OPINION: Here's something to keep in mind as Elon moves Tesla to Austin: People are looking for the best value that comes with higher taxes like good schools, neighborhoods and parks.
Among the most common claims of state economic development officials is that higher taxes drive down growth and cause businesses and people to relocate to low-tax states. If you listen to cable news, you are likely to hear dire stories of people fleeing high-tax states in droves.
Economic research on migration, growth and taxes has a long history. Adam Smith noted that “peace, easy taxes, and a tolerable administration of justice” were all that was necessary to “carry a state to the highest degree of opulence.” Modern economic research consistently reports that lower taxes tend to promote growth and migration, but only when all other factors are held constant.
Part of the misconception is fueled by poor data analysis. People don’t so much move from state to state as from city to city. IRS data illustrates that tax rates vary dramatically between local governments far more than between states. In California, the total state and local taxes in the highest-taxed place were more than three times that of the low-tax county. In Texas, the difference is three times as large as in California.
For the average family, value comes from tangible amenities like safe, livable neighborhoods, high-quality schools and great parks and trails. They go far beyond natural amenities such as beaches and mountains. While we all face budget constraints, we look for value within our own budget. That didn’t happen. Indiana’s economic recovery from the Great Recession was no more than lackluster, and the clearest result of the rush to cut taxes was to make Indiana a magnet for low-wage employers. The state’s per-capita income dropped to 86% of that of the nation as a whole, down from near 90% in 2012. Half of all job growth went to adult workers without a high school diploma.
Both businesses and families are acting upon this information, moving to places with better schools and safe, livable neighborhoods. In the process they are moving to places with much higher taxes, reflecting a hunt for value, not price.
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