Where Is Everyone Going? (Redux)
Chris Edwards Grades States on Tax Policy and Examines the Exodus from High-Tax to Low-Tax States
It’s often said that “money talks; BS walks,” but my past guests have shown hard IRS data that money walks, too — from places with high taxes and poor quality governance to places with lower taxes and a better business climate.
Back in 2013, when I interviewed Travis Brown on his book How Money Walks, the caravan of Californians to lower-tax states had already begun. Hundreds of thousands of former residents of the Golden State already left for Nevada — trading gold for silver — not to mention Texas, Florida, and Oregon.
Five years later, I thought it was time to revisit the subject with the Cato Institute’s director of tax policy studies, Chris Edwards, who has a new white paper out grading every state governor on fiscal performance. Governor Jerry Brown of California gets a “D.” I think this is generous, yet I still choose to live here. Perhaps my decision, and that of millions of others like me who have stuck around, explains why the government hasn’t been more responsive — yet.
Edwards also recently published an analysis of the recent Federal tax reform and its effects on interstate migration. The key finding is that tax competition among states has increased since the passage of the Tax Cuts and Jobs Act of 2017. The bill reduced overall income taxes and increased the standard deduction, but it also capped the state and local tax deduction at $10,000. This means that upper and middle class residents of states like California and New York feel a greater burden from the state income tax and have an even stronger incentive to join the outbound bandwagon.
Edwards found that in 2016, even before the tax policy change, 600,000 people earning a total of $33 billion moved from states with above-average taxes to those with below average taxes. California had a net loss of over 25,000 households. In a state where the top 1 percent of earners pay 50 percent of state income taxes, all it takes is a handful of households to significantly reduce the budget.
Best States to Move to in 2018 for Lower Taxes
Where you live and work can have a big tax impact on your paycheck. Sometimes, the only way to get a big raise is to…
The secret is out, as many news outlets have begun reporting on the “best states to move to for lower taxes.” Just as lower prices incentivize demand in a free market, lower taxes with the same quality of governmental services are spurring a competitive marketplace among states. May the best states win!
I interviewed Chris for the full hour on Sunday, 10/28 about his findings, and introduced my new compilation of transcribed interviews on the closely related subject of “Federalism 2.0.” The book launched this weekend to commemorate the 231st anniversary of the publication of the first Federalist Paper.
Sign up for my weekly liberty digest to receive transcripts of past shows, teasers of upcoming shows, and a free PDF of the first 3 chapters of my forthcoming book, Power to the States: How Federalism 2.0 Can Make America Governable Again.
Read the Transcript
The Importance of “Voting with Your Feet”
Bob Zadek: Welcome to the Bob Zadek show, the longest running live libertarian talk radio show on all of radio. Thanks so much for listening this Sunday morning. Before we start the show, I’m proud to announce the anniversary of the Federalist Papers. I’ve published my second book, Power to the States: How Federalism 2.0 Can Make America Governable Again. Using the very words of my guests, I show how the devolution of power from the states to Washington has directly caused the tribalism we abhor. A decline in civility is no accident. It’s a natural reaction to the loss of power over our daily lives to Washington’s distant, unelected administrative state. As my book explains, if we get back our lives the anger will naturally disappear. Join my show’s mailing lists for a free .pdf version of this book or request it on social media, and please leave a review on iTunes.
I’m happy to welcome back to the show Chris Edwards. Chris is the director of tax policy at the Cato Institute in Washington D.C., and is the editor of a recently issued study called tax reform and interstate migration. Chris and Cato examine, in great detail, the competition between states for your tax dollars. We live in a market economy, and those who want to compete in our market economy have to compete to get our money. Collectively, we have the power to decide which businesses thrive and in which fail. Even without a business degree or even an inkling of how to select a sound business model, we efficiently decide which businesses live and which businesses die. That is the power of the marketplace. The same is true of the political marketplace.
