Virginia Is for Higher Taxes—and Gerrymanders

Gov. Spanberger’s popularity takes a hit as she abandons the center

WSJ editorial. Excerpts:

"Unlike in private industry, collective bargaining in government isn’t adversarial. Public unions sit on both sides of the table since they fund the campaigns of the politicians with whom they “negotiate.” The incentive is to give away the store to union allies"

"Wisconsin Republicans in 2011 ended this cycle by limiting government collective bargaining, which has saved taxpayers some $35.6 billion, according to the MacIver Institute. Studies have also found that the law improved student test scores, in part by allowing schools to pay teachers more for performance."  

The Growing State Tax and Jobs Divide

On April 15, see how job growth has changed in high- and low-tax states

WSJ editorial. Excerpts:

"progressive states . . . tax their rich and middle classes more. 

"small businesses . . .typically pay tax at their state’s individual rate."

"Eight states—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming—have no income tax. On the other end of the spectrum are New York (top state and local individual rate 14.8%), Oregon (13.9%), California (13.3%), Hawaii (11%), Minnesota (10.85%), New Jersey (10.75%), Massachusetts (9%), Washington (9%) and Vermont (8.75%)."

"Private job growth outside of social assistance and healthcare—which rely heavily on government funds—has been paltry in these states since January 2020: Hawaii (-3.8%), Oregon (-3%), Vermont (-1.7%), Massachusetts (-1.4%), New York (-1.3%), California (-1.2%) and Minnesota (-1%)."

"stronger job growth in lower-tax states: Texas (10%), Florida (8.5%), North Carolina (7.9%), Arizona (7.3%), Tennessee (5.7%), Alabama (4.3%) and New Hampshire (1.6%)." 

California’s Golden Goose Is Already Flying the Coop

The state’s tax base is being hollowed out even before the ‘wealth tax’ qualifies for the ballot

By Hank Adler. He is a professor of accounting at Chapman University. Excerpts:

[they would] "would impose a 5% one-time tax on the wealth of individuals who were California residents on Jan. 1, 2026, and whose net worth exceeds $1 billion"

"the top 1% of taxpayers generate roughly 40% of the state’s personal income-tax revenue"

"Although California doesn’t currently tax wealth directly, it heavily taxes the income generated by wealth—particularly capital gains"

"Earlier this decade, Larry Ellison and Elon Musk—then among California’s wealthiest residents—relocated to Hawaii and Texas respectively. Apparently in reaction to the proposed billionaires tax, Sergey Brin and Larry Page late last year became Florida residents, and Mark Zuckerberg reportedly established a residence there early this year. Together these five men once accounted for roughly $1.7 trillion of the more than $1.8 trillion net worth held by California’s six richest residents earlier in the decade."

"The ballot measure would amend the state constitution to lift California’s limit on taxes on wealth, opening the door to future levies"

"Supporters suggested the tax could raise as much as $100 billion, which the bill pledges to fund education, food assistance and healthcare. The Hoover Institution estimated a much lower figure, about $40 billion, largely because of taxpayer mobility and the likelihood that wealthy residents have and will relocate regardless of whether such a tax is imposed. The facts so far support Hoover’s estimate much more than the tax’s supporters’ figure."

Gavin Newsom Opines on Wealth and Taxes

The California Governor finally admits who pays for Sacramento’s spending—billionaires. 

WSJ editorial. Excerpts:

"He now admits that taxes affect where people choose to live and invest."

"The union claims the measure would raise $100 billion in revenue. That’s doubtful given that it has already spurred many billionaires to decamp."

"“The impact of a one-time tax does not solve an ongoing structural challenge,” the Governor said Thursday. “You would have a windfall one time, and then over the years, you would see a significant reduction in taxes because taxpayers will move.”"

"Mr. Newsom said he is very “mindful” that “we rely on a very small number of people that allows us to do historic things”—i.e., spend at historic levels. His recently proposed budget includes $539 billion in spending, up 68% from 2019."

"the top 1% of earners pay about half of state income tax."

"California’s federal Medicaid dollars this year are projected to increase by $18 billion (15%)." 

Youngkin’s Strong Virginia Legacy

The GOP Governor leaves behind a healthy fisc and fast-growing state economy

WSJ editorial. Excerpts:

[Virginia has] "a revenue surplus likely north of $2 billion. The commonwealth has had four consecutive years of surpluses, collectively totaling $9.7 billion."

"a separate $4.7 billion rainy-day fund"

"Between fiscal years 2019 and 2024, Virginia rose to third from 14th among states with a AAA credit rating"

"Many states used the cash [federal pandemic largesse] to expand government, and when the Covid cash ran out, they raised taxes."

"Between the fourth quarter of 2021 and the first quarter of 2025, Virginia ranked 16th of the 50 states in economic growth"

"Virginia has generally outperformed neighboring Maryland"

"Since January 2022, nonfarm payroll employment has increased by 264,000, creating a broader tax base. Year-to-date growth in withholding taxes as of October was 8.6% because of wage growth." 

