State Dilemmas

by Elaine Schwartz    •    Jan 16, 2011    •    716 Views

Do higher taxes make you want to move? Hearing that taxes were going up in Illinois, the governor of Wisconsin said, “Escape to Wisconsin.”

According to census figures, people do seem to be moving to no income tax states. One journalist explains that Texas has become an “engine of growth” because of its “diversified economy, business-friendly regulations, and low taxes.” For Texas, more people will also mean 4 more seats in the House of Representatives.

However, with a $15 billion deficit, Illinois’s governor indicated a tax hike was imperative. Meanwhile, with a $10.5 deficit, New Jersey’s governor emphasizes spending cuts. Both are worried about businesses and residents leaving their state.

The Economic Lesson

The unencumbered movement of people, goods and services over vast areas fuels economic growth. People and resources are then able to optimize their goals by moving. Furthermore, when factories have a larger market, they can enjoy economies of scale. They also have more consumers to target, a larger labor market, and additional places to obtain natural resources and capital.

Asking what makes people move, Harvard economist Ed Glaeser suggests taxes are not necessarily the reason. Instead, his research indicates that fewer land use and construction regulations result in lower cost housing. Cheaper real estate attracts migration.

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