In my rustbelt state - Michigan - the state legislature, which is dominated by Republicans, is trying to tax cut its way to prosperity. But this strategy has been met with a lot of lean years in which official state unemployment stays stubbornly around 7%. There are serious concerns that the state now offers little to keep citizens, especially younger state residents. As a result, we can expect to lose even more congressional representatives after the next census and clout.
One way to look at this is as a natural experiment testing whether conservative economic doctrines work. So far the evidence in their support is glaringly absent. Among the more radical of these is a version of Say's Law. Libertarian neoclassical economists argue that when government contracts, the private sector will step up to take its place (Say's Law of Markets developed by J.B. Say).
While we've seen the loss of teachers and cuts of public sector jobs in Michigan - the contraction of government - the private sector has also declined. And as far as can be told it will keep on declining. While Michigan is a beautiful state with the longest shoreline of the lower 48 states, it takes more than scenery to attract and keep people.
A new study from our fellow rustbelt state to the south, otherwise known as Ohio, now mostly in the news for coingate and election fraud, also shows that states cannot tax cut their way to prosperity.
Policy Matters Ohio, Income Taxes and Ohio Migration: A Link that Doesn't Exist
Will cutting Ohio s personal income tax prevent people from leaving Ohio or encourage others to migrate here? This analysis of state-to-state migration data suggests that income tax changes and rates are not a large reason people move in or out of Ohio. Using data from the Internal Revenue Service (IRS) from 1988 to 2003, we find that migration does not seem to correspond to changes in income tax policy.1 By looking specifically at state-to-state patterns, we find that people leave high- and low-tax states to come to Ohio and when people leave, they also migrate to high- and low-tax states.
People move for a variety of reasons -- to seek employment, go to college or graduate school, be near family, or retire in a more comfortable climate. For a recent graduate offered one job, a single person curious about city life, a young family choosing to be near one set of grandparents, a mid-career professional who is transferred or a retiree longing for a warm climate, taxes are probably not the dominant deciding factor. Nonetheless, cost of living in general and tax rates in particular play some role in relocation decisions for some movers.
Ohio has a negative migration rate, meaning more people are migrating out of than into the state in each of the fifteen years of analysis. Between 1988 and 2003, an average of 2.6 out of every 1,000 households left Ohio each year (a -2.6 migration rate). The rate of migration did not increase or decrease based on changes in the state income tax. There has been heightened concern that high wage earners are leaving the state of Ohio, often in response to high income tax rates. Throughout all of the years, the median income of the non-transient Ohio population was higher than the median income of those leaving or entering the state.
In other words, it's about good paying jobs.