Growth & Justice Blog

Jousting with the King

(This is a response to the right honorable King Banaian, of SCSU Scholars blog, who has the coolest name in the Minnesota blogosphere, and who also is a fairly responsible adversary.)

Dear King,

You raise some fair points in your critique of our recent post, in which we demonstrate that Minnesota state and local governments actually are taking a smaller share of our income throughout this decade, and in which we further posit that this smaller government and lower tax rates have not delivered the economic boom that anti-tax conservatives promised. (More on this point today in the latest Capitol Report/Legal Ledger.)

As you point out, we do have a more volatile revenue system (bigger surpluses in expansions, bigger deficits in contractions) than most states, and this certainly is a factor in creating more severe budget shortages than in other states. And there is some random evidence, as you point out, that Minnesota's economy very recently is again doing better than the national average. (Big news this week was the #1 Twin Cities ranking in home value appreciation.)

Nevertheless, we don't see how you demonstrate that this volatility can be the main factor that permanently shrunk our revenues as a share of our income.

Revenues as a percentage of income are largely a function of tax rates. The shrinkage came from major and permanent income tax rate cuts, then a refusal to significantly raise state tax rates or impose new state taxes during the immediately ensuing shortfalls. Contrary to your argument, tax policies did make a major difference and Gov. Pawlenty himself takes credit for his policies shrinking government when he preaches to his conservative base. 

But we would also acknowledge that we would have had shortfalls even if we hadn't cut taxes, because the spending base would have been larger, and downturns always create shortages. That's a point you could have raised, but didn't. So give us points for fairness and good faith. 

Second, we think  there is a broad consensus that Minnesota's economic performance this decade, overall and relative to other states and the national averages, is not as impressive as it was in the three previous decades.  In the very same Budget Trends Commission document that you cite in making the point on volatility, this is the second main bullet point: "Despite continuing to rank high among many key social and economic indicators, Minnesota’s economy has underperformed recently relative to the nation."  

That's exactly what we said too, and there's a wealth of statistics in the commission report to back up that assertion.

Third, let me point our readers to G&J fellow Charlie Quimby's answer to your question: "Where has G&J been in the debate to reduce cyclicality of tax receipts?"

We specifically testified [before the governor's tax commission] in favor of reducing or eliminating the corporate franchise tax, of which the legislative report you quote said in the very next paragraph:

"Minnesota’s corporate franchise tax base, which constitutes 7 percent of general fund tax revenue and boasts the highest trend growth rate, is the most volatile of the three major revenue sources, extremely sensitive to economic cycles and thus subject to substantial uncertainty. In fact, the volatility of Minnesota’s corporate franchise tax base is almost four times greater than the volatility of the individual income tax base and nearly six times greater than the volatility of the general sales tax base."

This support was conditioned upon replacing revenue from other sources, including income and sales taxes, that would make the system less regressive as well as less volatile.

The other source you link to says that there are two ways to reduce fiscal distress from recessions. One is to reduce volatility, and the other is to "build savings during booms... (create and properly use a rainy day fund)."

Another measure we have supported.

Finally, the very funny promotional blurb on your blog that condemns your team as "self-absorbed moral cretins'' is really outrageous and unfair. You are among lots of very fine people who are just plain wrong about things once in awhile. 

— Dane Smith

Less Government? We Tried That. It's Not Working.

The Star Tribune's front-page story today finds that "less government'' is the overwhelming consensus "vision'' for Republican gubernatorial candidates. Peggy Lee and most Minnesotans want to know: Is that all there is?   

Leaving aside that this mantra sounds more like hard-right, activist-energizing radio talk than inclusive vision casting — and has to be extremely disappointing to hundreds of thousands of moderate and progressive Republican voters — we need some context here.   

The Price of Government, an official state Minnesota Management and Budget measure, shows that we DO have less government over the last decade, ever since the no-new-taxes religion, like some southern invasive species, got a hold on the North Star State. (See page 13 of the PowerPoint presented at the capitol last week by State Economist Tom Stinson and State Demographer Tom Gillaspy).

