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Americans fleeing the most overregulated, overtaxed states

When it comes to federal taxes and regulations, your address doesn’t matter, but when individual state governments begin helping themselves to a disproportionate amount of your earnings so they can regulate you to death, you can do something about it by voting with your feet.

And that is precisely what is happening in some of the most overly regulated, heavily taxed and – not so ironically, fiscally challenged – states in the union. Citizens in New York, Illinois, California, and Gov. Chris Christie’s New Jersey are heading for places where big government progressives aren’t robbing them blind every payday while forcing them to comply with mind-numbing and freedom-robbing bureaucracy.

To wit: According to the nonpartisan Tax Foundation, scores of New York residents fled the state between 2000 and 2010, taking with them $45.6 billion in personal income. California, during the same period, lost $29.4 billion, making it the second-biggest income loser. Illinois was third, losing $20.4 billion, and New Jersey lost $15.7 billion. Ohio and Michigan are big losers as well.

Meanwhile, the state of Florida – which has a great climate but no state income tax – gained a whopping $67.3 billion, making it the largest income gainer during the period. Arizona was next with $17.7 billion in gains, and Texas was third with $17.6.

A closer examination of data reveals a couple of factors which help explain the outward migration of residents from these states:

High state income taxation. California’s highest income tax rate is 13.3 percent, but admittedly, that is on incomes in excess of $1 million. But on low- and middle class incomes, California rates are still high. A single person earning just $27,897 a year is taxed at a 6 percent rate; a single person earning slightly more, $38,726, is taxed at 8 percent. A single earner making $48,942 is taxed 9.3 percent, while someone earning up to $250,000 will pay 9.3 percent. Couples are taxed the same.

But income taxes aren’t the whole story. Other taxes – sales taxes, “sin” taxes, property taxes and even taxes on certain activities – all add up as well. In order, the five states with the highest rates are Connecticut, New Jersey, New York, Massachusetts, and Maryland.

The remaining highest states, according to the Tax Foundation – Connecticut, Maryland and Massachusetts – have also had net income losses between 2000-2013 (more than $10 billion in the case of Massachusetts). Notice that two of the top five – New Jersey and New York – have also lost the most income.

Not everyone thinks there is a link between migration and high taxation.

“Attacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states,” says this report by the Center on Budget Policy and Priorities. “The same claim also is used to justify new tax cuts. Compelling evidence shows that this claim is false. The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.”

But Richard Vedder, a professor of economics at Ohio University who studies U.S. migration, sums up it differently. He says with certainty that states with high taxation are forcing residents to leave.

“People are voting with their feet,” he said. “These are mostly productive and wealthy people who don’t believe the services associated with high taxes are substantial enough to offset their burdens.”

What’s more, this phenomenon has been trending for decades. Reports Barron’s:

The number of folks on the move is staggering: From 1997 through 2007, more than 1,100 people moved every day out of the nine states with the highest income taxes, including California, New York, New Jersey, and Ohio, according to a March study by Arthur Laffer, founder and chairman of Laffer Associates, an economic research and consulting firm in Nashville, and Stephen Moore, a senior economic writer for The Wall Street Journal.

Overregulation. In addition to high taxation, freedom-killing overregulation by some states is causing them to lose population and tax base. In order, here are the five most overregulated states, according to the Mercatus Center at George Mason University; see if you can discover a pattern: New York, California, New Jersey, Hawaii and Rhode Island.

According to the Manhattan Institute, California in particular has been hard-hit. In a 2012 report, the institute said:

The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.

The same is true for the other states.

Overregulation not only affects ordinary people’s lives, but the business environment as well – which, in turn, affects employment opportunities. Forbes reports:

In fact, most of the top-10 states people are leaving are located in the Northeast and Great Lakes regions, including Illinois (60 percent), New York (58 percent), Michigan (58 percent), Maine (56 percent), Connecticut (56 percent) and Wisconsin (55 percent).

The burden of regulations runs afoul of one of America’s founding principles: laissez-faire economics. What’s more, they stifle ingenuity, job creation and economic activity.

That’s a message many of the nation’s businesses and manufacturers have tried to tell Washington. A May 2012 press release from the National Association of Manufacturers sums it up well:

In a letter to House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA), the National Association of Manufacturers (NAM) identifies harmful regulations such as the Environmental Protection Agency’s Boiler MACT, National Ambient Air Quality Standards, Utility MACT and greenhouse gas regulations, as well as the National Labor Relations Board’s posting notice requirement and ambush elections rules.

“Currently, it is 20 percent more expensive for manufacturers to do business in the United States compared to nine of our major trading partners,” said NAM President and CEO Jay Timmons. “Unnecessary and burdensome regulations are driving up costs, making it difficult for manufacturers to hire. With slower job growth last month, it is clear that manufacturers need Washington to step up and cut the regulatory burden stifling growth.”

Federal regulatory overreach by unelected, faceless bureaucrats is bad enough, but when you couple it with burdensome state overregulation, it’s easy to see why millions of Americans are changing their address. Unfortunately, the progressive leadership of the worst states don’t get it; they’re doubling down on their failed tax-and-regulatory policies. And as such, they’ll continue to bleed revenue.

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