Wednesday, December 22, 2010

What The Census Tells Us

New data from the 2010 U.S. census are out. And once again, a familiar pattern asserts itself, just as it has for the last 20-30 years.

Since 2000, we've had the lowest birth rate since the Great Depression. Most of our population growth, which in the last decade saw an increase of 9.7%, comes from immigration and longer life expectancy. But a trend that progressives had hoped for — an increasing trust in government and a commitment to fund it — does not appear to be in the offing.

Despite what we were told about disgust with the policies of George W. Bush in 2006 (when the Democrats retook control of Congress) and the renewed sense of faith in government to solve our problems in the wake of the financial meltdown (with the election of Barack Obama), Americans continue to flee high-tax states for lower tax-states. And presumably because of the relative availability of jobs, new immigrants tend to settle in those states as well.

New York and Ohio will both lose two seats in the House of Representatives, while Illinois, Iowa, Massachusetts, Michigan, Missouri, New Jersey and Pennsylvania will all lose one (Connecticut will hold steady at five seats; we already lost one in 2000). Texas will pick up an astounding four, while Florida will add two and Georgia, South Carolina, Arizona, Nevada and Utah each get an additional seat.

Although some progressives are trying to be optimistic about this, it's hard to see how this is good news for Democrats — especially since Republican-controlled state legislatures are empowered to draw the new district boundaries in six of the eight states that will add seats in 2012. Most of the states that lost population (and representation in Washington) have high rates of taxation, high unemployment and, in the case of New York, New Jersey and Illinois, have appalling government debt levels.

So what is the typical cry we hear from those who want to find new sources of revenue? "Raise taxes on the rich!" But if the wealthy flee, as they did in Oregon when that state enacted a special tax on the top 2%, revenues actually decline. The same thing happened in Maryland in 2008, when the legislature enacted a special millionaires' tax. Well, duh!

So the lesson is that any state (Connecticut included) should think carefully before enacting special taxes on the wealthy. You might kill the goose that lays the gilded egg. Where do you think all those millionaires in Oregon and Maryland went? Try Texas.


  1. I wonder Terry if their is any correlation between state unemployment and high taxes? I would predict that if there were, you would expect that unemployment would be affected 2-5 years after taxes are raised.

    I know this is anecdotal, but when TigerDirect (electronics onlne superstore out of NJ) started charging state taxes, I shopped somewhere else (Newegg).

    I agree with your conclusion: increasing the tax burden has second and third order effects that will produce just the opposite of its intent, an increase in the coffers of the state.

    Perhaps the state should create a new law, let's name it the Homestead Assurance Act, that would tax people at high enough rates o prevent them from leaving the state, or perhaps use "the environment" as an excuse to create laws that make it so expensive to resell their houses (make owners update their heating/cooling and insulation standards) it wouldn't be possible to leave.

  2. Richie, I don't have the unemployment figures in front of me, but there does appear to be a correlation between job growth and rates of taxation.

    It is profoundly naive to think that a millionaires' tax will have much upward effect on revenues at the state level. Taxes encourage or discourage certain behaviours. And a special tax on wealthy individuals discourages the creation of wealth, with the unintended consequence of causing some of those people to flee to lower-tax states and reducing revenues in the high-tax state.

    I wonder why that's so difficult for some people to understand.

    Merry Christmas to the Wests, Richie.

  3. It's unclear, at least to me, whether millionaires fled Oregon because of the new tax, as you propose, or that the Great Recession reduced people's incomes so there were fewer millionaires. Do you really believe that all of the hedge fund managers who live in Fairfield County will depart for Texas? Doubtful since one of the reasons they are in Fairfield County to begin with is its proximity to New York City. Could they move to Dallas? Sure, they could simply make Texas their home of record any time they want. Lots of people, other than millionaires, are moving from the rust belt and the Northeast. Maybe you should wait for more data from the Census Bureau before drawing too many conclusions? Maybe, just maybe, if enough of those millionaires left CT our legislature be forced to live within our means and not keep repeating the old mantra, "We're the richest state in the United States"?