As described in a previous post and essay here, people often respond to government-generated disincentives such as high taxes by voting with their feet, migrating to places with greater economic freedom and opportunity.
The lesson is reinforced by a recent article written by the highly regarded economist Richard Vedder, "High Taxes Lead to Population Losses," published in the magazine of the American Legislative Exchange Council. He compared the state and local tax burdens of the 10 lowest-tax and 10 highest-tax states with their migration patterns (Michigan falls in neither group). This showed that from 2000 through mid-2009, 4.2 million more people moved out of the 10 highest-tax states than moved in to them. In contrast, the 10 lowest-tax states enjoyed a net in-migration of 2.8 million souls.
Of course, taxes are just one variable in the overall migration equation. Other factors include state "transfer" (or welfare) payments, labor laws, days of sunshine and "amenities" such as access to parks. But Michigan-specific research conducted by Michael Hicks for the Mackinac Center in 2008 found that personal taxes mattered most to Michiganians: For every 10 percent increase in personal taxes an additional 4,900 people left Michigan every year thereafter.
Vedder explains that taxes are the cost of government, and people are moving to states with lower costs, either because they have less government, more efficient government or both. He notes that during the period covered by his study, Californians paid $106 in taxes for every $1,000 they earned to support their high-tax state and local governments, while Nevadans only had to cough up $70.
Incentives and migration apply to businesses too. In 2007, Comerica Bank announced that it was moving its headquarters to Texas after a 158-year run in the Great Lakes State. Its leadership did not contend that Michigan taxes were too high; it simply said that its future market was in the south, where population was, not coincidentally, growing. In the past 10 years, some 500,000 people have moved to Texas. It is the number two destination state for Michigan ex-patriots, according to the U.S. Internal Revenue Service. Vedder reports that the number of Fortune 500 companies headquartered in relatively high-tax Ohio declined from 42 to 27 between 1993 and 2008. In contrast, low-tax states like Texas saw the number of big businesses located there increase.
Politicians can adorn their tax hikes with all the rhetorical lipstick they want, but it doesn't change the fact that, on balance, people are revealing their preference for locations with lower taxes. Michigan should become one of them. Michigan lawmakers can and must reform their way to balanced budget without additional tax hikes.