Citizens vote with their feet, not with their ballots, leaving states and cities which offered an inferior product at too high a price to those who offer a better political product at a better price. And the process is accelerating with differences between good political states and bad political states getting greater and greater. Will the political class ever get the message? They better or they are going to fail. To help us understand the power and effect of this of foot voting, Chris has agreed to join us morning to tell us what he has learned from his recent study on the behavior of governors and the behavior of the state level political class in general. Chris, welcome to the show.
Chris Edwards: Thanks a lot for having me Bob.
Bob Zadek: Whether the public is aware of it or not, there is a very active and somewhat efficient political marketplace with a lot of “foot-voting.” Tell us the high level results of what you have learned from your study. What should it tell the politicians about how to govern at the state and local level?
Chris Edwards: The dominant government in the United States is the Federal Government, unfortunately, which is the reverse of what our Founders originally intended. But nonetheless, state and local governments are pretty big and powerful and they have a lot of taxing and regulating power. Because of that, Americans do have some freedom to move to other states and reduce their tax burdens. There has been debate for some time about how much Americans are willing that people aren’t really incentivized to move because of taxes. They think people move from New York to Florida in large numbers because of the sun and warm weather. So, I dug into the data, and my new Cato report is that actually taxes have a substantial effect and you can see this in interstate migration patterns all over the country.
Interstate Migration: It’s Not All About the Weather
Bob Zadek: Governor Cuomo famously always says that people move to Florida because the weather is better. But the actual data that you have discovered shows that weather, while certainly a factor, obviously, it is not the sole factor. Taxing and political power and getting bang for the buck with your tax dollars has a profound effect. As your study points out, you only have to look at New Hampshire, which doesn’t have the sunny climate of Florida, and compare it to the surrounding states, which have have exactly the same weather. What is the lesson of New Hampshire and what does it show us?
Chris Edwards: I calculated for the fifty states how many people are moving out every year compared to how many people are moving in. New Hampshire, for example, has a large net in-migration consistently every year, but nearly all the high tax states around it, like Massachusetts, have out-migration. South Dakota, which is a low tax state with no income tax like New Hampshire, has net-in migration consistently. Its neighbors, like Minnesota, that have high taxes, consistently have net-out migration.
So, if you divide all 50 states into the 25 highest tax states and the 25 lowest tax states, you find that every year about 600,000 people are moving from those high tax states to the low tax states, and if you look at the 25 highest tax states, 24 of them have net-out migration. These are states like New York and states in the northeast and in the Midwest, like Illinois and others that are high-tax states. People are moving out of them and they are going to the low-tax states like Texas and Florida for sure, also South Dakota and New Hampshire.
Bob Zadek: Weather gives political cover to the high-tax governors, but it doesn’t really tell the whole story. Now as to the high-tax states, one can argue that when you buy a more expensive home or more expensive car or a more expensive anything, you are paying more for it, but you’re getting value. It is a luxury. So you are getting value in the long run, along with comfort, convenience, whatever. Is there a correlation between what you get — the bang for the buck — when you pay lots of taxes, compared to what you get in a low tax state?
Chris Edwards: Generally, no, and you’d have to go service by service and consider this, but in New York, state and local taxes are twice the share of personal income than they are in Florida. New York state and local taxes are about 15% of personal income, and down in Florida it is 7.5 % of personal income. So, if you believe that you, you get twice as good public services in New York as in Florida then you may want to stay in New York, but that really isn’t true. Just look at the schools, for example. Florida has pretty good schools, at least as good as New York’s schools. Florida highways are as good or better than New York’s. You can go down the list of public services. In my study I say that frankly, people in New York are being ripped off. They’re paying a lot more in taxes and they’re not getting the commensurate value of services. In fact, in a lot of cases they are getting lower quality services. I think Governor Cuomo in New York has a lot to answer for. These governors claim that people are moving out of the state just for the sun but the reality is that just about everything is better in Florida. The weather is better, the taxes are much lower, the housing costs are lower. So, you know, the bottom line here is that the northern colder states have to work much harder than the southern states to provide efficient public services to have a lean government. People are going to continue leaving.