The bar graphs clearly show that our governments are using about two percentage points less (15.5 percent in 2008 compared to about 17.5 percent through the 1990s) of our personal income share than those governments were spending when the economy was actually doing better. Huge income tax cuts in 1999 and 2000 left us with chronic  budget crises, and the promised payoff in sustained, tide-rising economic growth didn't materialize, either.  

Wealth concentration at the top got worse, bridge and road conditions deteriorated, public school course offerings were cut, and thousands of working low-income folks lost their health care. And our economy is slumping and beginning to underperform the national average on some key indicators.  

We surely could use some more judicious restructuring and redesign of how we do our government work. But the basic things government provides are essential for our shared prosperity and quality of life.  

NOTE: The Price of Government measure is one of the most comprehensive of all the measures we have to describe the size and role of government. It counts state and local government revenues as a percentage of total income and therefore accounts for inflation, population growth and economic growth. It was instituted at the behest and with the approval of business groups in the late 1980s.

— Dane Smith

Minnesota Poll's progressive majority on health care

As a former reporter for the Star Tribune who wrote scores of news stories based on the Minnesota Poll, I am very familiar with the science of polling and its limitations,  and the crucial importance of context.    Here's some important context for the poll results and the headline that declared "Obama's support declines sharply.''   

 A drop in 10 percentage points on job approval, after the "honeymoon" and late in a president's first year,  is typical, but especially if he's mounting the most sweeping social and economic reforms in decades during the most serious recession in a century.    The coroporate bailouts and continuing war in the Middle East have  angered the left, the bailouts and the expansion of a public role in health-care have infuriated the right, everybody's still worried about their personal finances, and still the president's approval rating is about 20 points higher than his predecessor's.

The concerns about health-care transformation undoubtedly are an overriding factor but it appears that the dissatisfaction with Obama's plan comes from many liberal folks who wish he'd gone further.   Although Minnesotans disapprove of his overall "handling" of health care (45 percent to 39 percent),  there is clear approval of the  "public option'' despised by the right-wing critics (51 percent to 37 percent).   Most in the poll  approve a law requiring coverage (54 percent to 37 percent) and a slight plurality (43 percent to 40 percent) actually favor the overall changes being supported by Obama and his congressional allies.   Most important,  perhaps, the poll showed that about 40 percent of Minnesotans are either worried about losing coverage or are currently uninsured.

We've often made the case that there is a sustained majority in Minnesota who favor the moderate-to-progressive position on key economic and tax-budget issues.   These key issues include support for public education, transportation, public health-care, environmental protection and most of the worthwhile vital investments that our governments provide.    This majority also favors  a fairer and reasonably larger tax burden on those at the top of the income scale,  and polls show it opooses an  inflexible "no new taxes'' orthodoxy.

Dane Smith

State economist affirms: Cuts cost more jobs than income tax increase

State Economist Tom Stinson estimates the spending cuts Gov. Tim Pawlenty will start making today will cost Minnesota 3,300 to 4,700 jobs.

By contrast, Stinson told the Legislative Advisory Commission on Tuesday, the $1 billion income tax increase that the Democratic-controlled Legislature passed and Pawlenty vetoed in May would have cost the state an estimated 1,000 jobs over the next two years.

— Pioneer Press

In May, Growth & Justice estimated potential state job losses from a proposed new 4^th tier personal income tax rate of 8.5 percent. Our study [PDF] — of a somewhat different tax proposal than the one ultimately passed by the Legislature — put the potential impact of the revenue-raising tax increase at 1,000 to 5,000 fewer jobs (out of about 2.7 million).

Yesterday, Minnesota's own state economist came up with a job loss number at the low end of the range Growth & Justice estimated.

We're gratified to see our work validated by Tom Stinson's estimate. (And let the record show, we so-called "tax-loving liberals" were even more conservative in our portrayal of the potential downside of raising more revenue.)

Stinson affirmed the other side of our case, too.

We declared that "any harm from higher taxes should be weighed against the potentially greater negative effects of spending reductions" and noted that the governor's proposed spending cuts could cost even more jobs in local governments and government service providers. 

Stinson's analysis of Gov. Pawlenty's unallotments puts some solid numbers behind that conclusion as well. In his estimation, the impact of the specific cuts could be three to five times greater than the impact from tax-increase-related measures.

