California is the prototypical example. It has the highest tax rates of any state. It has very generous welfare benefits. Many of its cities have a high minimum wage. But day after day, the middle class keeps leaving. The wealthy areas such as San Francisco and the Silicon Valley boom. Yet the state has nearly the highest poverty rate in the nation. The Golden State, alas, has become the inequality state.
In a new report called “Rich States, Poor States” that I write each year for the American Legislative Exchange Council with Arthur Laffer and Jonathan Williams, we find that five of the highest-tax blue states in the nation—California, New York, New Jersey, Connecticut and Illinois—lost some 4 million more U.S. residents than entered these states over the last decade. Meanwhile, the big low-tax red states—Texas, Florida, North Carolina, Arizona and Georgia—gained about this many new residents.
One liberal economic think tank—the Institute on Taxation and Economic Policy—recently issued a report on the states with the most and least “regressive” tax systems. The conclusion was that states should raise their income taxes on the rich to be more “fair.” Except it turns out that people are leaving the states that the think tank ranks as fair, and they are moving to the states the think tank ranks as economically backward.
The least “regressive” tax states had average population growth from 2003 to 2013 that lagged below the national trend. The 10 most highly “regressive” tax states, including nine with no state income tax, had population growth on average 4 percent above the U.S. average. Why was that? Because states without income taxes have twice the job growth of states with high tax rates. Unlike the experts at the Institute on Taxation and Economic Policy, most Americans think that fairness means having a job.
Ohio University economist Richard Vedder and I compared the income gap in states with higher tax rates, higher minimum wages and more welfare benefits with states on the other side of the policy spectrum. There was no evidence that states with these liberal policies had helped the poor much and, in many cases, these states recorded more income inequality than other states as measured by the left’s favorite statistic called the Gini Coefficient.
The 19 states with minimum wages above the $7.25 per hour federal minimum do not have lower income inequality. States with a super minimum wage—such as Connecticut ($9.15), California ($9.00), New York ($8.75), and Vermont ($9.15)—have significantly wider gaps between rich and poor than states without a super minimum wage.