How Minnesota Became the Land of 10,000 Frauds

The simple explanation: The state makes it easy for criminals to get away with their wrongdoing.

By Matthew Continetti. Excerpts:

"Three separate plots to bilk welfare programs. Fifty-nine federal convictions. More than $1 billion stolen from taxpayers."

"Since 2020 . . . government-benefits fraud cases have increased 242%."

"the amount of fraud in unemployment-insurance programs was between $100 billion and $135 billion."

"$14.6 billion in healthcare fraud."

"Empire Cuisine & Market, a small halal grocery in Shakopee, Minn., claimed to be feeding thousands of children daily. Abdimajid Mohamed Nur pocketed close to $1 million by submitting lists of fake names and food sites to the Federal Child Nutrition Program."

"Minnesota became the first state to provide Medicaid coverage for housing assistance in 2022." 

"It became a full-employment program for fraudsters."

"Costs ballooned from a projected $2.6 million annual budget to $104 million last year."

"Minnesota’s full-bore progressivism created interlocking structures of taxpayer support that are lax, openhanded and easy to exploit." 

Newsom Falls for the ‘Red Moocher State’ Myth

A simplistic look at federal finances gives the false impression that blue states subsidize everyone else

By Steven Malanga. He is senior editor at City Journal and senior fellow at the Manhattan Institute. Excerpts:

"Some of the biggest categories of “spending” aren’t discretionary programs that help finance state budgets, but cash sent by Washington to people and businesses that earned it. That California and other states come up short in receiving this money can be a function of their own failings rather than any funding bias."

"The biggest category these studies measure is direct payments from the federal government to individuals, principally via Social Security and government employee pensions. A big chunk is money that people have worked for and that the feds send them where they retire."

"Only 16% of California’s population is over 65."

"California is one of the most expensive places to retire."

"Federal contracting dollars constitute another huge spending category. This is money that businesses and other private entities earn for work performed for the government—especially for national defense—not money Washington disperses based on a state’s population or tax “contributions.”"

"California does quite well is in receipt of federal grants, some of which clearly represent spending that bolsters state budgets."

"In the 2024 balance-of-payments study, California received 18% more per capita than the average among states."

"California and New York, home to high-flying industries like technology and finance, send more on average because residents earn more"

"The difference is exacerbated by the progressive nature of federal taxes"

"Moynihan . . . realized there was little to be done to change the payment imbalances because of the complexity of federal funding." 

"he proposed in his 1999 report a “grand compromise” between the parties to pare spending and taxes by Washington and leave more money in the states."  

California’s Five-Alarm Pension Fire

Sacramento wants to roll back Jerry Brown’s 2013 reforms

WSJ editorial. Excerpts:

"Before the reforms, public-safety workers could retire at age 50 and receive a pension credit of 3% of their final salary for every year they worked."

"The 2013 reforms reduced the maximum pension credit for new hires to 2.7% and required them to work until 57 to receive it."

"Workers are also required to contribute half of the actuarial “normal cost” of their pensions"

"For every $10,000 that a state firefighter earns in compensation, the state pays $5,000 into the state pension fund."  

"Local governments are raising taxes to pay for ballooning pension costs."

[there is new] "legislation to roll back the 2013 reforms by letting public-safety workers retire earlier with bigger pension credits."

[which would] "also let unions collectively bargain with local governments to reduce worker pension contributions"

"Los Angeles firefighters make $213,600 on average. About a dozen last year made more than $300,000 in overtime alone. One battalion chief made more than $928,000 including overtime and benefits."

California gained a net 22,400 from January 2024 to January 2025 while Texas added 187,700

See Texas vs. California, Part IX by Dan Mitchell.

"In Part XIII of my series comparing Texas and California (previous seven editions can be found here, here, here, here, here, here, and here), I shared data showing that the burden of state spending was growing much faster in the not-so-Golden State.

Today’s column is going to compare job growth.

We’ll start with this chart, which shows a slam-dunk victory for the Lone Star State. Texas easily beats California in total job creation for 2024, as well as winning almost every category of employment in the private sector.

California created more government jobs, which is a Pyrrhic victory. And California also wins in creating what I call quasi-government jobs (a category that includes health care and social assistance).

The above chart comes from an editorial in today’s Wall Street Journal.

Here are some excerpts from that column.

…the Labor Department’s latest state jobs report…shows that California lost jobs in nearly every industry in the year before Donald Trump took office. …California gained a net 22,400 from January 2024 to January 2025. All of its net new jobs were in government (58,300), and healthcare, social assistance and private (often higher) education (148,200), which rely to a large extent on government spending. …Private businesses shed jobs in the year…a result of small businesses closing because of high taxes and other costs. …Large companies are also relocating workers to lower-tax and -cost states. Texas added 187,700 jobs over the same period… One problem for Democrats in Sacramento is that their progressive tax regime (with an effective top marginal rate of 14.5% on wage income and 13.3% on investment income)… A growing problem for Mr. Newsom’s national ambitions and his party is that California epitomizes the leftist policies that harm workers and employers. That’s why so many are leaving for Texas.