It could be worse. His estimate reportedly did not include indirect job losses, such as when a private contractor loses state business and is forced to lay off employees.

Our assessment, though based on evidence, was still theoretical. Unfortunately for Minnesota, we about to gather more evidence about job loss — from unallotment, starting today.

— Charlie Quimby

Take care in reading the Tax Incidence Report findings

Jim Robins is a former Minnesota Senate Majority researcher assigned to taxes, metropolitan and local government, and transportation issues. He currently operates www.ScooterMaxi.com.

Every two years, one of the most-impressive bureaucratic endeavors undertaken in Minnesota is carried out. This week we eagerly anticipate receiving the 2009 Tax Incidence Study. [The report will be available here this week.] This report has a sterling national reputation and should be celebrated by everyone who treasures the use of empirical data in developing fair and progressive tax policy.

However, it is a challenging document for the casual reader, and the potential is great for abusing one or two statistical estimates out of the tens of thousands reported. Take note that the Tax Incidence Study necessarily contains a four-year black hole between measured historical data and forecasting estimates. For 2009, that means we have no data reported for 2007-2011 — an important time frame considering the huge economic swing Minnesota and the nation are currently experiencing.

Although mine is only an educated guess, you can safely assume that the Minnesota tax system is more regressive (taxing the poor at a higher rate than the rich) right now than it will show in the boom-time 2006 results, or the 2011 estimates when at least some level of economic recovery is anticipated. In down times, the tax system is most regressive.

The volatility of progressive tax sources, particularly revenue from the income tax, is the key factor in determining changes in the Suits index — used as a summary measure of overall progressivity or  regressivity. Suits measures from +1 (100 percent progressive) to -1 (100 percent regressive). Minnesota had an essentially neutral system in 1990, but has trended somewhat more regressive ever since. 

We headed in the wrong direction throughout the 1990s, dipping to a hefty 4 percent overall regressivity in 1998. Boom times at the start of the current decade partially masked regressivity, but we have been heading downward again in recent years (1). It is particularly important to keep in mind these extended trend lines over many years rather than focus on just one or two new Suits index numbers unveiled in the 2009 study.

Finally, we should think about the Tax Incidence Study findings in the context of the current political discussions. We have the opportunity to enact substantial overall tax reform this year, and it appears that business taxes will be a key factor in debate. Although we intuitively assume state business taxes are progressive, the 2007 measurement (based on 2004 data) indicated that they are 16 percent regressive (2).

However, the much-maligned corporation franchise tax is 47 percent exported out of Minnesota as measured in both the 2007 and 2005 reports (3), and that means we would be giving nearly half the tax relief to non-residents. Perhaps we can find better ways to provide business tax breaks without sending so much of the relief to people who don’t live in Minnesota. As I have documented in a past posting, our state has done particularly poor job of generating outside revenue compared to other states. We shouldn’t make things even worse.

[According to a 2002 report by the Center on Budget and Policy Priorities, "only a handful of states systematically assess the impact of tax changes on families at different income levels [and] only three states (Maine, Minnesota, and Texas) now require such analyses of major state tax legislation by either the legislative or executive branch."]

Without sounding too wonkish, it will be exciting to get our hands on this year’s Tax Incidence Study. Let’s hope our state policy makers make the most of the data, and put together the kind of proposals that will result in tax fairness at a time when we need it most.

1) 2007 Minnesota Tax Incidence Study, p. 3 Download PDF

2) 2007 Minnesota Tax Incidence Study, p. 13

3) 2007 Minnesota Tax Incidence Study, p. 83; 2005 Minnesota Tax Incidence Study, p. 85 Download PDF

Tax Commission report is reasoned, but...

The Governor's business tax reduction commission — can we dispense with the "21st Century Tax Reform" bit and call a spade a spade? — released its report on Friday, with the lead recommendation of repealing the state corporate franchise (income) tax. Another recommendation would exempt from taxation 20 percent of "pass-through" business income to individuals.

Given the Republican and business tilt of the group, the panel's report [PDF] is not surprising — but predictable is not the same as wrong.

You won't hear complaints from this quarter about its assessment of Minnesota's economy, the need for investment in education and academic research and the importance of business in creating wealth and well-being in the region.

