Monday, October 3, 2022

Real world economics: why did the taxpayer cross the road?

Why some jurisdictions, whether cities, counties, states or nations, increase in population and economic activity while others shrink, are socially and politically important. The same is true for economics. A few weeks ago, I wrote about how COVID, technology, housing costs, and relative birth and death rates affected demographic data for different geographic regions.

Real world economics: why did the taxpayer cross the road?
edward loterman

But what about relative tax rates and the distribution of public goods and facilities? Here, the issues involved are much broader than the number of taxpayers and what they pay.

To review: A recent Census Bureau report lists changes from the 2021 population estimates. Some states and large coastal cities, including California and Metro Los Angeles, lost their populations. The low-cost sunbelt areas of Texas, including Dallas, Arizona and Florida, grew. In Minnesota, urban Hennepin and Ramsey counties saw populations drop, thanks to Albert Lee and Fairmont, while Brainerd and Grand Rapids were among the gainers. But the erosion of much rural counties continues.

Why flee? Social customs regarding the number of children? Avoiding the weather and crime? Quality of schools and distance from opera or professional sports? Job availability and wage rate relative to cost of living? State or local tax burden, especially in relation to government services received?

All of these play a role, but it is not easy to tease out the importance of such myriad and complex factors. One should not jump to a conclusion too quickly, but neither should any factor be ignored because of ideological biases.

Remember that the population of a given area depends on two factors: What are births relative to deaths? What is in-migration relative to outgoing numbers? After that cause and effect becomes highly subjective.

Demographic factors can work in favor or against each other: in 1890, in nearly every county in Minnesota and almost every state, births outnumbered deaths and immigration outnumbered emigration. In my youth in rural southwest Minnesota in the 1950s and 1960s, births outnumbered deaths, but many high school graduates went away. The population of my hometown of Chandler reached 388 in 1960. Now it’s less than 250, when my grandparents bought a farm in 1910. Slayton, the seat of Murray County, also peaked in 1960 but – unlike Chandler – is now more than double what it was in 1910.

Urban Ramsey County grew decade by decade in the 2020 census, but is projected to decrease by 1.5 percent by next year. The population of St. Paul itself fluctuated, peaking in 1960, falling drastically, and then nearing its peak and halving again in the last century.

There are more people in Minnesota than ever before, which is 2.4 times more than a century ago. Relative to the same time frame, Arizona grew rapidly and is 21 times larger, Florida, 22 times larger, Texas 6.3 and California 11.5 as of 2020. But Florida and Texas are projected to increase in 2021 while California suffered little.

What gives in all this?

For rural counties across the country, the old settlers died out. Birth rates and family sizes declined, especially after the post-depression, post-WWII baby boom. When my middle child was born in 1976, there were two baptisms in our church – and 16 funerals. There was always a net outflow. The large-scale bias in mechanization and government subsidies has led to a decline in the number of farmers. Those who went to college stayed away as high school grads who could find decent jobs in “The Cities,” Sioux Falls, SD, Denver, Los Angeles, Grand Rapids, Mich., and even Toronto. Was.

The quality of schools is a factor for some states. The great Industrial Age migration from Alabama and Mississippi north to Chicago and Detroit was driven by jobs and Jim Crow, but also by schools that were better off than the isolated Deep South. Yet despite North Dakota’s good schools and state universities, as well as overall higher education levels, it has always esported people, except for brief oil booms.

Relative tax rates and other government burdens can be a controversial issue politically, as they relate to quality of life. Republicans see Minnesota’s high overall state and local taxes paid relative to median income and value of production, as well as regulations on business development, as a major motivator of migration. Democrats will counter that taxes and other government services enhance quality of life – from better schools to plowing roads. Red states reduce taxes in Florida, Texas, Oklahoma and other Southeastern states. Florida and Texas also do not have personal income taxes, although both have a higher sales and excise tax burden than our state.

There are certainly people whose migration is driven by taxes. The problem is determining how many and where. It is very difficult and has never been done on a large scale and with any accuracy.

The problem with finding objective evidence is that the differential share of income that goes to taxes varies with age, education, and income level. A local think tank once published a study on a host of people fleeing Minnesota’s high taxes. evidence? A survey of financial managers for the wealthy showed that it is the most important. It was a gift to professors who used it as an example of how even high-income and educated people can let go of basic critical thinking.

True, high-income retirees can escape the harsh winter and reduce the taxes paid by moving to any Gulf Coast state. But if you’re younger, have a BS or a post-grad STEM degree, you’ll find more relative jobs here than in the South, usually at higher salaries. Politically, the culture here is gay-friendly, abortion remains legal, and the more widespread conservative religion shuns the younger, higher-education types.

Both red states and blue states offer entertainment options, arts, and culture. Thanks to generous stadium subsidies, we have more major league professional games per capita than any other metro area. Texas and Arizona have major major universities, but other low-tax states do not.

No one would go to Oklahoma for its public schools nor would most areas of the Deep South, and that’s for young families, where a political preference for lower taxes may conflict with offering public goods.

Average per capita income has tricky nuances, but is 8 percent higher for Minnesota than for Florida, 10 percent higher than Texas, and about 20 percent higher than Georgia, Oklahoma or Arizona. But compare the metropolitan statistical areas for the Twin Cities, Miami, Dallas or Phoenix and they can vary. North Dakoton earns as much as we earn and is a tolerant, moderate-tax state but has a stable population.

This is a debate that will not end. Technology is changing where people can work and COVID is changing many priorities. The future will be interesting.

Nation World News Desk
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