These are sobering numbers, especially since California has lots of natural advantages, such as weather. It also started out as a richer state.

But bad policy is like a cancer, eating away at state competitiveness.

The bottom line is that California’s class-warfare tax system and other policy mistakes are causing it to lose ground when compared to states such as Texas.

That continued last year and almost surely that trend will continue so long as Texas is smart enough to avoid an income tax (almost certainly) and smart enough to join the school choice club (supposedly imminent)."

Gavin Newsom Tips His Hat to the ‘MAGA Movement’

But he has an awful record in California to live down if he wants to get elected president in 2028

By Allysia Finley. Excerpts:

"Democrats in Sacramento lavish tax breaks on their rich Hollywood friends so they don’t leave for other states. Meantime, they crush middle-class entrepreneurs who run fast-food franchises with a sector-specific $20-an-hour minimum wage, making Big Macs and Chalupas less affordable for those working-class Californians who haven’t yet fled the state.

Since 2020 about 1.4 million Californians have left for other states. Many are middle-class folks who can’t find jobs that cover the high cost of living. California’s 5.5% jobless rate is higher than Puerto Rico’s. In the Los Angeles metro area before the wildfires, it was 6%. When government crushes job creators with high taxes and excessive regulation, what do you expect?

Mr. Newsom’s “jobs first” plan touts his work to make California more affordable, including expansions of a state-administered program for paid family and sick leave funded by a 1.2% payroll tax, food stamps and “transitional kindergarten” for 4-year olds. This is similar to the national Democratic Party’s agenda: Expand entitlements by taxing everyone more.

Meanwhile, only 29% of California fourth-graders rate proficient or better in reading. California taxpayers are spending $50 billion more on K-12 education than they did 15 years ago, but student test scores haven’t improved."

"Mr. Newsom alluded to California’s problem of a narrowing tax base, which it owes to its highly progressive income tax. Its top rate is 13.3% on those earning more than $1 million (which rises to 14.5% on payroll income). In 2021 households making more than $10 million paid a quarter of state income-tax revenue. Those earning more than $1 million paid half.

The result is a boom-bust revenue cycle. State coffers swell when the stock market is doing well and investors collect capital gains. But revenues plunge during market corrections, and Democrats in Sacramento are left grasping for more money to pay promises they made to their public union donors. So they raise taxes even more, often by stealth."

Why ‘Wards of Washington’ Don’t Work Well

Red states can justifiably ask whether federal grants are truly benefiting them

Letter to The WSJ. 

"Regarding “Republican States Are ‘Wards of Washington’” (Letters, Feb. 12): Jeffrey Sonnenfeld and Stephen Henriques note that taxes raised in wealthy blue states help subsidize red states’ budgets. The subtext: Republicans shouldn’t complain about Democrats’ profligacy with federal grants.

But red states can justifiably ask whether such grants are truly benefiting them. Even with some revenue transfers between states, federal grant money is largely raised from taxes on citizens in the same states that receive it. In practice the federal government taxes state residents, routes the money through Washington, takes a cut off of the top for the federal bureaucracy and returns the sum to states with restrictions on how they can spend it.

From any logical viewpoint this is a bad way to run a federal system. In 2022 more than $1 trillion, or more than 35% of all state revenue, came from the federal government. More budget-conscious red states would tax and spend far less in a system less reliant on these grants. They would also impose more requirements about work or personal contributions for welfare programs, which are often refused by the same Washington bureaucracy that approves expansions of such programs in blue states. Even if a state receives a certain amount of federal dollars, that doesn’t mean those are the sorts of dollars for the sorts of programs they want.

In a system where states were true laboratories of democracy, they could use their own residents’ funds to craft their own health, transportation, education and welfare systems. These would doubtless be less costly than the federally funded ones. But for some reason Washington thinks that the further away the political representatives and the bureaucracy, the wiser the government will be in dictating the terms of these programs. This is incorrect, and representatives in both red and blue states know it.

Judge Glock

Manhattan Institute"

More Evidence for the TABOR Spending Cap

By Dan Mitchell.

"Last April, I shared some data showing that Colorado’s Taxpayer Bill of Rights had forced politicians in the Centennial State to return $8.2 billion of tax revenue.

The state’s politicians did not want to return the money. But TABOR is a spending cap and the rules 

  

require that any extra tax revenue (above and beyond what would finance allowed levels of spending) has to be returned to taxpayers.

This spending cap has been good news for the state’s economy, as illustrated by the chart.

But I now need to update the benefits of TABOR.

