than Connecticut on all fronts.

    Another thing is happening: with the advent of the internet, advanced supply chain management, etc., many more businesses can locate elsewhere. Hedge funds may still draw on a critical mass of people in the NYC area. But think about back-office processing. Most back office brokerage operations used to be in the NYC area: they had to be close to NYC. Now, you’ve got Ameritrade having most of its back office in Omaha. Charlotte, NC is now a big banking hub.

    I don’t know about the specifics of regulation in Connecticut, except that it sure seems difficult to build stuff here. It just seems that local nimby types are really good at stopping development here. That’s also going to add to the cost of doing business here.

    Also, Connecticut is colder than most states.

    So cutting taxes to 0% would not solve our problems, not even close. I am not advocating that we raise taxes: obviously, they don’t help. But they aren’t the only factor, by far. Regulation, weather, population density, real estate prices, cost of living, and a myriad of other factors play roles as well. I guess people like to focus on taxes because they are ultimately controllable (we can lower tax rates and have them take effect immediately: we can’t do much about the weather, and doing things like improving infrastructure or cutting regulation or approving more housing development takes a while before it has an impact).

  9. High taxes are well documented as disincentives.

    The most significant off-setting factor for migration in high tax states seems to be job growth.

    CT was quite lucky in the last 15-year period: the deregulation of financial services and the technology boom served the CT economy well and created many decent paying jobs. The doom and gloomers wallowing in the decline of manufacturing in the 80s and early 90s were wrong. CT didn’t collapse overnight.

    Does this mean CT job growth will recreate the success of the last 15 years? Doubtful some would say. Others are looking at Health Care as the last growth sector in CT. Sustinet and increased funding will create jobs (as will the declining health of aging boomers). Others are predicting a loss of Fairfield County residents as the financial industry goes global and New York takes a back seat to some other financial centers in the next 20 years.

    I don’t know anyone that’s left CT for IT jobs in Houston, Birmingham, Reston, or the Research triangle that’s coming back.

    To me the question is whether Sustinet or higher taxes will attract jobs and halt the outsourcing of jobs to India or the South.

    Will Sustinet or higher taxes stop Pratt from sending jobs to Singapore or Georgia?

    More on taxes and migration (includes an R factor)

    http://www.taxpayersnetwork.org/_Rainbow/Documents/Taxation%20and%20Migration.pdf

  10. neither right nor left

    I just want to point out that State Income Taxes are deductible on one’s Federal return.

    That’s not actually accurate. Anyone subject to the Alternative Minimum Tax – if that includes a lot of Connecticut families – state taxes are not deductible from the federal income tax.

  11. That’s not actually accurate. Anyone subject to the Alternative Minimum Tax – if that includes a lot of Connecticut families – state taxes are not deductible from the federal income tax.

    The sad thing is that I’ll bet Williams and Donovan are no smarter than AndersonScooper on this one.

    Vincent, unfortunately the poll statistics you cited above only prove that the average greedy, selfish pig (Democrat) voter in this state wants it all BUT wants someone else to pay for it. They want a house they can’t afford, free health care, all their toys, free daycare, etc., BUT they want the “rich” to pay for it instead of them.

    And we have Williams and Donovan leading the charge to do just that, how pathetic!

  12. justthefacts

    The Census data show large numbers of people leaving MA and NY for Florida. The flow out of CA is to AR.

    Are they leaving for jobs and low taxes? Or are baby boomers retiring?

  13. just the facts,

    Good question(s) you ask in your post above. IMO while taxes are a huge part of the problem you point out, the real answer has roots that go beyond just that.

    Currently my wife and I are enjoying a great summer out of rainy Connecticut, here in our home in Jackson Wyoming.

    Certainly escaping Connecticut’s tax burden played a huge part in our decision to build our second home here, but there are so many other reasons beyond just taxes that cause people ( like ourselves) to move or become residents elsewhere at some point. Keep in mind becoming a resident of some other state does not mean you need to move completely out of the state you are from.

    Weather, crowding, cost of living, natural beauty, and just the desire to find a place that one could be happy in all play a huge role. Obviously, if I were not retired the local job market would probably be at the top of that list as well.

    Since so many of our young people pick up and move out of state looking for work as soon as they get out of college I am sure many retired people also would like to move nearer to them ( and their grand kids) rather than stay behind.

    Bottom line IMO the solution for CT would be to find the best balance. We can’t fix the weather, or our limited natural beauty, or many of the problems of having only 5000 sq miles for us all to live in bring. But we could do far more than we do to fix our job market. We could work much harder to actually reduce the size of government, while providing all the same services we currently have, and even more.

    These sort of problems are never caused by just one issue, but at some point one issue does become big enough to push one over the edge. Especially when that particular issue is one that can be dealt with if the people we elect had the guts to tackle it.

  14. justthefacts question valid, but if an economy is thriving, young people moving in replace retirees moving out. In many states, that isn’t happening. As for A1, yes, there are a multiplicity of reasons people do ANYTHING — and everyone from Adam Smith to Milton Friedman would insiststhat economics is a primary one.

  15. Vincent,

    I agree economics is one of the most important things to consider.

    To be clear I think you and I agree on that matter.

    I do want to be also clear that we cannot escape the need for taxes. My problem with paying taxes in CT is that IMO far too much of our tax money is wasted along way.

    Having come from a business environment where each year we worked not only to do our job but to find ways to do more with less ( which BTW should always be at least a small part of everyone’s job) I have no doubt there are many ways for the state to explore that would actually cut the actual cost of government while at the same time providing more and better services.

    As long as Donovan and Williams want to keep pretending that the wealthy don’t pay their fair share we will get nowhere. The real problem is that far too many special interests are getting far too much more than their fair share.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s