Taxes and California

We've had a couple of interesting days in the tax area.    The prior post explains why the Administration's strategy of demonizing people above a certain level of income is the wrong strategy to either win elections or to reduce deficits.

Last Thursday, while I was in the mountains fishing, the Tax Foundation released an interesting interactive calculator which looks at the effects of various tax regimes in the states going back to 1993.  For me the most interesting part of the chart is the state to state migration data.   In 1956 Charles Tiebout released a paper called the Pure Theory of Local Expenditures which argued that people make location decisions based on conditions in various areas.  Thus, if you want a place with good schools for your kids or some other amenity, you may be willing to pay more taxes.   But the notion also suggests that if tax regimes become too oppressive, people will vote with their feet.

The Tax Foundation makes the estimates for each state based on state data.  Thus it calculates the number of returns filed between to periods and where taxpayers went.  In the case of California during the first eight years of the decade California lost almost 350,000 taxpayers.   That amounted to a total loss in net Adjusted Gross Income of more than $26 billion.    Where did those former Californians go?  Not to New York.  Not to Massachusetts.  But they did migrate to places like Arizona (more than $5 billion in AGI) and Nevada (Almost $6 billion). A tiny little state like Idaho gained almost $1.3 billion from former California AGI.   How can you characterize the differences.  The former are states with higher taxes, the latter with generally more friendly tax regimes.

Obviously, not all movement between states is based on tax policies.  People do move to New York, even with that tax system.   Indeed, the District of Columbia experienced a net increase in tax flow from Californians moving from one tax sucking region to another.   But the biggest changes came from Californians moving to states with lower net taxes (including sales, income, property and other taxes).  Add the regulatory burden in the state and you can see why California's net in-migration during this decade has been negative.