September, 2019, By The Numbers: Why HIgh Taxation Will Bankrupt Illinois, New Jersey and Several Other HIgh Tax States

Today we are going to focus on Americans’ desire for freedom and humans desire to keep the fruits of their labor. We have often asserted that in this country there is no separating economic freedom from political and individual freedom. The more economic freedom a person or family has the better their life is: they have more money to spend on enjoyment, they have more money to spend on shelter, they have more money to start a business, they have more money to better educate their kids, they have more money to give to charity etc. They have more freedom.

Economic freedom in this case is the ability to enjoy lower taxation and retain more of one’s earnings. In theory, government should be doing, and being paid to do, only elementary sets of functions that are better and more efficiently done by an impartial third party. These minimal functions should include road and infrastructure maintenance, a judicial system, police protection, disaster relief, and one could include public education. Those are the only functions that government should be doing and should be paid for.

But we all know there are two realities about government in this world:

1. Government entities do such much more which is unnecessary, inefficient, and costly from a taxation perspective.
2. Even the functions they should be doing, e.g. infrastructure support, they generally do badly and costly.

The other reality that we have often discussed is the counter intuitive reality that states with the highest taxation rates are the ones that do the worst job at their functions AND are the most likely to go bankrupt in the very near future. One would think that those states with the highest taxes would be the most financially solvent, they are taking more from their citizens then other states.But that is not the case, the more those state politicians take from taxpayers the more they overspend and waste.

Connecticut, New York, New Jersey, Illinois, and California have often been discussed in this blog as the states that are hurtling towards bankruptcy. Yet, they collect more taxes on both an absolute basis and a percentage basis than most other states. This indicates a massive inability to function efficiently and effectively.

Which brings us to a wonderful and insightful website, “How Money Walks”:

https://www.howmoneywalks.com/irs-tax-migration/

The owners of this website did an amazing and detailed analysis. They looked at IRS data over time with the intention of figuring out where the wealth in this country is moving into and out of. If everyone was happy with their economic freedom where they lived, than you would expect that wealth would be pretty static and stationary. Obviously people move because of new jobs, family matters, and retirement so one wouldn't expect wealth distribution to remain totally static.

But I thought it would be interesting to see if there was MASSIVE shifts in wealth going on with my theory being that if humans love economic freedom, they would be migrating to states where they can maximize that economic freedom, i.e. states with lower taxation rates. 

Since this is a “by the numbers” post there will be a lot of numbers discussed below. But the emerging picture is clear: the states with the highest taxation rates are driving out the wealth from their states’ citizens as that wealth is generally moving, in massive amounts, to states with much lower taxation rates. This leads the high taxation states to raise their state tax rates to compensate for the wealth migrating out of the state which means higher taxes for those people that did not move out of the state which means that more people will migrate out and the financial death spiral is set in place.

Let’s get started:

• From 1993 to 2016, my former home state of New Jersey lost $35.4 billion in adjusted gross income as New Jersey residents fled to Florida and elsewhere, resulting in Florida picking up about $18.3 billion in adjusted gross income of that $35.4 billion from New Jersey outward migration.
• From 1993 to 2016, New York lost a whopping $99.5 billion in adjusted gross income as New York residents fled to Florida and elsewhere, resulting in Florida picking up $27.9 billion in adjusted gross income from New York.
• Connecticut lost $16.3 billion in adjusted gross income as Connecticut residents fled to Florida and elsewhere, resulting in Florida picking up the majority of that Connecticut loss, $10.6 billion.
• Massachusetts lost $17.2 billion in adjusted income as Massachusetts residents fled to Florida and elsewhere, resulting in Florida picking up $8.2 billion from Massachusetts
• Illinois lost $50.2 million in adjusted income as Illinois residents fled to Florida and elsewhere, resulting in Florida picking up $12.9 billion in adjusted gross income from Illinois.
• California lost $58.0 billion in adjusted gross income as California residents fled to Nevada and elsewhere, resulting in Nevada picking up $14.1 billion in adjusted gross income.
• Michigan lost $21.1 billion adjusted gross income as Michigan residents fled to Florida and elsewhere, resulting in Florida picking up $7.6 billion in adjusted gross income.
• Ohio lost $26.1 billion in adjusted gross income as Ohio residents fled to Florida and elsewhere, resulting in Florida picking up $9.6 billion.

