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We’ve heard it before. If you increase state taxes, people will up and leave for lower tax states — especially the most affluent residents. You often hear the same argument used to support tax cuts.
A compelling new report from the Center on Budget and Policy Priorities busts this common myth advanced by those who oppose a balanced approach to budgeting and tax policy. Turns out Americans move from state to state for a variety of reasons, but tax levels rarely factor in.
Not surprisingly, cheaper housing and job opportunities are much more likely to drive people to move to another state than tax levels.
As the report finds, the effects of tax increases on migration are, at most, small — so small that states raising income taxes on the most affluent households can be assured of a substantial net gain in revenue.
The report cites numerous examples of research debunking the migration myth and, through case studies, shows how misinformation about the impact of taxes on migration can influence policymakers and the media. Those who support the migration myth often wrongly assume a cause-and-effect relationship, promote irrelevant findings, and inaccurately measure migration, the report found.
On the flip side, low taxes can prevent states from maintaining the kinds of public services that create jobs and build a strong economy — the very things that potential residents value.
Recent debates about the impact of state taxes and spending have taken place in a “fact-free” zone, where anti-tax advocates urgently warn that “taxes kill jobs” without offering any evidence that this is true.
Thanks to recent analysis by economist Adam Hersh at the Center for American Progress, we now have some fresh data on the health of the economy in states that cut their budgets in recent years compared to those that increased spending.
The verdict: Those states that made steep public spending cuts in the wake of the Great Recession have seen weaker economic growth in the years since. Budget-cutting states have experienced rising unemployment, fewer new private sector jobs and weaker economic growth than the states that increased spending.
While this analysis does not tell us whether the spending cuts caused the negative economic outcomes, it is clear that steep spending cuts are correlated with markedly worse economic performance.
This could all be very bad news for Pennsylvania, where lawmakers and Governor Corbett recently enacted a 2011-12 state budget with deep cuts to education, health care and human services. Overall, the budget cuts spending by an inflation-adjusted rate of 4%, as the Keystone Research Center notes in a new policy brief interpreting the Center for American Progress data.