Local Taxes and the Competition for Wealth
Bob Zadek: Now you keep on talking about the Northeast. I live in California. So when you talk about the cold, higher tax Northeast, remember me, I live in California. So how does California fit? It’s kind of anomalous, because California has the good weather. So how does California fare in this analysis?
Chris Edwards: Well, surprisingly, California, is a net-out migration state. More people are leaving California than coming in from other states every year, which as you say, is pretty surprising, because nearly all of California’s neighbors have net-in migration — from Washington state and Oregon and Nevada and Arizona. If you look at the, the IRS published data, you can see exactly where people are moving. The three biggest places for Californians are Washington State, Oregon, and Nevada. These are much lower tax states. Nevada and Washington state don’t have income taxes. There have been many wealthy people, most famously, Tiger Woods, who moved to Florida back in the nineties because he said the California taxes were too high. You can see this with both wealthy individuals as well as businesses. They’re starting to move out of California in substantial numbers because of the high taxes.
These statistics that you have pointed out comes from IRS data, so it is irrefutable. While it makes the headlines that people are leaving New York, does it have a collectively strong or an immaterial economic effect on the state? Should the states care about the migration or is it really anecdotal and not that important?
The wealthiest people are extremely important to state economies. I’ll give you three reasons why. One of them is that they are generally entrepreneurs. A number of years ago, for example, Ken Fisher, the billionaire owner of Fisher Investments, a big brokerage firm, left California to Washington state specifically because Washington state does not have an income tax. Fisher told the media that he wanted his 2000+ high-paid employees to pay lower taxes. So they moved to Washington State. So high-tax states are losing businesses. The second thing is high-tax states are shooting their own state budgets in the foot. In California, the top one percent of taxpayers pay 50% of all income taxes in the state. That is something Jerry Brown has said publicly. So folks like Jerry Brown are very aware of this.
And with the high taxes in California, California is risking losing a lot of these billionaires who may start leaving the state. If you look in detail at the richest Americans, they give an enormous amount of charitable institutions every year — educational institutions, healthcare institutions, etc. — and if you look at where they give, there is a bias toward wealthy people giving to charitable institutions in their own state. So, for example, in Oregon, one of the richest people has been Phil Knight, the founder of Nike. He gives enormous amount of charitable money to hospitals in his state. So when the state starts driving the wealthiest people out of the state with unfairly high tax rates, they are going to lose not only the business activity, but also the charitable activity that goes with those high income people.
Bob Zadek: Of course, when you mention people giving money where they live, we must remember Paul Allen recently passed away. As one of the founders of Microsoft, he gave enormous benefits, not only for the state of Washington but for the City of Seattle. He gave tens of millions of dollars to enhance civic life in Seattle. So, your point is well taken.
Chris Edwards: Allen is a hero to the American economy. He put the billions he made from Microsoft in the hundreds of startup and young growth companies, and many other industries. He really is a hero. That is the exact type of person a state economy does not want to lose.
Bob Zadek: Not only does competition happen state by state, it also happens on the local level. Let’s take school districts, for example. How many stories have we heard about people moving to get into a better school system? So, is there this competition even on the local level? How much indication is there that policy is in any way affected by this voting with one’s feet? And remember, voting with one’s feet is in many ways infinitely more effective than voting with a ballot. One ballot doesn’t make much difference, but voting with your feet really negatively affects the state you vote against by leaving and a positive effect on the state you move to.
Is the political class oblivious to this? Do they ignore it? Do they rationalize it? Do they say it doesn’t really matter? If one sells a product, and the product fails or is not successful, people get fired, jobs change, and the business makes an immediate change in its model so that it doesn’t perish. Is there any behavior like that at the state level?
Chris Edwards: Absolutely. Policymakers have responded to increasing state tax competition. One example is that every state used to have a death tax that hits a wealthy people when they pass away. Their families get taxed. I think only 17 or so states have these taxes and they are being reduced steadily every year. They realize that they are losing a lot when billionaires leave. That is why they move to Florida later on in their life — because they don’t want their family to get nailed with the high estate taxes. Many states are competing for retirees in general. They have reduced the amount that they tax pension income over the years as a way to try to attract retirees.
