State Budgets

New Census Report: Americans Continue to Vote with Their Feet in Favor of Economic Opportunity

The U.S. Census Bureau just announced its long-anticipated list of state winners and losers from the official 2020 apportionment count. With good reason, this is a huge news item for policymakers in Washington and the 50 state capitals, as the news brings with it major implications for the 2022 congressional midterms, state political clout and future presidential elections.

Beyond the political themes, which will clearly get the most media attention, the Census results tell us an essential story from a policy perspective – the story of relative economic health from the 50 “laboratories of democracy.” Americans continue to move, or “vote with their feet,” toward states that have lower tax burdens and value economic competitiveness. For more than a decade, our work in Rich States, Poor States has revealed that states with lower taxes, especially those that avoid personal income taxes, have seen significantly better rates of in-migration than states with high income tax rates.

As expected, Texas is the big winner of the Census report, as they were the only state in America to gain more than one seat. Texas remains a great example of how avoiding an income tax and having a free-market policy environment significantly boosts economic development efforts — and attracts taxpayers and job creators from high-tax states. In fact, the Lone Star State wisely banned a personal income tax in their state constitution. As we have pointed out for many years, there is an abundance of academic research supporting the idea that taxes and the quest for economic opportunity are significant drivers of migration across states.

On the other hand, the Census report outlined that high-tax states like Illinois, California, Pennsylvania and New York all lost congressional representation. For New York, this represents yet another loss in congressional representation. Going back to 1940, when the Empire State had 45 representatives, it is shocking that New York will only have 26 seats this decade.

Congressional Seats Gained or Lost in 2020 Census

One of the most significant stories from the Census report comes at the expense of California. For the first time in state history, the Golden State will lose a congressional seat. California continues suffering a mass exodus due to taxpayers voting with their feet across state lines. Net domestic outmigration, the hundreds of thousands of former California residents who have departed for one of the 49 other states, is the driving factor for the loss of their congressional seat. Californians are leaving behind high taxes, unaffordable living and draconian government lockdowns. Texas is the largest recipient, with an estimated 86,000 former Californians moving to the Lone Star State in 2018 alone.

Looking at polling data, this migration of Californians to other states shows no signs of stopping. University of California, Berkeley polling finds more than half of California voters polled had thought about leaving California for another state. Of the voters polled, 71% cited high housing costs and 58% cited high taxes as their motivation for wanting to move. Even sunny weather, Silicon Valley and Hollywood cannot keep people around if state taxes are too high.

Americans continue to vote with their feet in response to uncompetitive state economic policies. As economic theory suggests, if taxes drive up the cost of living in one state, then states with lower taxes become much more attractive places to live and work. As Rule 10 of the ALEC-Laffer Rich States, Poor States “Golden Rules of Effective Taxation” states, “If A and B are two locations, and if taxes are raised in B and lowered in A, producers and manufacturers will have a greater incentive to move from B to A.”

This migration of taxpayers from high-tax states to low-tax states is economic theory coming true. The states gaining congressional seats with the new Census numbers have an average economic outlook ranking in Rich States, Poor States of 22.8, while the states losing representation have an average economic competitiveness ranking of 36.1.

State policymakers would be wise to recognize how economic policy drives individual decision making. No amount of economic favoritism or targeted tax breaks can reverse outmigration in the long-term if economic policy, broadly speaking, trends toward the uncompetitive. If states want to become more attractive to new residents and job creators, making tax and economic policy more competitive for all is a prerequisite.

 


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