Why People Move From Blue States: It’s Not Just High Taxes ZeroHedge

Defenders of high state taxes like to point out that surveys find few high-net-worth households move primarily to lower their tax bills. This may be so, but it misses the point: high-income, high-net-worth households don’t move away from high tax states  But if services and infrastructure are crumbling around them even as their taxes keep ratcheting higher, then the benefits of moving become much more compelling.

In other words, if you’re getting good value for your high taxes, then high taxes are not sufficient motivation to move. The problem is not high taxes per se, any more than a high cost of living is the reason to move from a world-class city with great amenities: world-class cities with great amenities have always cost more than less desirable locales, even in the 1600s.

The reason blue states are losing population isn’t just high taxes; it’s a lack of fiscal discipline and accountability, and insanely unaffordable housing costs. Immense floods of tax revenues sluice into the state coffers but the outcomes of all that spending diminish rather than improve. Problems don’t seem to get solved even as the permanent “solution”–throw more money at it–fail due to the decay of fiscal discipline and accountability, and the rise of a “stakeholders” mentality where dozens of entrenched interest groups each hold a veto in every decision.

As I’ve explained before, straightforward government processes like getting a building permit have become Kafkaesque nightmares of delays and soaring costs, partly because every agency benefits from stretching the process out by finding reasons to demand a resubmittal: more delays means more hours of work and more fees.

Nobody benefits from a speedy permit process except the general public, and they have no political power. The same political class gets re-elected despite their poor performance, so there’s no incentive to enforce any discipline or accountability. Failure is the New Normal as every “stakeholder” finds reasons to meddle with or nix any plan that might disrupt the self-serving, inefficient, ineffective status quo.

A great many city and county officials are doing their best to solve local problems and improve core services, but there’s only so much they can accomplish if the state creates a culture of entrenched-interests dysfunction, skims most of the tax revenues and malinvests public borrowing.

As the excerpts below highlight, most middle-income people leave blue states because they will never be able to afford to own a home. But since middle-income households pay a modest percentage of income and capital gains taxes, the state machinery grinds on even as the priced-out-of-home-ownership middle class moves away.

But when the few who pay most of the income taxes have finally had enough and start leaving, the fiscal consequences quickly accumulate. The Everything Bubble has generated fantastic capital gains for the wealthiest class, and they’ve paid a disproportionate share of blue state income tax revenues on these gains.

High-income earners fleeing California (by Dan Walters):

Why the Middle Class Flees States That Tax the Rich:

Simply put, people are moving not just to escape unaffordable housing and high taxes. They’re moving to escape fiscally irresponsible, ineffective, unaccountable governance that always wants more tax revenues while delivering diminishing quality services and infrastructure. There’s nothing like a homeless encampment a few yards from your million-dollar cottage to modify one’s calculation of the benefits of staying put. Throw in decaying public transportation, library hours being slashed and random crime, and all the supposedly great amenities start losing their luster.

The heavily subsidized lower-income households have every reason to stay. The top 5% who pay most of the taxes and who have more options are reaching the point where all the advantages of moving are starting to outweigh the advantages of staying. Should the trickle of wealth leaving turn into a flood, blue states will no longer be fiscally viable.

Note the extremely high cost of housing in California even as the primary workforce populace plummets. 

The soaring cohort of elderly won’t be engines of growth; they’ll increasingly be drawing benefits and subsidies from the state coffers. That’s not a formula for fiscal solvency.

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