This is because retirees generally don’t impose a lot of costs on a state governments. They generally don’t have school aged children, for example. They are not involved in crime. So states have gone out of their way to try to attract retirees. I would like to see states reduce their tax rates across the board. How can they do that? They can provide a leaner government. Some states have government that just costs a lot more than other states for no real advantage. So I think that the high tax states just need to learn the best practices in governance from the low tax states.
Bob Zadek: People who live in high tax states pay more for the privilege of getting less. That’s the deal you make. It is kind of embarrassing if you’re one of those people. I guess that includes me, who is living in a high tax state. The strange thing is that I live in California, a very high tax state and I pay a fair amount in taxes, and yet, I have often observed on my show that California taxes may not be obscenely high. That is going to sound sacrilegious, but it can’t be that high because I’m still here. Maybe it’s the fact that governor Brown and his colleagues in Sacramento have found the perfect tax level — high enough to suck the marrow out of my bones — but not high enough to chase me out of the state. So maybe he has found the sweet spot.
I say that with tongue in cheek, and a big broad smile across my face, although I don’t like paying all the taxes. But California does offer a product that is not the result of union labor, which is the weather. So California is strange in that regard, it’s economy is kind of vibrant, but for factors beyond its control and for which government gets no credit. I love it.
Chris Edwards: California is being very unfair to you and other citizens. The fact that gasoline, for example, costs a dollar more per gallon in California because of taxes. I mean, it’s completely unfair. So, there is a fairness issue here too. If government can be leaner and can provide better services at lower cost, they should be doing it if they’re not doing their job.
Bob Zadek: You’re exactly right. And you can’t disagree with me because I disagree with me. I was saying that somewhat tongue-in-cheek and partly and partly to garner the sympathy of my listeners out there because I am this pathetic individual who is profoundly overpaying for the services that I get and I just wanted a little sympathy. That’s all. Now, states compete with each other in many ways. They’re competing now to get Amazon’s second headquarters. They are competing for sports stadiums. So how do states compete with each other on the level of taxation and fiscal policy?
Chris Edwards: Well, I think you have put your finger on something interesting, which is that states compete in good ways, in my view, when they work to provide higher quality services while reducing tax rates across the board in an equal and fair fashion, but by reducing the rates across the board. But there is a sort of disease or cancer in state tax competition, which is that many state policymakers are offering these narrow giveaway breaks to particular companies. Nevada gave special breaks to Tesla, and Wisconsin Governor Scott Walker — who has done a lot of good things — has given a lot of special breaks to certain companies. I think that is completely unfair. I think it is also bad economics. I don’t know how to stop it and have never read any good solution to the problem. Citizens should try to pressure their state governments to provide leaner services with lower overall tax rates, but tax rates that are fair and equal with no special deals for specific companies.
Bob Zadek: The problem is, of course, as Cato and you have observed, is that the cost — mostly the result of public service unions — of buying the stuff they need to resell to their taxpayers such as New York City and it’s subway system problems, is unbelievably expensive. This is due to the power of public service unions. I think it was observed that in New York the cost of building a mile of a subway tunnel was four times more than anywhere else in the world. That’s only one example. One can imagine it’s not isolated. So, the states in a bind in the sense that they have a captive vendor with the public service unions that don’t provide for competition at the purchasing level? So, they have to sell the service for very high because they cost so much in the first place.
Chris Edwards: That’s right. One healthy way that states are competing with each other — and we are making some progress — is that the states compete over labor unions. Labor unions are slowly beating a retreat in state and local governments where they have had a long strong-hold. There was a recent supreme court decision, the Janus decision, that made it illegal for state governments to impose so-called “agency fees” that force union dues on government workers, which was a real step forward and should weaken the power of unions in the state and local governments. I’m against collective bargaining and state in state and local governments altogether. And there’s a dozen or so states that don’t have that. I live in Virginia, where Unions are banned in the public sector, and it was a democratic governor who actually put that in place a few decades ago.
