Census shows states with low taxes have higher growth 

Since the official 2010 Census numbers were released last week, political number crunchers have compiled all sorts of stats about who the big winners and losers have been.

One conclusion that is basically impossible to escape is that Americans seem to be voting with their feet when it comes to taxes. Prior to the census results we had anecdotal evidence that this was the case in recent years such as the miserable failure of “millionaire taxes” in Maryland and Washington, now we have some actual numeric data which demonstrates this conclusion.

The Gallup Organization found that all of the 10 states which lost seats are dominated by Democrats, at least in terms of party registration. Democrats, as we all know, generally tend to be in favor of higher taxes compared to Republicans.

Americans for Tax Reform has some interesting numbers showing that states losing seats in the House of Representatives have higher marginal income tax rates, higher average tax burdens, more spending per capita, and are much more likely to force employees to work for a union even if they don’t want to.

Last Tuesday, my Examiner colleague Michael Barone did a good general breakdown of income tax rates versus population growth and found that 7 of the 9 states which have no income tax all grew higher than the national average while the 2 that didn’t grew fastest in their regions.

The overall state tax burden is worth looking at as well, however. That’s because many states which do not levy income taxes sometimes have extremely high property or sales taxes. Since all the various forms of taxation can have an effect on economic growth, let’s take a look at the data for population growth versus overall tax burden.

I’m indebted to the Tax Foundation which calculates each state’s per-capita tax burden and makes the data available online here. The following embedded spreadsheet compares a state's average tax rate from 2000 until 2008 (the latest year for which this data is available) with its population between 2000 and 2010. 

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There are several interesting observations that can be made from this data:

Three of the ten least-taxed states—Nevada, Florida, and Texas—were among the ten-fastest growing states. None of them were among the 10 slowest growing states.

Of the 10 states with the highest tax burden, 3 of them—New York, Rhode Island, and Ohio—were among the 10 states that had the lowest population growth. Not one of them is among the fastest-growing states.

Of the 20 states with the lowest tax burden, 12 of them were among the 20 states that gained population the fastest. In contrast, of the 20 states with the highest tax burden, 8 of them were among the 20 slowest-growing states.

There are 16 states with tax burdens of 10% or higher. Yet not all of them are growing slowly. At first glance this may seem to contradict the previous two points but it doesn't if you look more closely.

While California comes in at #20 on the fastest-growing list, those days are over as that state has overspent and over-taxed its citizens. More people have been leaving the state than moving in since 2008. Many of these California refugees are moving to Idaho and Utah (#3 and #4 on population growth list), helping them to experience high growth as a percent, especially since they had had pretty small populations to begin with.

Hawaii is the only other state with a tax burden of over 10 percent. My guess is that if the state had a lower tax burden, it'd see red-hot levels of out-of-state migration considering its great weather and proximity to Asia. As it is, it's in the top 20 in terms of growth.

Another way to look at this data is via a scatter graph to help us discern trends. As you can see from the picture above (click it to expand to bigger size), it is very arguable that there is an inverse relationship between states' tax burdens and their growth rates.

The other story in the census data is Texas, which as Michael Barone pointed out earlier this year has become America's new economic engine, displacing California:

Texas is a different story. Texas has low taxes -- and no state income taxes -- and a much smaller government. Its legislature meets for only 90 days every two years, compared with California's year-round legislature. Its fiscal condition is sound. Public employee unions are weak or nonexistent. [...]

In the meantime, Texas' economy has been booming. Unemployment rates have been below the national average for more than a decade, as companies small and large generate new jobs.

And Americans have been voting for Texas with their feet. From 2000 to 2009, some 848,000 people moved from other parts of the United States to Texas, about the same number as moved in from abroad. That inflow has continued in 2008-09, in which 143,000 Americans moved into Texas, more than double the number in any other state, at the same time as 98,000 were moving out of California. Texas is on the way to gain four additional House seats and electoral votes in the 2010 reapportionment.

This was not always so. In the two decades after World War II California, with its pleasant weather, was the Golden State, a promised land, for most Americans, while Texas seemed a provincial rural backwater. Many saw postwar California's expansion of universities, freeways and water systems a model for the nation. Few experts praised Texas' low-tax, low-services government.

Now it is California's ruinously expensive and increasingly incompetent government that seems dysfunctional, while Texas' approach has generated more creativity and opportunity.

It's no wonder that half of all jobs created last year were created in Texas.

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Matthew Sheffield

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