And you won't even get much argument with ending the corporate franchise tax, either. If you have to cut a tax, it's not a bad one to choose. It's regressive, volatile and has a negative — though over-dramatized, in our view — effect on some business decisions.

But as we must learn over and over, not everything that's good for business is unfailingly good for the public.

In good times, the corporate franchise tax contributes a lot of revenue to the state. The recommended cuts would cost the state about $1 billion a year. 

The glossed, the obscured and the skirted

The commission was originally charged to cover the costs of reform in its proposal, but the final report avoids a specific tally of how proposed taxes would counter the cuts — settling for recommendations to expand the sales tax base and increase the tax on cigarettes by up to $1 a pack.

The commission says Minnesota's high corporate income tax rate puts the state at a disadvantage. It seems to acknowledge that our poor business tax climate is more perception than reality, but believes we must address it. (Why the financial types who drive business decisions can't see the difference between a statutory tax rate and actual total tax burden is a subject for another day.)

In support of the competition argument, since 2002, the report says, six states have reduced corporate tax rates or replaced the corporate income tax. We looked up the most recent growth rates for those states and threw in other states with no corporate income tax, plus our business-friendly neighbor, South Dakota. The growth picture for those states is definitely mixed. 

 

To its credit, the commission did not try to oversell the stimulative benefits of its corporate tax cut and other reforms. We believe they are likely to help business. The open question is how much. And the unanswered question is how even revenue-neutral reforms will help address the state's revenue shortfall.

Another point, with which we agree, is Chairman Mike Vekich's "Businesses don't pay taxes. You and I do. Where we tax businesses, we are taxing our own wealth."

But on the other hand, the commission seems reluctant to tax that wealth. Where income flows from businesses to people, the Commission also wants to see a cut. It amounts to a backdoor personal income tax cut for higher earners.

Small businesses would get a special boost -- one-fifth of owners' profits would be exempt from taxation.

House Taxes Committee Chairwoman Ann Lenczewski, DFL-Bloomington, said she was "stunned" by that recommendation.

"What it means is a managing partner at a small law firm will pay a smaller top rate on income than the associate partner who makes less," Lenczewski said. "The boss gets a big tax break because he owns the business, but the secretary doesn't. I agree with some of the commission's recommendations, but this one just confounds me."

And this is really the most disappointing aspect of the report. The commission skirted the issue of fairness to individuals, only acknowledging that replacing a regressive business tax with regressive sales taxes probably wouldn't make the system more regressive.

Fair seems to mean fair for business. Indeed, the word "fairness" appears only three times in the report's 34 pages, always in a list of general principles. The commission's second principle for reform is:

Tied to benefits received. There should be a strong, direct relationship between the nature and level of business taxation in the state and the cost of benefits and services provided to businesses by state and local governments.

This so-called benefits principle is a particular favorite of conservative theorists, but the devil is in the details. It wasn't the commission's charter to think about business tax reform's impact on a single, unemployed mother with a child in public school, but the legislature will.

In all, the commission's report adds another useful, philosophical perspective to the budget discussions. Progressives — and the governor — should open their minds to what it has to say.

—Charlie Quimby

Fixing Minnesota's Budget: Don't take more income off the "kitchen table"

As it became clear the state was facing a profound budget shortfall, I braced myself for a hoary scene to be propped before us repeatedly in the coming months. Right on cue, its first official appearance for 2009 came in Gov. Pawlenty’s state of the state address.

Yes, it’s ma and pa at the kitchen table, back for another go at the family budget.

On the table are bills, notices and a notepad with a budget that's tighter than it's ever been. Hope and fear are also at the table.

If the kids weren’t already put to bed, I’d half expect Tiny Tim to enter, lay his crutch across the table and deliver the governor’s lines:

Please don't add to their burden by increasing their bill from government.
 
Please don't take more of their hard earned money.
 
Please don't raise their taxes.

I don’t mean to make light of real families facing real financial challenges, but this beloved GOP set piece is calculated to appeal to our emotions. It does not illustrate the common sense of the “typical Minnesota family” or realistically portray their approach to financial management.

Most Minnesotans understand that a budget is composed of income as well as expense. A real family facing a real budget squeeze would not just cut the frills, darn the socks, eat more ramen noodles and turn down the thermostat.