And yet public services work pretty well in Virginia. Virginia has a pretty well functioning government with no labor unions at all. So I think that’s the model for the whole country. That is an important factor in the the economy in coming years. There is no doubt that businesses, when making location decisions, take into account whether or no a state has right-to-work-laws for workers.
The Governor’s Report Card
Bob Zadek: Tell us about the governor’s “report card.” What does it show and what does it teach us?
Chris Edwards: A report card on the nation’s governors for 25 years since the early 1990’s looks at the tax and spending actions of governors. Then we score them and give them letter grades. If they cut taxes and spending, we give governor, and we give them the worst grades if they hike taxes and spending. So, we sort of give school grades to the governors to pat them on the back or to critique the poor performance of the “F” governors. This year we came out with our results and we had five governors who received scores of “A”.
The top score in our report card was governor Ana Martinez, the Republican governor of New Mexico. She has been in office eight years. She’s been great. She’s kept spending down. She vetoed tax hike and cut taxes, and has done her best to make the New Mexico economy more competitive, to hold taxes down for residents of that state. So, she gets the top score this year.
Bob Zadek: Not only can we give compliments to Susana Martinez, but also there was an astonishing correlation between political affiliation and the rankings both at the top and at the bottom. That jumped off the page at me when I read it. Tell us what that shows us.
Chris Edwards: I have been scoring the governors the same way now for six of these report cards over the past decade and there has been consistent differences between Republican and Democratic governors. Republicans consistently score better on both taxes and spending and, you know, I am as nonpartisan as you can get. I love it when Democratic governors get top scores. I mean, the former Democratic governor of West Virginia, Mansion, got an “A” in my report, but typically Democrats don’t do as well as Republicans. When they have budget gaps, for example, Democrats always push for the tax lever. They want to hike those income taxes. Republicans are more focused on cutting taxes and restraining spending.
There are some big exceptions. I mean, in the most recent report the Republican governor of Nevada, Brian Sandoval got one of the lower scores. He signed into law the biggest tax hike in Nevada history a number of years ago. The Republican governor of Massachusetts Charlie Baker signed into law a massive $800,000,000 tax hike earlier this year, which imposes a new payroll tax on all employers in Massachusetts. Governor Baker had promised he wasn’t going to hike taxes, but then he turned around and high taxes on everyone, so he got a really low score.
A Relation Between Spending and Quality of Services?
Bob Zadek: Now, to complete the analysis, it is one thing for a governor to cut taxes and reduce spending and make living in this state hell on earth by not providing any services. What can you tell us, if the information is available, about whether there has there been any perceptible negative difference in the quality of the services? Or all the residents getting the same or even better service at a lower price?
Chris Edwards: In the report card we don’t score that, and frankly that would be very difficult to score. But the way I see it is that, if a state has been moving along and providing services, the revenues automatically flow into state treasuries, especially when the economy is booming. We are in the 10th year of economic expansion now and revenues automatically pour into state government coffers when you have a growing economy like this. That is generally enough money for states to deal with all the current services that they provide. The difference in these governors is the ones that want to continually expand government and add new programs. Like I said, Governor Baker of Massachusetts added a giant tax to add a brand new entitlement benefit for paid leave in his state. So that’s the type of government expansion that gets the low grade on the Cato report card.
Bob Zadek: But of course, businesses vote with their theoretical feet as well by moving. There is meaningful competition among Governors to woo businesses from California and Silicon Valley to Austin, Texas. Governor Abbott has found California fertile territory to move it to Texas. So, to what extent has there been out-migration and in-migration at the business level?
Chris Edwards: On the Governor’s report card we take corporate tax rates and revenues into account. A high score was given to Governor Martinez of New Mexico because he slashed the corporate tax rate. This corporate tax is pushed forward onto consumers and workers, and it doesn’t really land on the shareholders. This is especially the case with the state level corporate taxes. They are a a hidden burden on individuals.
