Guest MINDSETTER™ Justin Katz: The Facts Don’t Lie on Taxpayer Migration
Tuesday, July 31, 2012
What makes politics and policy fun is that people of good will and honest intentions can disagree and strive to change each other’s mind. Starting from one’s essential worldview, myriad stages of decisions must be made without the possibility of complete information — that is, subjectively — so persuading and being persuaded are distinct possibilities.
We can agree, for example, that we have a moral duty to help those who suffer and struggle among us. Whether government power is the appropriate tool to answer that moral call is a matter on which good people can differ (let alone the wisdom of specific programs).
A fact that I raised in a paper written with J. Scott Moody for the RI Center for Freedom & Prosperity is that federal income-tax payers have been leaving Rhode Island consistently for a decade, taking with them the accumulated equivalent of more than $1 billion in annual resident income.
No doubt, the mix of reasons that families move varies from one ex-Rhode Islander to the next. But as the first step into subjectivity, it is reasonable to suggest that the state is giving people more reason to leave than to stay or to come. Furthermore, the sheer numbers simply hopping over the border suggest that the problem is associated with the way Rhode Island operates.
I’m not alone in thinking, specifically, that unreasonable taxation, regulation, and mandates play a role, combined with deficient government services, including education and infrastructure. At the very least, one can suggest that expanding burdens on residents simply to maintain those deficiencies would not be an intelligent way to reverse their departing flow.
To modify the Field of Dreams cliché: Let them build their own lives, and they will come.
As the Center’s additional research illustrates, a dramatic move like eliminating the state’s sales tax would have a clearly beneficial effect on the burdens of taxation and unemployment. The effect on government services is a fair concern, but we’re prepared to argue that the hit would not be cataclysmic, especially in comparison with our continually declining economy.
In a GoLocalProv article about the Center’s paper, Dan McGowan capture’s very well the competing narrative from the other side. Kate Brewster warns that substantially cutting taxes, even the most regressive tax, “would be financially devastating” to public services.
That argument builds on a study from Jeffrey Thompson, of the Political Economy Research Institute (PERI), an organization with which Brewster’s Economic Progress Institute (formerly Poverty Institute) has worked in the past. Thompson finds that, “if anything, higher state income taxes decrease the numbers of people leaving a state.”
One would think that such a counterintuitive finding (right in the bull’s eye of the study’s subject) would merit a great deal of exploration and explanation, or disclaimers about correlation. Instead, it remains vague speculation until it hardens into the assertion appearing in the GoLocal article.
The reason this striking conclusion is not a focal point of the study may be that even the correlation is dubiously drawn. Income tax rates appear to be calculated from the taxes actually paid. As such, they are little more than a stand-in for a healthy economy. In a state with a more vibrant private sector, people make more money, so they pay more taxes. Fewer people have reason to leave, and more people are inclined to move in.
Very similarly, Thompson’s “brief” on the subject points out that “only 13 percent of all moves result in the person relocating to another state.” While that may be true at the national level, Rhode Island is a very small state, and according to IRS data, out-migration from it is typically a little above 60 percent of all moves.
Of course, it is also true that in-migration from other states is typically a little below 60 percent, so the net loss remains relatively small. But that’s the critical point. When it comes to statewide policy, Rhode Island is especially vulnerable to residents’ decision to step beyond its reach. And that relatively small net loss adds up very quickly into an increasing burden on those of us obstinate enough to remain.
The facts are that taxpayers are leaving the Ocean State and employment continues to shrivel nearly six years after the plummet from its booming peak. Meanwhile, modest attempts at reducing the tax burden have been reversed or stalled, and Rhode Island remains a laggard on just about every national economic and business ranking.
It is a subjective conclusion, I know, but it certainly seems that anybody using deceptive statistics to support tax increases on the grounds of taxpayer migration has some ulterior motive. Note this: Brewster emphasizes the effects of tax cuts on the state government.
It’s past time for the people of Rhode Island to stop worrying about the health of the government and to insist that government officials start worrying about the economic health of the people they are supposed to represent.
Arguing about the best way to maintain a thriving society will be much more fun than this frustrating debate about how closely we should look at our decline.
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