Thus, excluding California, where most of their outbound wealth went to Nevada, Florida picked up almost $110 billion in wealth over the period, 1993 to 2016, from just the other six states listed above. Other states that made out quite well with wealth migrating to their states include South Carolina, North Carolina, Georgia, and Texas.

Now look at the states that have no state income tax imposed on their state residents (the net gross adjusted income gains those states received over the 1993 to 2016 time period are in parentheses):

• Florida ($156.1 billion)
• Texas ($47 billion)
• Nevada ($24.3 billion)
• Washington ($18.8 billion)
• Tennessee ($14.3 billion)
• New Hampshire ($4.0 billion)
• Wyoming ($2.3 billion)
• South Dakota ($989.0 million)

Note: Alaska also has no state income tax on residents but for whatever reason Alaska was not included in the analysis from the website.

So all of the states in the continental United States that have no state income tax saw a gain in their adjusted gross income over time and some cases, e.g. Florida and Texas, those increases were huge. The states with the highest state tax burdens include all of the states listed above who lost adjusted gross income over time, e.g. New York, New Jersey, Illinois, etc. Thus, we have a pretty strong relationship that says those states with the highest taxation levels are the states that are losing wealth, and residents, fastest. People want to be free.

Even states that have some form of state income tax did quite well in this wealth migration. North Carolina for example, is not on the list of states with no state income tax but they picked up over $12 billion in adjusted gross income from just three states, California, New York and New Jersey, from 1993 to 2016. The top state income tax rate in North Carolina is 5.25% compared to a whopping 13.3% in California, 10.75% in New Jersey, and 8.82% in New York. People want to be free.

This correlation gets even stronger when you get down to the county levels, especially if you look at counties that include a major metro area. The reasons for this is that very often local cities impose additional taxes on their residents, on top of the extra state taxes. 

For example, Cook County in Illinois, home of Chicago, lost an incredible $40.6 billion in adjusted gross income from 1993 to 2016. $40.6 billion! Imagine how much more financially solvent Chicago would be if it still had that $40.6 billion within the city limits and county. In fact, Chicago accounted for about 80% of the adjusted gross income that has left the entire state of Illinois over the period studied. And yet, Chicago politicians, and their peers in the Illinois state government, continue to raise taxes, causing more migration, a smaller tax base which requires higher tax rates which leads to more migration, and the death spiral is in full gear.

Los Angeles County, home of Los Angeles, is in a similar fix. It lost $46.1 billion over time, almost 80% of what the entire state of California lost. Suffolk County in Massachusetts, home of the city of Boston, lost $6.2 billion, over one third of what the entire state of Massachusetts lost. New York City lost about $70 billion, about 70% of what the entire state of New York lost.

Like I said up front, a lot of numbers. But also a lot of lessons and conclusions:

• States with lower taxation rates appear to be getting much richer as a result of residents from high taxation states moving to the lower taxation states, taking their wealth and tax money with them.
• This reality is even worse when you consider the counties in the high taxation states that are home to big cities where the taxation level is increased by local taxes being piled on.
• It is human nature to want to keep what you earn, a reality that is lost on politicians that are in charge of states like New York, New Jersey, etc. where their view is higher taxation levels will solve their problems.
• And it is clear from these numbers that the states we thought were leading the way to state government bankruptcy are still correct: Illinois, New Jersey, New York, Connecticut, and California.

People want to be free and that includes having economic freedom to retain as much of their hard earned wages as possible. As a resident of Florida, I am thankful that the high taxation states have driven over $150 billion of adjusted gross income to my now home state, that kind of wealth increase makes life much easier for us down here the sunshine. So keep it up, politicians in Illinois, New Jersey, etc., we welcome your former residents and the economic power they bring with them.

P.S. We still stand by our on the previous forecast that Illinois will be the first state to go bankrupt, they are in a financial death spiral already and their ignorance continues to lead them to continually increase taxation levels and rates. The adjusted gross income levels do not lie.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

https://www.amazon.com/Walter-Bruno-Korschek/e/B002KYU08Q/ref=dbs_a_mng_rwt_scns_share

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:


http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w