Most people would also consider trying to find more money.

I happen to know members of struggling households who have gone out and found temporary and part-time work, even in this economy. They’ve become more resourceful in using coupons; they’ve taken in roommates, shared rides and baby sitting; they have each other over for dinner; they hock some non-essential possessions. They sell plasma. And yes, they visit food shelves and make use of government assistance.

Most of these measures are not much more fun than the cost cutting, but their effect is to put more dollars on the table to keep life going at a reasonable level.

There are some other cracks in this rhetorical diorama.

For example, the mom and dad are always alone — unless you count the spectral revenuers gathering outside their door. I’m all for self-reliance and plucky independence, but Minnesota didn’t get to be a great state simply by everyone solving tough problems on their own. Some challenges take a village, and some require the involvement of a whole nation.

Also note in the scene how we’re encouraged to envision a mismatched dinette set piled with overdue bills, and not a polished granite counter top set with a gourmet meal. Who is advocating “increasing the bill from the government” for families on the edge of solvency? But not everyone in Minnesota is hurting, and those of us feeling the least pain also happen to be paying a lower effective tax rate than the folks being portrayed.

And finally, if we transport the kitchen table to the capitol as the governor suggests, his metaphor becomes nonsensical, because he proposes cutting taxes as part of his solution. In ma and pa terms, that means one of their first priorities would be asking their employer for a pay cut!

Let’s agree with the governor that solving our budget imbalance will require resetting priorities and doing some things differently. The next two years will be no picnic. But let’s not buy the version of kitchen table “common sense” that only takes money off the table.

— Charlie Quimby

Joe the Plumber: Stopped by taxes?

Joe wants to buy the business that he has been in for all of these years, worked 10, 12 hours a day. And he wanted to buy the business but he looked at your tax plan and he saw that he was going to pay much higher taxes.

You were going to put him in a higher tax bracket which was going to increase his taxes, which was going to cause him not to be able to employ people, which Joe was trying to realize the American dream.
— John McCain during the last presidential debate

As a former small business owner hearing Joe Wurzelbacher’s story during the last presidential debate, I was immediately skeptical. The snippets about his business aspirations didn’t add up, and when I dug into the story, it was clear none of the parties — including Joe — really understood his situation.

After I sat down that night to write Joe a letter, more details have come out. As I suspected, he makes a very modest income, and the business is much smaller than early media reports indicated. Joe also lacks the plumbing license that would be required for him to actually operate the company, and  he's fallen behind on his property taxes.

The real Joe doesn't quite fit the symbolic image of a working man on the verge of prosperity. But the fundamental points in my message to him still hold…

Dear Joe the Plumber:

It seems like your heart is in the right place, and you've worked hard at an honorable job. Now you have some hope of buying the other half of your two-man shop. Ownership and its rewards are a big part of your personal American Dream.

Good for you.

Now, thanks to the latest presidential debate, you've become a temporary national figure. The exposure could be worth more than a full-page ad in the Yellow Pages and a top level Google ad, so I guess you could say you have tax cutters to thank for boosting your company's growth.

Or at least you would have, if you'd remembered to mention the name of the business during all the media attention.

If I were your boss, first thing in the morning, I'd change the company's name to Joe the Plumber, get a new phone listing and throw up a web page.

Or not.

The interest in your political thinking will be good for less than a week, but people will always have clogged drains and faulty water heaters. And the real issues you face as a future business owner aren't about national policy, including any plan to tax high earners.

In fact, I'm concerned that your thinking about owning a business may be clouded by all the political rhetoric. Here's what I, as a former small business owner, think you should be concerned about.

Know what you're buying. According to reports, you want to buy the two-man plumbing shop you work for and plan to pay for it over a number of years. What, exactly, are you buying? A name and phone number, two used trucks, tools and inventory, maybe some relationships with customers or contractors that you've had a role in building. And the opportunity to pay for it over time, out of the cash flow from the business.

This may be a good plan, depending on how much you're paying for good will — which shouldn't be very much for this small business. Otherwise, this decision will cost you far more than any income tax plans being proposed.

Don't feel bad. Most Americans don't know what they've been buying.