That’s because we have another year of data. And, as explained in this report from Center Square, taxpayers are getting another refund. This time, their savings will be more than $1 billion.

…the Office of the State Auditor confirmed this week that Colorado taxpayers have a refund coming their way. The refund comes because the state collected $1.4 billion more in revenue in Fiscal Year 2024 than the Taxpayer’s Bill of Rights allows, according to the Office of the State Auditor. Colorado voters added TABOR to the state constitution in the November 1992 general election. TABOR reins in government spending by limiting the growth of state revenues to the sum of inflation and the percentage change to the state’s population to create a TABOR growth rate. The state must return any money beyond that amount to its taxpayers.

But I’m going to argue that the big benefit is not the $1 billion-plus refund.

Yes, that’s nice, but what really matters is that the refund means that Colorado politicians could not spend the money.

To elaborate, a spending cap produces more prosperity because government is limited and more resources are therefore in the productive sector of the economy.

I’ll close by recycling my argument in favor of a spending cap in Washington. If that kind of policy existed, and politicians were handcuffed, the current fiscal mess would not exist.

To illustrate the importance of a spending cap, let’s shift from Colorado’s TABOR and look at some numbers I calculated when looking at Switzerland’s “Debt Brake” back in March of last year.

Since that spending cap was imposed by voters more than 20 years ago, the overall burden of government spending in Switzerland has grown by 2.2 percent annually, a far better performance than in the United States, where the fiscal burden has expanded by an average of 4.9 percent per year."

The High-Tax State Brain Drain

A new study shows which states are losing their young and wealthy

WSJ editorial. 

"More bad news for California, Illinois and New York. A recent analysis finds that their most upwardly mobile millennials are fleeing for lower-tax states. Call it a high-tax state brain drain. The flight of the young and newly affluent promises to compound the states’ budget and economic problems.

Using IRS data, the fintech company SmartAsset ranked states based on net migration of young households (ages 26 to 35) in 2022 that earned at least $200,000 a year. The biggest losers: California (-3,226), Illinois (-1,323), Massachusetts (-1,102), New York (-345) and Pennsylvania (-320).

Michigan, Louisiana, Delaware, Minnesota and Missouri round the top 10 losers. Delaware (6.4%) and Illinois (4%) lost the largest share of their young, higher-earning households.

The biggest gainers were Florida (1,786) and Texas (1,660), which have no income tax. They attracted more than twice as many such households as any other state. “Half of states attracting the most young and rich households don’t charge state income tax,” the study notes. The other big gainers without an income tax are Tennessee (347) and Nevada (162).

Washington state (383) also ranked in the top 10 gainers of young affluent households, along with Colorado, North and South Carolina, Arizona, and of all places New Jersey. The Garden State had significant movement of young households into and out of the state, and perhaps it benefited on net from young families moving out of New York City.

Although Washington state doesn’t tax wage income, Democrats imposed a 7% tax on capital gains above $262,000 in 2022. An initiative to repeal the tax is on the ballot this November. Do Washington voters want their software engineers and entrepreneurs following those migrating from Silicon Valley to Austin?

Damage to high-tax state economies will compound as more young, upwardly mobile people leave. Local businesses and their workers will lose customers. On the other hand, lower-tax states will benefit from the influx of high-earning young professionals who will grow wealthier as they get older. Newcomers may also start families and businesses.

And don’t ignore the fiscal impact. According to the study, the average adjusted gross income for California households in the “young and rich” demographic is $480,776. These folks pay a top marginal tax rate of at least 9.3%, and those making more than $1 million pay 13.3%. Their flight will result in billions of dollars in less tax revenue for the state as their incomes climb.

This means the middle class in these states will inevitably have to pay higher taxes to support the state’s political promises to public unions. The Blue State governance model keeps giving taxpayers the blues, which is why more of the young and mobile want out."

Tim Walz’s Progressive Tax Experiment

The Minnesota economy is no success story on the Governor’s watch

WSJ editorial. 

"Our friends in the press don’t seem to care about Tim Walz’s economic record as Governor of Minnesota. But Americans might be interested since it foreshadows where a Kamala Harris-Walz Administration would take the country with their policies. 

Minnesota boasts a low unemployment rate (2.9%), but that’s less impressive than it seems. Nearly all of its job growth under Mr. Walz has been in industries that rely on government spending. Since he entered office in January 2019, Minnesota has added a net 41,500 jobs. This includes 43,900 in healthcare and social assistance and 12,600 in government.

Private industries have lost jobs, including finance, information, professional and business services, retail, manufacturing and leisure and hospitality. Such job losses started before the pandemic but accelerated during Mr. Walz's prolonged lockdowns and have increased during the last year.

Manufacturing employment has declined by 7,500 over the past 12 months, while professional and business services have shed 22,700 jobs. This is especially notable since Mr. Walz last spring signed a giant tax increase, including a 1% surcharge on investment income over $1 million. He also reduced standard deductions for businesses such as for net operating losses.