State corporate taxes are pretty easy for corporations to avoid. So they are actually one of the most efficient taxes. They just impose a lot of wasteful paperwork. So we do take that into account and there is no doubt that in the modern global economy corporations are more footloose than ever. Modern 21st century industries like high tech and biotech and many others can be located just about anywhere. So, the competition for business location has intensified. There are of course specialist consulting companies that data mine and find the optimal tax locations for businesses. So there is this pressure for state legislatures and governors to reduce taxes on businesses, which in, in my view, is a very good thing, because these taxes are inefficient and really just a hidden burden on individuals.
Bob Zadek: Cato, of course in all of its studies is nonpartisan, nonpolitical and data-driven. That’s the magic of the Cato product. So your data cannot be refuted or argued about. Since the data is irrefutable, what do the democratic leaders say? What is in their mind? Are they powerless? Are they just denying the data? Why don’t they — or do they — react to data when Cato and others present the data to them?
Chris Edwards: I think one of the problems that we sort of touched on a little bit earlier is that democratic governors and government politicians in general equate spending with the quality of services. They automatically think that more spending is better. You see this with both Republican and Democratic Governors with respect to k-12 education. They always think that more spending is better. Really, you look at the data and the studies that isn’t true. You can do a simple correlation of per capita spending or per pupil spending on k-12 education across the 50 states and look at sat scores or other across-state scores. There is really no correlation. Politicians often say they need to spend more on k-12 education to reduce class sizes. There really isn’t good data showing that a smaller client size is produced better educational results. Spending is this quick lever that politicians want to go and grab without really doing the hard work and asking how to get quality services, and more spending really isn’t the answer.
Bob Zadek: It is really strange when states boast about educational quality or education in general. The first statistic they point to is how much we are spending per student per year for education, as if the amount you spend, or waste, has a direct correlation to the quality of the outcomes. Of course there is no correlation at all. The amount you spend is simply a function of how willing you are to buy nothing with your money. To measure, especially in education, spending per student as the test of how good your education system is rather bizarre, and that concept doesn’t exist anywhere in commerce or in politics.
Chris Edwards: A good example of this that we touched on earlier is these giant unfunded pension costs as well as retiree health costs. There are 16 million state and local workers in the United States. So as the pension and healthcare costs keep rising, a bigger and bigger share of state budgets are going toward shoring up these pension plans. Well, those are costs for public services that don’t add anything to the quality of the public service. There’s this other data on the costs to construct a highway, which varies greatly between the states. It costs twice as much to build a mile of highway in California as in Texas, for example. Why? Because government workers in California are paid much more generously and probably accessibly. There is much more red tape that slows construction projects in California compared to Texas. So there are these additional costs in these high-cost states like California that don’t add anything to the quality of public services.
Bob Zadek: Taxation is to some degree a function of how much the service costs — after all, governments are nothing other than middlemen who buy a service, they mock it up for their admin costs and then they sell it, whether it’s education or roads or mass transit or healthcare or the like — they buy mark it up and sell it. And if a government buys too high, they have to sell it for more. Isn’t outsourcing one of the secrets of getting the costs down?
A Plea for Privatization
Chris Edwards: would say full privatization of many state and local public services is the real answer. You can see this with urban transit systems, which are enormously inefficient across the country. They are unionized monopolies. They don’t allow competition. Before recent decades, almost all transit systems in the United States, both the rail and the bus and old trolley systems that used to run down main street in hundreds of American cities, those were all private. Urban transit systems used to all be private. Most airports in the United States back in the twenties and thirties used to be private. The main airports in Los Angeles, for example, were private. Government took over these services and imposed enormous inefficiency on them. But we we don’t need that inefficiency. It’s not good for us. We should privatized the airports. We should privatize transit systems. We should open them to competition. We don’t want to give private monopolies either. We want open competition in these services. We want airports to compete against each other. We want transit systems to compete. I think that would keep costs down. It would keep a pressure to improve quality and to serve customers much better than these monopoly government services we currently have.
