For decades, taxpaying Americans have been fleeing high tax states and flocking to low tax states. With recent data available for 2023, that trend continues in full force and there are both short and long term consequences for states that understand the benefits of lower taxes and those that do not.
As seen on the chart below for 2023, the states in blue have been moving tax rates lower on the state income tax side of things or already have zero state income tax. The states in yellow continue to pile on higher taxes, even more high tax proposals and bloated government spending.
Over the long term, some of those consequences are fairly substantial. For example, here is a chart that shows the movement of wealth – measured by Adjusted Gross Income, from state to state over the last 20 years from 1997-2017.
Source: American Legislative Exchange Council (ALEC), 2018
Consider how many companies, jobs, investments and consumption have come to the states at the top of the list over the last 20 years. All of those states have been reaping the benefits of all of those forces and the economic growth that comes with them. On the flip side, the high tax states at the bottom of the chart have seen the exodus of not only residents, but also the companies they work for and now struggle with declining tax revenue even as the size of their governments continue to grow.
Another consequence of this trend can be illustrated by the example of the state on the bottom of the chart – New York. If one were to look back at how many Congressional seats that the State of New York had in 1940 you would see that they boasted one of the largest number of seats of any state in the Union at 45. Fast forward to today, when after the 2020 census, the number of Congressional seats now sits at just 26. New York has lost almost half of its representation in Washington DC. That means that over those decades 19 elected officials have had to literally close up shop and send everybody home. In addition to New York, for the first time in its state history, California, another high tax state for the last two decades, lost a Congressional Seat.
Fortunately, Utah’s elected leaders have a clear vision of the benefits that come along with being a low tax state. Utah has spent decades moving in that direction and has been reaping the benefits of robust growth in income and sales tax revenues. That revenue growth has not only funded important priorities for the state, but also allowed for prudent tax relief for taxpayers at the same time. While other states strain under the weight of declining tax revenues and tepid growth, Utah continues to move in the right direction.