Guest AuthorAs our nation continues to rebuild from the recession — as we look for ways to attract businesses, boost incomes, and lower the unemployment rate — the most exciting reforms are taking place at the state level.
At the center of this economic retooling process is the move by governors across the country to fix their tax systems and many are looking at Florida as a model of what works.
As we discuss in our new book, “An Inquiry into the Nature and Causes of the Wealth of States,” a state cannot tax itself into prosperity. The state income tax is particularly detrimental to growth, in that it punishes work and diminishes the willingness of workers to save more and small businesses to invest more. That was the principal finding of our book: states that tax too much or tax the wrong things don’t get the jobs and the growth that other states do.
Our research shows that Florida is enjoying an impressive economic boom and a relatively quick turnaround from the 2008 recession thanks largely to the smart, pro-growth tax policies of Gov. Rick Scott. Plus, as a no-personal-income-tax state, Florida begins from a position of strength.
Businesses and workers are attracted to a place where they can keep more of their income. That’s why between 1992 and 2010, Florida saw an influx of $95.61 billion in net adjusted gross income, according to the Internal Revenue Service. This is the gift that out-of-staters bring to Florida when they relocate. Florida gained nearly 1.7 million new residents between 1985 and 2010.
The gains in net AGI and population are not simply attributable to Florida’s mild climate. Our research shows that the nine states that do not levy a broad-based personal income tax had population growth significantly greater than the national average (14.6 percent versus 9.3 percent). Clearly, people want to live and work where they can maximize their earning potential.
Other states — particularly those that place high tax burdens on workers (e.g., California, New York, Illinois) — would do well to study Florida’s success.
The data tell the story. According to SaveTaxesByMoving.com, a service of the Laffer Center (founded by our “Wealth of States” co-author, Art Laffer), a single 35-year-old with a $50,000 salary can save nearly $2,400 each year just by moving from Illinois to Florida.
At age 67 and assuming a 6 percent return on investment, this results in an additional $217,000 in net worth.
This week, in a presentation to The James Madison Institute, we will unveil many of our findings relative to Florida and the rest of the nation. Allow us this one “spoiler alert” — Florida fares quite well across all areas of our analysis. There is room for improvement though: many small-business taxes in Tallahassee are still too high.
Our book explores the policy variables that can have enormous effects on the financial well-being of states and their residents, including: personal and corporate income tax rates, total tax burden as a percentage of personal income, estate and inheritance taxes, and right-to-work laws. In each of these areas, Florida performs admirably and is teaching other states how to prosper and attract new citizens and businesses.
Stephen Moore and Travis H. Brown co-authored the book “An Inquiry into the Nature and Causes of the Wealth of States” with Dr. Arthur Laffer and Rex Sinquefiled. Moore is the chief economist at the Heritage Foundation and is a Wall Street Journal contributor. Brown is the author of “How Money Walks” and a regular contributor to Fox and Friends, as well as Forbes.com. Column courtesy of Context Florida.