Separate your American Dream from Small Business Reality. Sorry, but considering that your ambitions call for only one or two employees, the chances of you generating enough sales to pay off your purchase and still earn $250,000 a year are very remote. That makes me wonder whether you quite grasp the financial side of running a business.

Instead of worrying about paying higher taxes some day, look at the realities facing you now. That is, most small businesses fail or fail to grow, and almost all of them earn less than $250,000 in taxable income for their owners.

The reasons have nothing to do with their income taxes — unless they fail to pay them.

I applaud your hard work and desire to control your own destiny. That's where you should focus. If you do, you'll discover that paying a slightly higher marginal tax rate some day is probably the smallest problem you've had to overcome.

Decide how much you need and invest the rest. If you do surpass the $250,000 threshold, you'd only pay 3 percent more on the dollars you earn above that amount. If you pay yourself $300,000, that means $1,500 in additional taxes.

I'm guessing right now, if I offered you $50,000 but said you'd have to pay $1,500 more in taxes, you'd take it in a heartbeat. Well, that $50,000 is an even better deal when you're wealthier, because it wouldn't be subject to the FICA you pay on all your earnings today. And it would come on top of having your basic needs in life pretty well covered.

If you don't like that deal, you'd have another choice. You could put those extra dollars into healthcare for your employees, send them to training, buy a new truck, beef up your advertising, get some help to do the paper work or even hire another plumber who could produce more revenue.

And then write your income back down to $249,999.

Your business will grow and your life will probably get better because you can spend more time doing what you like — whether it's thawing pipes, selling or just helping people in a jam.

The anti-tax zealots want you to believe the scary stories that your future business prospects will be hamstrung by taxes you haven't even started to pay yet. That's not really how it works, and if you don't understand that, stop listening to the small government advocates and start talking to a real small business advocate.

Oh, and get that plumbing license, too.

Good luck,

Charlie Quimby, a guy who reached the American Dream, taxes and all

[Note: This piece appeared today in the print edition of Finance and Commerce.]

College senior appreciates tax cuts for the wealthy

Bob Collins picked up on this statement about a college senior in town working as an intern for the Republican National Convention and asked his readers to comment on it.

Ms. Rondeau is used to hard work: She's paying her way through college, something that makes her appreciate the Republican stance on issues such as tax cuts.

The original story in the Dallas Morning News fails to clarify whether the connection between college, working and taxpaying was drawn by the student or the reporter. It's unlikely that a college student paying her own tuition and taking advantage of all her deductions would earn enough to owe more than a few hundred dollars in income taxes. It is possible she is "paying her way" — about $30,000 a year in private college tuition, room and board — without any help from taxpayers. But more likely it's through a combination of funding sources that also include loans, grants and parental help that could be worth tax deductions to someone.

Anyway, good for her. My beef is the subtle anti-tax message stuck in a story where it doesn't belong and a conclusion that is actually off base. If a Republican president should be in office when Jessica Rondeau enters the full-time working world with an entry-level salary, her tax cut might be one-seventh what the Democratic candidate's plan calls for, according to a study of both candidate's tax plans.

UPDATE: King Banaian spent some time answering some of Collins' questions, too.

Anti-tax propagandists try again

A recent Wall Street Journal editorial packs up some loosely related facts and delivers a familiar  conclusion — state income taxes motivate people to move.

But let's dig into those facts...

[Note: A slightly edited version of this is cross-posted at Across the Great Divide.]

The editorial, based primarily on a yearly report of inter-state shipping records from United Van Lines, says a record number of Americans moved to other states last year.

Without interviewing the departed, it's impossible to know the reasons for this outward migration. No doubt overall economic prospects, climate, quality of life and housing prices play a role.

Why people move

Well, yes, those are the reasons suggested by actual studies of migration. The Wall Street Journal didn’t interview the 212,917 departed represented in the shipper's data, but the Census Bureau does ask people why they move.

Between 2004 and 2005, for example, it counted more than 39 million changes of residence. Of the 15 million who moved at least one county away (it did not break out answers by inter-state moves), 90 percent gave reasons that were evenly split among work, family and housing.

