The Left Is Wrong: A Century of Data Shows the Net Result of Taxing the Rich
A new study examined the introduction of state income taxes and their impact on where the wealthy choose to live.
Unsurprisingly, except maybe to Democrats, the rich, and even the not-so-rich, tend to go where they are not punished for being industrious.
Thus, high state income taxes do not translate to higher revenue overall due to the net impact of out-migration.
The study, published in the American Economic Journal: Economic Policy, is the “first-ever systematic analysis of 110 years of state income tax implementation throughout the United States” and “highlights the consequences of taxpayers fleeing to low or no-tax states,” according to a news release from the University of California, Riverside.
Researchers — including UC Riverside economics professor Ugo Antonio Troiano, who co-authored the study — found that states adopting income taxes did in fact increase their tax revenue per capita by 17 percent over a 20- to 30-year period.
“But that increase does not correspond to an increase in total revenues for the government in monetary terms. This is because the introduction of income tax in the post-World War II era led to out-migration by wealthy Americans,” the news release said.
Troiano noted that states adopted income taxes as a way to redistribute wealth.
“The idea was to provide services to poorer parts of the population and reduce inequality between low-income and high-income residents,” he said.
However, the higher tax rates were not accepted by many wealthy Americans, and they used their higher income to move to states with lower income tax burdens or none at all.
Six states have never had a personal income tax: Texas, Florida, Nevada, Washington, Wyoming and South Dakota, the study says. An additional three didn’t have one as of 2023, according to Investopedia: Alaska, New Hampshire and Tennessee.
Researchers estimated that states that introduced income taxes after World War II, as the nation became more mobile, saw on average a 16.6 percent decline in population over a 20- to 30-year period.
For context, the study noted, “between 1960 and 1985, average state population growth across the United States was 28.9 percent.”
“In Florida, which never introduced the income tax, the population grew by 81.9 percent over this period. In Texas, another non-income-tax state, the population grew by 52.5 percent.”
The New York Post reported in December that since 2021, a net 750,000 residents have left California. A net 450,000 people have moved to Republican-led Florida during the same timeframe.
The nonpartisan Tax Foundation ranks California as the 48th-worst state in terms of “tax climate.” Meanwhile, Florida is ranked the fourth best.
In December, the Hoover Institution’s Lee Ohanian, who is also an economics professor at the University of California, Los Angeles, provided a more detailed comparison between the tax policies of the two states.
“Florida has no income tax, it has a combined state and local sales tax rate of 7 percent, a 5.5 percent corporate tax rate, a property tax rate of about 0.7 percent, and a gas tax of about 35 cents per gallon,” he wrote.
“In contrast, California’s income tax ranges from 1 to 13.3 percent, has a combined state and local sales tax rate of 8.8 percent, a corporate tax rate of 8.8 percent, a property tax rate of about 0.7 percent, and a gas tax of about 77 cents per gallon.”
California has a very progressive state income tax. Even those earning just shy of $25,000 pay at a 4 percent rate, which doubles to 8 percent for those making about $54,000 and jumps up to 12.3 percent for those making about $698,000 or more.
When coupled with a federal income tax rate of 37 percent, that means about half a high earner’s wages are going to pay income tax alone.
The old adage that Presidents Ronald Reagan and John F. Kennedy knew so well still holds: Higher tax rates don’t always mean higher tax revenues because of the economic choices people make in response.
People adjust their behavior based on higher taxes, as California Gov. Gavin Newsom has learned.
Cal Matters reported that the Golden State faces a budget shortfall of between $38 billion and $73 billion next year.
And at the top of a list of America’s fastest-declining cities is San Francisco, which saw a population drop of 8.29 percent from 2019 to 2022.
New York City is third on the list, with New York County seeing a population decline of 4.8 percent from 2020 to 2023 and neighboring Queens County 5.7 percent. Bronx County was down 7.2 percent.
This map shows which counties have gained—and lost—population since 2020
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New York state has an even worse tax climate than California, ranking No. 49 on the Tax Foundation’s list, just above New Jersey at 50.
Of course, California, New York and New Jersey are all Democrat-run states.
Tax policy matters. While Democrats like to claim they are the party of compassion by taking and spending other people’s money, in the end, Americans vote with their feet and hightail it out of high-tax states.
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