As our nation CONTINUES to rebuild from the historic 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 principle finding of our new 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 yields good news for Florida: The state 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 Governor 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, which is why, between 1992 and 2010 (according to taxpayer filings from the Internal Revenue Service), Florida saw an influx of $95.61 billion in net adjusted gross income. This is the gift that out-of-staters bring to Florida when they relocate in the Sunshine state. 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 warm and sunny climate – all the more appealing to northerners after this brutally cold winter. 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 untenably 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, Dr. 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. Upon retirement at age 67 and assuming a 6 percent return on investment, this results in an additional $217,000 in net worth. High-tax states cannot reasonably expect workers to stay in their punishing climates, particularly given the mobility of the American workforce.
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 still 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.
Chief Economist, Heritage Foundation
Travis H. Brown
Author, How Money Walks