It did not ask specifically whether people were fleeing taxes — or fleeing cooties, for that matter. So maybe some of those movers who said they moved to take new jobs, look for work, avoid crime, get married, move closer to family or find a better house were really basing their decision on the income tax rate.

Maybe.

By the way, Journal's alarming declaration that "a record eight million Americans — some 20,000 people every day — relocated to another state last year" fails to clarify that the "record" is due to population growth. The rate of about 2.6% relocations is midway between the rates from 2000 and 2005.

The editorial continues:

But one reason to conclude that taxes are also a motivator is because the eight states without an income tax are stealing talent from other states. They are Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, and each one gained in net domestic migrants. Each one except Florida — which has sky-high property taxes on new homesteaders — also ranked in the top 12 of destination states.

Why the numbers are deceptive

Before you swallow that, let's look at the actual number of households involved in those moves. That's important, because the United Van Lines report ranks its high-move states by the differential between inbound and outbound moves in each state — not whether there's a large number of moves.

Drilling down, we find those seven states in the “Top 12” destinations accounted for 37,302 inbound moves, but had a total net gain of only 5,772 households. Altogether, South Dakota, Wyoming and New Hampshire accounted for a grand total of 390 new households.

Hardly a groundswell.

 Now, let's compare the eight states without an income tax to Minnesota, which ranked number 12 in per capita state and local taxes in 2007. Why, high-income-tax Minnesota had more inbound than outbound moves, too!

Suppose we look at inbound moves as a percent of state population to even out differences among different-sized states. Of the nine, Minnesota has the fourth best inbound ratio, behind Nevada, Washington and Wyoming. And more households moved into Minnesota in 2007 than Nevada and Wyoming combined.

The implication that low-tax states are “stealing talent” is not exactly borne out by the data. Another way to view it is that two states with good quality of life and a strong creative climate are attracting lots of talent, while two other states are drawing a few people with a real estate bubble and an oil and gas boom.

Higher income, less migration

But the Journal just can't help itself. It concludes with an ominous warning to state governments:

The people who tend to be the most mobile in American society are the educated and motivated — in other words, the tax-paying class. Tax them too much, and you'll soon find they aren't there to tax at all.

The highly mobile, well-off taxpayer sounds right, but it simply isn’t true. I’ve written about this before, so let’s look here at some new data.

The Census Bureau also tracks moves by income level. People with the lowest income are actually the most mobile, including those moving between states. Top-earning households — incomes above $75,000 — are the most stable, with only 9 percent changing residence in the prior year, compared to 19 percent at the bottom.

Why some trips cost more

Finally, let’s look at one more misdirection in the editorial, which sent readers to the U-Haul web site to see  how much more it costs to rent a truck leaving a high-tax state for a low-tax state versus one going the other way.

King Banaian was skeptical but still fell for it, citing these examples:

A 26-foot truck from Minneapolis to Sioux Falls from U-Haul was $489, from Sioux Falls to Minneapolis $288. St. Cloud to Rapid City $880, Rapid City to St. Cloud $518.

Let’s help out the econ professor and the editorialists on this one.

First, most moves are local. Movers tracked by the Census Bureau stayed in-state by a ratio of at least 4 to 1, depending on the income group. Most moving equipment rented in a market stays there. In-town moves in Minneapolis are priced at 39 cents per mile vs. 49 cents in Sioux Falls, so let's dismiss any implication that the higher tax state starts out higher cost.

Second, sending units to another state is only desirable if there’s higher utilization at the destination.
I called U-Haul headquarters to ask about the interstate pricing discrepancy, and sure enough, they said they often discounted rates to encourage more equipment going back to cities where more moves occur.

Other explanations

Another view on this subject comes from Wendell Cox, a smart growth opponent, who says housing affordability is the problem.

He looked at the Census Bureau migration patterns and notes that high-tax states like California and New York have been high tax for decades, while exploding out-migration is a newer development.

He says the problem is high housing costs relative to income. Some high-cost locations like Las Vegas are able to attract inbound migration only because their housing is less expensive than neighboring California's.

Should states like Michigan be concerned about continuing to lose population? Certainly. Should Nevada be worried about whether the influx of new people are financially stable? Apparently.

But without better supporting evidence, don't buy any attempts to hang those troubles on taxes.

— Charlie Quimby