At the same time he expanded myriad tax credits such as for rent, film production, dependent care and families. Minnesotans can even get a $150 refund for contributing to state political parties and candidates. Such tax credits shrink the tax base so much that Democrats have to keep rates high. Minnesota’s top rate is 9.85% not counting his one-percentage point surcharge—which sends the rich or retired out of state.

Households with roughly $5 billion in adjusted gross income left Minnesota between 2019 and 2022, according to the most recent IRS data. Minnesota in 2022 ranked eighth in income loss among states as a share of overall AGI, after Illinois, New York, California, New Jersey, Alaska, Maryland and Massachusetts.

Top destinations for Minnesota refugees include zero-income tax Florida, Texas and South Dakota. South Dakota’s rate of job growth has been more than four times higher than Minnesota’s since Mr. Walz took the helm. At least overtaxed and jobless Minnesotans can vote with their feet. If Ms. Harris wins, all Americans might have to live by California and Minnesota rules."

Red States, Blue States: A Tale of Two Economies

By Vance Ginn.

"The latest employment data from the Bureau of Labor Statistics for June 2024 offers a compelling snapshot of the divergent economic fortunes of red and blue states. The national unemployment rate remained steady at 4.1 percent, a modest increase of 0.5 percentage points from June 2023. Yet, beneath these headline figures lie significant contrasts between states, particularly economically vibrant red and struggling blue states, with Texas and California as prime examples.

Texas: A Beacon of Prosperity

Texas continues to exemplify the benefits of more free-market policies, evidenced by its impressive employment growth and relatively low unemployment rate. Over the past year, Texas added 267,400 nonfarm jobs in a pro-growth environment and favorable regulatory climate.

According to the Texas Workforce Commission, the state’s civilian labor force now exceeds 15.3 million, highlighting the ongoing expansion of job opportunities. This growth is supported by a diverse economy encompassing technology, energy, and healthcare industries. The unemployment rate in Texas stood at 4.1 percent in June, mirroring the national average but significantly lower than California’s 5.2 percent rate.

Texas’ economic model emphasizes fiscal responsibility, including adopting more sustainable budgeting practices. This has helped the Lone Star State claim the 7th best fiscal freedom according to the Cato Institute’s Freedom in the 50 States. The state also ranks 20th in regulatory freedom and 17th overall when considering economic and personal freedoms. Texas ensures that its budget remains manageable by limiting government spending growth to less than the rate of population growth plus inflation over much of the last decade. This approach keeps taxes low and promotes long-term economic stability and growth. However, the current irresponsible budget, which increased by more than 20 percent, challenges past budget successes in Texas and should be addressed in the next session in 2025.

California: A Contrast in Economic Management

California, on the other hand, presents a stark contrast. Despite adding 223,600 jobs over the year, California’s unemployment rate rose to 5.2 percent, the second highest in the nation, just behind the District of Columbia at 5.4 percent. This increase underscores the state’s challenges, including high taxes, stringent regulations, and a high cost of living, which collectively stifle business growth and job creation.

According to the Freedom in the 50 States report, California ranks 48th in fiscal freedom, 49th in regulatory freedom, and 48th in overall freedom. The Golden State ranks poorly compared with Texas and all but two states, New York and Hawaii, regarding overall economic freedom. California’s economic struggles are not a recent phenomenon. Over the years, the state’s policies have created an environment less conducive to business investment and innovation. High-profile businesses and individuals have been leaving the state, seeking more favorable conditions in states like Texas, further exacerbating the economic divide. The Wall Street Journal recently reported the Internal Revenue Service’s latest migration data for net adjusted gross income by state in 2022 showed California had the largest net loss of $23.8 billion while Texas had the second largest net gain of $21 billion, next to Florida of $36 billion. This is yet another example of how people and businesses move from high-tax to lower-tax states.

Unemployment Trends Across the States

The broader employment trends in the June 2024 report revealed that eight states saw an increase in unemployment rates while only one state experienced a decrease. The majority of states, however, saw no significant change in their jobless rates. South Dakota boasted the lowest unemployment rate at 2.0 percent, followed closely by North Dakota and Vermont at 2.1 percent.

In contrast, states with more interventionist economic policies, like California and Nevada, struggled with higher unemployment rates of 5.2 percent. This trend highlights the broader pattern where states with more market-friendly policies enjoy better employment outcomes.

Job Growth and Economic Policies

The BLS data also shows that nonfarm payroll employment increased in eight states in June 2024, with North Carolina, Massachusetts, and Virginia leading in job gains. Over the year, 27 states saw employment increases, with Texas, California, and Florida posting the largest gains in absolute numbers. These large job gains often reflect the fact that these states have the largest populations, but what’s revealing is that the percent increases over that year were just 1.3 percent in California while a more robust 1.9 percent in Texas and 2.0 percent in Florida. 

