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Tags: hutchinson | tax

To Find the Better Policy, Follow the People

By    |   Monday, 23 April 2012 04:53 PM EDT

The search for truth is often elusive. As the political debate rages on this election year, many people find themselves confused about which course is best. After all, the debate isn't between good and evil but rather between different ideas of good.

But, once in a while something occurs that has a remarkable ability to shine the light on a great truth.

For example, the Cold War posed an epic argument between the merits of Marxism versus a free Democracy. Perhaps a person transported from hundreds of years in the past might have trouble deciding which is the best form of government, or which is the better governing philosophy the leads to the better society for humankind.

In this struggle, something happened that revealed the truth even to a somehow unbiased onlooker – The Berlin Wall. The Soviet sector of Berlin experienced huge problems when its citizens keep fleeing to the Western controlled part of the city. To solve the problem, they built a wall.

When one society has to build a wall to prevent a mass exodus to the other society, it speaks volumes. You don't have to think too hard to figure out which society is probably better.

A far less stark but similar phenomenon is occurring today in this country. People are fleeing one idea of government to live in another.

Specifically, people are fleeing the high-tax liberal states of California and New York to live in low-tax, business-friendly states.

California is one of the highest tax states in the country. There is a tax of 10.3% on people making over $1 million per year, but taxes have crept up for the middle class as well. Now, anyone making more than $48,000 pays 9.3%. But, it's not just high taxes. According to a recent Wall Street Journal article, radical green energy mandates and regulations have caused electricity rates to skyrocket to 50% higher than the national average. In addition, restrictions on development have made housing in the desirable coastal regions all but unaffordable for middle class families.

The state's population has had a net loss of about 4 million people in the last two decades, compared to a per-year average gain of about 100,000 in the 1980s and 90s. California currently has an 11% unemployment rate, well above the national average. And it ranks dead last among all states in job growth over the last ten years (2001-2011), losing more than 623,000 jobs over the period.

But New York, another high-tax and excessive-regulation state, has seen perhaps a worst exodus. Between 2000 and 2008, New York suffered the largest percentage loss of residents, 8% or 1.5 million.

Where are these people going?

According to the 2010 U.S. census, states with zero income tax rates have seen a disproportional increase in population growth. Over the last decade states with no taxes accounted for 35% of the national population growth, while only 19% of the country's population resided in these states at the beginning of the decade.

But, the best comparison is among big states. States with diverse populations and industries that have several large cities provide better apples-to-apples comparisons. Texas, a big state with no income tax, compares very favorably with California and New York.

Last decade, Texas saw its population grow a whopping 21%, from 21 to 25 million. A huge part of the reason for such growth is jobs. The state added 732,000 private-sector jobs last decade while no other state added more than 100,000 and only 19 states managed to not lose jobs over the decade.

According to the American Legislative Exchange Counsil, over the last decade (2000-2010) the nine states with no income tax had more than twice the job growth of the nine highest taxed states.

The low-tax, business-friendly formula seems to be working a lot better. And people are voting with their feet.

About the Author: Tom Hutchinson Tom Hutchinson is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of The High Income Factor. Discover more by Clicking Here Now.

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Monday, 23 April 2012 04:53 PM
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