If You Tax Them Will They Leave?
The Federation for Community Planning (FCP) is a Cleveland-based nonprofit that “serves as a critical link between health and social issues and possible solutions.” In a recent article, FCP’s David Ellis argues that Ohio’s punitive income tax is in fact not linked to Ohio’s well-known out-migration problem. (Roughly speaking, 50 people leave Ohio, on net, every single day.)
Ellis shows two graphs to make his case. First, he shows that net out-migration has grown during the 1996-2000 period during which income taxes were “cut” through rate reductions given to taxpayers through the Income Tax Reduction Fund. This, he suggests, proves that lower taxes in the late 1990s didn’t bring people into the state.
An obvious flaw in this analysis is that income tax burden on the average Ohioan increased during this period - despite the temporary tax reductions. Income taxes per Ohioan increased from $525 in 1996 to $725 in 2000, according to data from the Bureau of Economic Analysis. Even controlling for inflation and rising incomes, the portion of every $1,000 of Ohio personal income going to the individual income tax increased from $22.35 to $25.78. In any case, it has never been argued that tax policy and migration is linked in the short term. The argument is that over the long run, Ohio’s non-competitive tax system is hurting economic progress in this state, and that out-migration is documentation of that.
As a second argument, he shows that the income of both out-migrants and in-migrants is increasing. Curiously, he ignores the increasing gap that shows the average out-migrant has an income several thousand dollars higher than the average in-migrant. Simply put, we are driving away our “best and brightest.” Is it really good government policy to encourage high-income folks to move away and lower-income folks to move in?
There is a large body of economic literature that demonstrates the deleterious effects of high state taxation on economic results. Economists Jon Bakija and Joel Slemrod (the latter of whom was an advisor to President Clinton) recently found that high-income households are in fact moving in response to highly progressive state income and estate taxes. Are Ohioans literally saying, “Taxes are increasing, I had better move?” Of course they aren’t. No serious researcher would argue that they are. At the same time, however, no serious researcher would ignore the marginal effect that taxes have on people’s decisions to undergo various activities - including where to live.
Robert A. Lawson, Ph.D. is Professor of Economics and George H. Moor Chair at Capital University in Columbus, Ohio and a Senior Fellow with The Buckeye Institute.