The nuances become clear when considering these states’ economic policies and environments. States like Texas and Florida, prioritizing low taxes and minimal regulation, have created environments where businesses can thrive. This is reflected in their strong job growth and relatively low unemployment rates. In contrast, states with higher taxes and more regulatory burdens, such as California, face more significant economic challenges despite adding jobs.

The Flat Tax Revolution

A significant aspect of the economic success seen in many red states, including Texas, is their embrace of the state flat tax revolution. This movement, which simplifies tax codes and lowers rates, has been crucial in attracting businesses and encouraging investment. By moving toward flat taxes, states can reduce the complexity and burden of taxation, making them more competitive and appealing to businesses and workers.

This revolution is part of a broader trend towards sustainable budgeting, where states aim to maintain fiscal discipline while ensuring they do not overburden their citizens with high taxes. The success of states like Texas in implementing these policies demonstrates the potential for other states to achieve similar economic prosperity by adopting these principles.

Policy Implications and Recommendations

The stark differences in economic outcomes between red and blue states underscore the importance of policy choices. Red states like Texas continue demonstrating that free-market principles lead to more robust economic growth and better employment outcomes. For policymakers, the lessons are clear:

1. Reduce Regulatory Burdens: Streamlining and eliminating regulations can make it easier for businesses to operate and expand, fostering job creation.
2. Pass Sustainable Budgets and Lower Taxes: Implementing sustainable budgeting practices and reducing the tax burden on businesses and individuals support more economic activity and attract investments.
3. Promote Economic Freedom: Ensuring a business-friendly environment that supports entrepreneurship and innovation is key to sustainable growth.

As we look to the future, it is crucial that states learn from these examples. By adopting policies prioritizing economic freedom and reducing government intervention, states can create environments where businesses flourish, and jobs are plentiful for widespread prosperity. The contrasting fortunes of Texas and California serve as a powerful reminder that policy decisions have real-world consequences.

States can pave the way for a prosperous future by examining these trends and implementing effective policies."

Connecticut Democrats Try to Tax the Wealthy Away

Hartford won’t be satisfied until every last millionaire in the state moves to New Hampshire or Florida

By Carol Platt Liebau and Frank Ricci. Ms. Liebau is president of the Yankee Institute. Mr. Ricci is a Yankee Institute fellow and author of “Command Presence.” Excerpts:

"Connecticut is a high income-per-capita state and has one of America’s most burdensome tax systems. It collects $30.9 billion annually in taxes. Yet it has still managed to accumulate one of the highest ratios of debts-per resident of any state in the nation. State officials should look for ways to exercise greater fiscal discipline instead of seeking new ways to tax residents.

As long as income is earned honestly, one state resident making more money than another isn’t a justification for taxing it away. Most millionaires are self-made. Eighty percent of them grew up in families at or below middle-income levels. Only 2% inherited their wealth from their families."

"Connecticut’s politicians should read a recent Boston University study on Massachusetts’s tax policies as a cautionary tale. High income taxes, expensive housing and steep healthcare costs have caused net out-migration to increase by 1,100% since 2013. The state has lost billions in adjusted gross income and hundreds of millions in income tax revenue annually. As remote work and increased mobility provide people with more choices, the out-migration is likely to continue, potentially leading to even greater economic repercussions by 2030.

The Boston University study paints a bleak picture of how Massachusetts is struggling to retain its workforce, especially high-income earners and younger professionals moving to states with lower tax burdens and more affordable living. If this trend continues, Massachusetts could lose up to $1 billion in income taxes every year."

The Blue-State Wealth Exodus Continues

The latest IRS data shows that the migration of taxpayers to GOP-run states from the left coasts and Illinois continued in 2022

WSJ editorial. 

"The pandemic lockdowns accelerated flight from Democratic-run states with onerous taxes and a high cost of living. The latest data from the Internal Revenue Service shows that the exodus has continued after life got back to quasi-normal. 

The IRS last week published its annual data on the migration of taxpayers and adjusted gross income (AGI) between states. California ranked, again, as the biggest income loser ($23.8 billion) in 2022, followed by New York ($14.2 billion), Illinois ($9.8 billion), New Jersey ($5.3 billion) and Massachusetts ($3.9 billion). The top gainers were Florida ($36 billion), Texas ($10.1 billion), South Carolina ($4.8 billion), Tennessee ($4.7 billion) and North Carolina ($4.6 billion).

Although higher interest rates and housing prices reduced mobility in 2022, the flight from progressive states far surpassed pre-pandemic levels. California lost nearly three times as much income in 2022 to other states as it did in 2019. New Jersey’s net income loss hit a record in 2022, largely owing to fewer New Yorkers moving across the Hudson River.

