Between 2000 and 2008, Pennsylvania suffered the depletion of one of its most valuable resources – people. During this period, the state lost 56,000 net residents, according to U.S. Census Bureau data, ranking 11th in migration loss among all states. In the decade prior, Pennsylvania lost over 250,000 net residents to interstate migration – ranking 5th worst.
Consistent out-migration is seen largely in high-tax states such as California, New York, New Jersey, Massachusetts and Michigan. In the last eight years, Pennsylvania’s out-migration has reached similar proportions. While the Commonwealth benefits from being surrounded by high-tax states, Pennsylvania continued to lose people in almost every year.
A United Van Lines study indicates that Pennsylvania is a “high-outbound” state, which denotes more moves out of the state than into it. Pennsylvania’s outbound trend has continued since 1977, and with 58 percent of movers leaving, it ranked fourth among the highest outbound states.
The key drivers of economic growth for individual states are state and local fiscal policy. Overtaxed states restrain economic growth-higher taxes reduce returns to capital and labor, leading to decreases of both.
Pennsylvanians surrender 10.2 percent of their income to state and local taxes, giving us the 11th highest tax burden nationally. At 9.99 percent, the state’s corporate net income tax rate is one of the highest in the nation; among states levying corporate income taxes, Pennsylvania’s rate ranks 2nd highest nationally.
Economic growth is stronger in states with lower tax burdens, while states with the higher tax burdens lag behind.
The evidence for movement to tax-friendly states is even more compelling when examining aggregate numbers from tax returns filed. Movement to states with lower taxes and fewer regulations, such as Florida, the Carolinas, Texas and Virginia, has
resulted in a net loss for Pennsylvania, whereas states that have high taxes and more regulations, such as New Jersey, New York, Maryland, Michigan and Connecticut, yielded a net gain for the Commonwealth.
It has also been to the Commonwealth’s advantage that these states are in proximity, which allows for easier migration. Yet, people have moved away from Pennsylvania to far away, low-tax states such as Florida and Texas.
The Commonwealth attempts to remedy high taxes with the second highest level of economic development spending in the nation. Yet the state has not attracted investment from other states, but is mired in corruption and bureaucracy, as Governor Rendell bestows his favor on select industries and companies.
Pennsylvania is competing for people inclined to move to areas where taxes and the cost of living are lower and jobs are plentiful. Implementing reforms in both spending and taxation would present Pennsylvania with an opportunity to break from its current trends and make our state more competitive than its neighbors and an attractive place to move.
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Abhilash Samuel is a Research Associate with the Commonwealth Foundation for Public Policy Alternatives (www.CommonwealthFoundation.org).