Newspaper column: Why Nevada must hit the brakes on taxes

WSJ illustration

It’s called voting with your feet.

A remarkable number of well-heeled Americans are doing just that, and it should serve as a warning to Nevada voters and candidates as we enter an election year. Though Republican governors in recent years have shepherded through the Legislature record-high tax increases, Nevada still fares fairly well in comparison to other states when it comes to the tax burden borne by citizens of the Silver State.

According to the Tax Foundation’s analysis of state and local tax burdens per capita for fiscal year 2012 — which is after Gov. Kenny Guinn’s billion-dollar tax hike but before the $1.5 billion tax hike pushed by Gov. Brian Sandoval — Nevada ranked 43rd lowest in the nation, while neighboring Taxafornia ranked sixth highest.

Nevada tax collectors grabbed 8.1 percent of the state income through state and local taxes or $3,349 per capita. Meanwhile, California snatched 11 percent of state income or $5,237 per capita.

Perhaps that explains why, according to Internal Revenue Service data on taxpayer migration, from 2014 to 2015 about 10,500 Nevada taxpayers moved to California, while 17,700 California taxpayers moved to Nevada. Even more telling is the fact that the Californians fleeing to lower-taxed Nevada averaged $91,000 in gross adjusted income, while the Nevadans heading to California averaged only $47,400 in adjusted gross income.

It seems people with higher income have a tendency to find ways to keep more of it for themselves.

From 2014 to 2015 Nevada netted an increase in total adjusted gross income reported to the IRS of $1.43 billion. Of that, $1.1 billion came due to the influx of Californians changing residencies.

An analysis of a sampling of that IRS data shows the California-Nevada migration pattern is no anomaly.

In that one year, the state of New York, which has the highest state and local tax burden of any state at 12.7 percent of income and $6,993 per capita, lost $4.4 billion in income.

No. 2 highest Connecticut lost $1.3 billion in income. No. 3 highest New Jersey lost $2.46 billion. No. 5 Illinois lost $3.47 billion. No. 6 California lost $2.09 billion.

Meanwhile, state income tax-free Texas, ranked 46th lowest, added $3.61 billion, and state income tax-free Florida, though only 34th lowest, added $11.65 billion. The latter might have something to do with weather as well, since $2.62 billion of that came in from former New Yorkers, $1.49 billion from former New Jersey residents and $1.47 billion from former Illinoisans.

The New Jersey residents who moved to Florida had an average income of $121,000, while Floridians moving to New Jersey averaged $72,500.

This is hardly surprising nor a new phenomenon. In an article in The Wall Street Journal in 2009 under the headline, “Soak the Rich, Lose the Rich,” economist Arthur Laffer and WSJ economics writer Stephen Moore updated previous studies and found that from 1998 to 2007, more than 1,100 people every day of the year relocated from the nine highest income-tax states — such as California, New Jersey, New York and Ohio — mostly to the nine tax-haven states with no income tax — including Florida, Nevada, New Hampshire and Texas.

Laffer and Moore determined that over that period of time the no-income tax states created 89 percent more jobs and had 32 percent faster personal income growth than the high-tax states.

“Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair?” they asked. “No. Dozens of academic studies — old and new — have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.”

A recent WSJ editorial noted that billions in income are still flowing out of New York, New Jersey and Connecticut and into Florida.

“As these state laboratories of Democratic governance show, dunning the rich ultimately hurts people of all incomes by repressing the growth needed to create jobs, boost wages and raise government revenues that fund public services,” the editorial concluded.

Voting with the feet is sure to increase since the recent tax reform limits federal income tax deductions for state and local taxes.

Let this be a lesson for Nevada. Chase the rich, they’ll run away.

A version of this column appeared this week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel and the Lincoln County Record — and the Elko Daily Free Press.