Fewer taxpayers left the Empire State in 2022 than during the pandemic, but its income loss was still about 50% higher (unadjusted for inflation) than in 2019. According to an analysis by Wirepoints, New York lost 1.8% in AGI from out-migration in 2022, 3.1% in 2021 and 2.5% in 2020. That’s a lot of taxable income.

On the other hand, Florida gained about twice as much income in 2022 from other states as it did in 2019, while Texas’s income haul surged by more than 150%. Other Republican-led states such as South Carolina and Tennessee also continued to draw more income from other states than before the pandemic, even after adjusting for inflation.

California Gov. Gavin Newsom assails these states as cultural backwaters. Yet California lost income in 2022 to most Republican-led states, including Texas ($5.4 billion), Florida ($2.9 billion), Tennessee ($1.5 billion), Utah ($940 million), South Carolina ($370 million) and Alabama ($140 million). Why are so many fleeing the Golden State?

Blame in part its high energy and housing costs. Electricity costs two to three times as much, and gasoline $1 to $2 a gallon more, as in states without burdensome climate mandates. California’s median-priced home ($860,500) is double that of most states owing to a housing shortage caused by zoning restrictions and environmental laws.

Mr. Newsom hailed the “California dream” in his State of the State speech last week, but its crime and vagrancy are a nightmare. Buying a home is becoming harder for young people in California. The Governor also claimed red states “tax their lowest earners far more than California does.” And he calls Donald Trump a liar?

California’s gas taxes are the highest in the country. It taxes middle-income earners at a higher top marginal rate (9.3% at $68,350) than most states do millionaires. Texas and Florida have no income tax. Sales taxes in most GOP-led states are also lower than in California. As are property taxes because home prices are lower.

***

If a business lost customers year after year, it might reduce prices or improve service. Not progressive states. California is ramping up its climate mandates and stealth taxes, which will drive energy costs higher. Restaurants are raising prices after a new $20 an hour minimum wage for fast-food workers took effect in April.

Democrats in New Jersey last month reimposed a 2.5% surtax on corporate income that a year ago Gov. Phil Murphy had boasted about letting expire. Illinois Democrats recently enacted a budget with $1.1 billion in tax increases, including a cap on net operating losses for businesses. Any surprise that jobs, wages and business income are growing more slowly in these states?

The Bureau of Economic Analysis last week released data that shows annual growth in proprietors’ income since the start of the pandemic has lagged the rate of inflation in California (1.6%), New York (1.2%), New Jersey (0.3%) and Illinois (-0.6%). Business income has grown significantly faster in Texas (4.1%), Florida (7.6%) and Tennessee (8.5%). So have wages and jobs.

Employment in California, New York and Illinois hasn’t recovered to pre-pandemic levels. California has about 400,557 fewer workers than in January 2020 while Florida boasts 669,806 more. Taxpayer flight and slower economic growth result in less tax revenue. Democrats then raise taxes to pay for their growing welfare programs and promises to public unions. Rinse and repeat.

Mr. Newsom sued last year to block a voter initiative that would have made it harder for Democrats to raise taxes. He won, but that means most people outside of Sacramento lost. If Americans living in incorrigibly progressive states want change, they will have to vote with their feet and wallets."

Death, Taxes and Bailouts in Gavin Newsom’s California

Why is the governor traveling out of state so much? Maybe he wants to get out of Dodge. 

By Allysia Finley. Excerpts:

"Unemployment is climbing as hordes of workers and businesses leave. The state faces an estimated $68 billion budget deficit this coming year. Cities are bleeding red ink as their labor costs swell and tax revenue shrinks."

"Employment in the Golden State has fallen by 180,520 since June while its jobless rate has climbed to 5.1% from 4.1% a year ago. The national unemployment rate is 3.7% and even lower in Florida (3%), where employment has grown 111,433 over the last six months."

"manufacturers laboring under the state’s climate regulations [are laying off workers]. Speculative startups are struggling to raise private capital amid higher interest rates, which have also chilled the market for initial public offerings."

"The S&P 500 index closed last year 24% higher than the year before. Yet California’s personal income and corporate tax revenues in December were 3.3% and 21% lower, respectively."

"the state has blown through tens of billions of dollars in federal pandemic largess, expanded Medicaid to undocumented immigrants, and approved new labor agreements with generous pay increases for government workers including prison guards. California spends $132,860 annually per prisoner, up 90% from a decade ago."

"Sacramento’s required pension contribution for a highway-patrol officer now equals nearly 68% of compensation, meaning that this year the state must pay about $68,000 into the pension fund for an officer earning $100,000."

"The city manager in Sacramento recently suggested patching a $50 million budget gap by taking longer to fix potholes and broken street lights."

"San Diego projects a $172 million budget shortfall."

"Although retail spending nationwide continues to grow faster than pre-pandemic levels, Californians have less money to spend at stores and restaurants because they are having to shell out more on gasoline, electricity and home and auto insurance. Blame the state’s progressive policies."

