Voting with Your Feet

This is tax reform season and the Democrats are in full form, demagoguing any attempt to simplify and reduce federal taxes by suggesting that GOP proposals are a nefarious plot to reduce taxes for "the rich." This is a standard refrain, allowing progressives to champion higher and higher taxes, all in the name of "fairness." I have on numerous occasions discussed the facts and figures that call the Dems objections into question, but no matter. This is the progressive reality and no amount of evidence will change their position.

It is interesting to note that in states where the blue model is in full force, progressives quietly vote in a difference way—they vote with their feet. High tax blue states have seen a net outflow and population and tax dollars that is unprecedented. The Wall Street Journal comments:

The liberal tax model is to fleece the rich to finance spending on entitlements and government programs that invariably grow faster than the economy and revenues. IRS data on tax migration show this model is now breaking down in progressive states as the affluent run for cover and the middle class is left paying the bills.

Between 2012 and 2015 (the most recent data), a net $8.5 billion in adjusted gross income left New Jersey while $6.2 billion poured out of Connecticut—4% of the latter state’s total income. Illinois lost $13.6 billion. During that period, Florida with no income tax gained $39.3 billion in AGI.

Not surprisingly, income flows down the tax gradient. In 2015 New York (where the combined state and local top rate is 12.7%) lost a net $850 million in AGI to New Jersey (8.97%) and Connecticut (6.99%). At the same time, the Garden State gave up $335 million to Pennsylvania (3.07%), and $60 million left Connecticut for the state formerly known as Taxachusetts (5.1%). Taxpayers from New York, New Jersey and Connecticut escaped to Florida with $3.2 billion in income. Florida Gov. Rick Scott ought to pay these states a commission.

The affluent account for a disproportionate share of the income migration. For instance, individuals reporting more than $200,000 in AGI in 2015 made up 57% of the income outflow from Connecticut (compared to 48% of total state AGI) and 57% of the inflow to Florida.

Maybe that's why states like Connecticut are in such serious financial trouble. Some of those who pay the preponderance of state income taxes, simply decide to leave. Tax revenues go down and as a consequence, the Democratic legislature raises taxes even more. The cycle continues until the lights go out.

You'd think that progressives would learn from this phenomenon, but that requires a careful evaluation of hard evidence and critical thinking about the efficacy of higher and higher taxes. It requires spending reductions and fiscal restraint. None of that is evident of the left side of the political spectrum.

I suspect as Democrats watch high income individuals flee their states in increasing numbers as taxes go up, they must experience cognitive dissonance. After all, high taxes are a good thing—fairness in action. And besides, in the lexicon of progressive thinking, high taxes have no impact whatsoever on economic activity. And yet, taxpayers leave. So, Democrats rationalize. Unfortunately, that does change the reality of blue state decline.