Bob Zadek: Isn’t it interesting how my introduction to our discussion today focused on the marketplace and competition and no matter what subject we talk about, we always end up with competition is the solution. How magic the marketplace is.
Tax Reform: Capping the State-Tax Deductions
Chris Edwards: One thing we didn’t talk about is how the fact that the Republican tax reform law that passed last year put a cap on the state and local tax deductions under the federal income tax. That will intensify this tax competition competition pressure between the states. There’s about $25 million American taxpayers who used to deduct their state and local taxes on the federal return. They will no longer be doing that and so they’re going to feel the full brunt of those high taxes in California. So, we should probably see a pickup in interstate migration in the coming years, particularly amongst higher earning people who are frankly getting sick and tired of paying the high taxes in places like California.
Bob Zadek: I’m really glad you mentioned that. Explain to our friends out there who might be generally aware of the very dramatic effect that the tax reform — I’m reluctant to say reform — that was passed last session of Congress. How does that impact the subject for this morning show? Explain to our audience the dynamics, and what it actually does and how it affects a California New York, Northeastern states, and the like with a high tax policy.
Chris Edwards: It used to be that before this year, people who itemized on their personal tax return could deduct the full amount of state and local income property and sales taxes that they paid. That had the effect of subsidizing high tax states like California and New York because high earners there knew that because they could deduct those high state taxes, the tax bite wouldn’t be quite as bad. Well, Republicans put a tight $10,000 cap on those state and local tax deductions, which means that $25 million households will no longer be itemizing and deducting those state and local taxes. They’re going to move over and take the standard deduction. That fully exposes them to the full burden of state and local income and property taxes.]
Downsizing the Federal Government
A department-by-department guide to cutting the federal government's budget.
So high income taxes and places like New York property taxes and in places like New Jersey, are really going to be hit. And I think that they’re going to look at their tax return next April and say, wow, these, state and local taxes are really darn high. I think it is going to really make the them think twice about where they live. Even for people with moderate income of 75 to $100,000 or so, the difference in state and local taxes between a high tax state like New York and a low tax one like Florida is $5,000 or more. I mean, that’s a pretty hefty chunk of change that I think will start changing people’s minds about where they want to live.
Bob Zadek: In other words, we have had the federal government subsidizing taxpayers who pay state and local taxes. That subsidy is going to disappear. You have devoted your attention at Cato to tax policy. Which tax policy in your view makes more sense for the federal government? To allow you to deduct state and local taxes? To provide a subsidy? Is that more fair? Or is non-deductibility a better policy? And Chris, we have only about a minute.
Chris Edwards: The federal government should eliminate the state and local tax deductions. In other federal countries like Canada and Germany, they don’t have any such deduction. We were talking about bias in state and local governments; it induces them to have higher taxes and we don’t want the federal government doing that. We want a flat tax at the federal level with a simple low rate with virtually no deductions that would be fair and equal for everyone.
Bob Zadek: How could our friends out there follow your work and the work of Cato on tax policy and in the broadest sense, the whole political life in America?
Chris Edwards: Just Google Chris Edwards. You can find me on the Cato webpage — my email and information is on there. Also, Cato has a great website, downsizinggovernment.org, that talks about how to reduce federal government spending. You know, the federal government is facing a trillion dollar annual deficit these days. We need to cut federal spending and DownsizingGovernment.org, tells the public and policymakers how to make those reforms.
Bob Zadek: Chris, I’m so glad you mentioned downsizing the government. That is a wonderful website, full of wonderful information. It makes you enraged, but it also gives one hope. I invite all of our listeners to check out Downsizing Government at the Cato Institute. Chris, thanks so much for joining us this Sunday morning and most importantly, thanks for the great work that Cato does and will continue to do in the future.
- Cato Institute Center on Tax and Budget Policy
- Governors Report and interstate tax competition
- Twitter — @CatoEdwards
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