"Los Angeles City Administrator Matthew W. Szabo recently warned of a $400 million deficit owing to rising labor costs and lower-than-expected tax revenue."

"San Francisco faces a nearly $800 million deficit despite having imposed several new taxes in recent years, including one on the gross receipts of businesses whose highest-paid manager earns more than 100 times the median compensation of its San Francisco-based employees."

"This tax is layered on another new gross receipts tax on business revenue in San Francisco above $50 million and a tax on commercial rents."

Iowa’s Tax-Cut Triumph

The Hawkeye State shows how to cut rates and grow revenue

WSJ editorial. 

"Kim Reynolds is spending time with the Republican presidential hopefuls barnstorming her state, and we hope they’re taking notes on her record. The Iowa Governor has made her state a model of good tax policy, and she says she’s only getting started.

Ms. Reynolds said last week that Iowa wrapped up its fiscal year with a surplus of $1.83 billion. That may sound small compared with overgrown blue-state budgets, but it’s about 22% of what the Hawkeye State spent in 2023. It’s also the third surplus in a row in the Governor’s tenure.

These results have followed significant tax cuts that have helped the state’s economy. Since revenue surged during the pandemic recovery in 2021, Ms. Reynolds and the GOP Legislature have cut the state’s individual income tax rates. The top rate has dropped to 6% from 8.53% since 2022, and it is scheduled to drop to a flat 3.9% rate by 2026.

Iowa’s top corporate tax rate next year will drop to 7.1% from 9.8% in 2022, and it is scheduled to fall to 5.5% if the state keeps hitting its revenue targets. For property owners, the Legislature this year capped the annual increase in assessed value, reducing local tax collections by about $100 million.

Ms. Reynolds connected these dots when she announced the budget surplus last week. “We’ve seen what the powerful combination of growth-oriented policies and fiscal restraint can create,” she said in a statement. Income, corporate and franchise-tax receipts rose by about $500 million from 2021 to 2022 after the tax cuts.

Crucially, state spending has grown modestly since 2021, despite annual increases in per pupil school funding. Steady job growth has pushed the state’s unemployment rate down to 2.9%.

Now the Governor wants to raise her bet on this winning formula. “My goal is to get to zero individual income-tax rate by the end of this second term” in 2027, she said.

If that happens, Iowa will join its neighbor South Dakota in the club of states with no tax on income. Iowa is already charging ahead of most Midwestern peers—particularly Minnesota, which resembles the progressive states on the coasts with a 9.85% top income-tax rate. As for the fiscal risk to Iowans, the state is sitting on a $2.74 billion taxpayer relief fund that will grow again in January.

The Iowa tax experience belies the claims of the left that cutting taxes produces deficits. In Iowa the tax cuts have helped to produce record surpluses that then can be used to cut income-tax rates further. Ms. Reynolds has also shown that you can cut rates across the board, even at the top, and succeed politically. The GOP presidential candidates could stand to ask her for a few tax-cutting pointers."

Red States vs. Blue States, Part IV

By Dan Mitchell.

"In our series on red states vs blue states, we’ve examined different economic variables.

• Part I: Economic growth
• Part II: Unemployment rates
• Part III: Employment growth

Today, let’s add another comparison.

Here’s a map looking at 2022 income growth by state. The three states most known for bad policy – New York, Illinois, and California – were among the handful of states that suffered a decline in personal income.

It’s also worth noting that most of the “weaker than average” states also are known for leaning left.

The Wall Street Journal has an editorial on the performance gap between red states and blue states. Here are some excerpts.

Personal income in California, Illinois and New York declined in 2022 for the first time since 2009… Personal income last year nationwide increased 2% in current dollars, which amounts to a real decline after inflation. …The opposite was true in the fastest-growing states, including Florida (4.7%), Arizona (4.9%), Texas (5%), Utah (5.5%), Colorado (5.8%), South Dakota (5.8%), Montana (6.1%), Idaho (6.5%), North Dakota (7%), and Delaware (8.8%). …The personal income declines in California, New York, Illinois and some other states would have been larger if not for the continued growth in Medicaid spending owing to the pandemic national emergency, which didn’t end until this spring. A federal food-stamp fillip also continued until March. …California, New York and Illinois used their allotments largely to cover pre-existing budget shortfalls, boost government worker pay, and bake into their budget new spending obligations. Those will become shortfalls once the pandemic money boom ends. Taxpayers, look out.

The last few sentences above are key.

When they get new money, either from tax increases or federal transfers, irresponsible politicians create long-run spending obligations.

And that creates the conditions for future tax increases, just as the WSJ warns.

Here’s one final item for today’s column. Back in July, the Wall Street Journal compared industry performance in red states and blue states.

Here’s a table comparing Texas and Florida vs. New York and California.

Game, set, and match.

The moral of the story is that big government doesn’t work well on the national level, it

doesn’t work well on the state level, and it doesn’t work well on the local level."