Americans Continue to Flee States With Higher Taxes

The Manhattan skyline in the distance as a man visits Governors Island in New York City, on July 15, 2020. (ANGELA WEISS/AFP via Getty Images)

WASHINGTON—States with the highest tax burdens, such as New York, Illinois, and California, continue to lose residents this year as tax rates have a significant effect on the growth and prosperity of the states, economists say.

“The evidence is clear that competitive tax rates, thoughtful regulations, and responsible spending lead to more opportunities for all Americans,” according to the “Rich States, Poor States” report by the American Legislative Exchange Council (ALEC), a conservative nonprofit organization.

The annual report ranks states based on their competitiveness and economic outlook by examining the policy choices made by the states and their impact.

In 2019, Utah ranked No. 1 for economic outlook, followed by Wyoming, Idaho, Indiana, and North Carolina; the state has earned the top ranking for 13 consecutive years.

According to Jonathan Williams, ALEC’s chief economist, Utah has implemented many reforms “that have been ahead of the curve.”

Utah’s lawmakers saw the unfunded liability problem in the state pension system and took bold actions to fix it after the financial crisis of 2008. The state also revised its property tax system.

“It’s not just a theory. This is really playing out in practice. And we see Americans continue to move into Utah. And Utah is just booming right now,” Williams told the show “NTD Business.”

“We continue to see this phenomenon where Americans vote with their feet. And they’re voting very strongly away from states with high tax burdens and less economic opportunities,” he said.

The states that gained the most in population over the past decade were Texas (more than 1.2 million, 15th on the economic outlook list) and Florida (more than 1.1 million, 7th on the list).

According to Williams, these states provide a pro-business environment, better tax policy, and more economic competition.

The bottom five states on the economic outlook ranking were New York, Vermont, New Jersey, Illinois, and California.

“When you look at the bottom states again, you see those states that have the highest tax rates, and they’re not phasing out, either,” economist Arthur Laffer, who co-authored the report, said on Aug. 11 during a webinar hosted by ALEC.

Both California and New York, for example, have proposals for large tax increases, he noted.

New York is “a treasure for America,” but “even treasures can have their gooses cooked over taxes, and I think that’s what you’re really seeing here,” Laffer said.

New York maintains the second-highest top marginal personal income tax rate and the highest top marginal corporate income tax rate, according to the report. The state lost more than 1.3 million residents between 2009 and 2018 to more economically competitive states.

The report also shows that big reforms have significantly helped states such as Wyoming, Oklahoma, Wisconsin, Delaware, and Montana. These states improved their national rankings in 2019 by keeping their spending in check, which allowed them to reduce tax burdens, Williams said.

“You’re seeing just a migration of people out of these high tax states,” Stephen Moore, economist and a co-author of the ALEC report, said during the webinar.

“And it’s really putting stress on the budgets of these states like New York, Connecticut, New Jersey, and Rhode Island. These states are being kind of bled to death, year after year,” he said.

According to Moore, despite the pandemic, several states, including Utah, South Dakota, Nebraska, and Iowa, have already balanced their budgets this year without massive income taxes.

The report illustrates each states’ competitiveness and economic outlook using 15 equally weighted policy variables, including tax rates, regulations, spending, and right-to-work labor policy. It also examines trends from past decades as well as policy choices made in 2019.