Fast State, Slow State, Red State, Blue State

If you don’t believe taxes influence human behavior, then you won’t put much stock in the just-published edition of “Rich States, Poor States” published by the American Legislative Exchange Council (ALEC). And you won’t get very excited about Virginia’s rise from the 8th most competitive state in the union last year to the 3rd most competitive. After all ALEC leans to the right philosophically, and the names on the report include those of notorious supply-sider zealots Arthur Laffer and Stephen Moore. The authors have an agenda, so you can ignore whatever they have to say without even bothering to understand why they say it.

On the other hand, if you’re part of the McDonnell administration, you’re really grooving on the report. (Grooving? OK, maybe only the Baby Boomers in the administration are grooving. The rest are just happy.) “I am pleased to see Virginia recognized for the effectiveness of our pro-growth, pro-jobs policies,” stated the governor in a press release. “Our fiscal discipline gives us a great story to tell to CEOs and entrepreneurs looking for the best place to do business in a competitive global marketplace. Virginia is truly open for business.”

To me, the evidence is overwhelming that people and capital tend to migrate from high-tax states to low-tax states. First there is economic logic. If you tax more of something (income, capital), you get less of it; if you tax it less, you get more. Second, there’s the actual evidence, as encapsulated in the chart above. The population of the Top 10 states embracing the “Red” (as in conservative) economic model of lower taxes, smaller government, less debt, right to work, etc., increased 12.1% on average during the 2000s, while those hewing to the “Blue” model experienced population increases of only 4.5%. Likewise, per capita income in the Red model states increased 44.3% versus 41.2% for the Blues.

Repeat the formula year after year for 50 years and you end up with something that looks like this:

That said, “Rich State, Poor State” is a bit of a misnomer. “Fast State, Slow State” would have been more appropriate. More than 80% of the differential in economic growth can be attributed to varying rates in population growth. Only 18% is tied to different rates of per capita income growth. Maybe I speak only for myself, but I’d much rather have more money than more neighbors.

I would go one step further: Rapid population growth creates strains on regions such as traffic congestion, pollution and inadequate public infrastructure. Population growth may be a sign of economic opportunity but it is not a reliable indicator of the good life. I would be far more interested in seeing what set of economic policies contributes to rising incomes while also taming increases to the regional cost of living, limiting damage to the environment and fostering an all-around better quality of life.

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