the virtues of federalism
High-Earners Flee Blue States

A recent argument produced by blue model partisans to demonstrate the alleged superiority of high-tax, high-regulation policy is that states that practice it, like New York and California, tend to have a higher proportion of affluent people. As we’ve noted, this argument is questionable for a number of reasons, chief among them that it doesn’t distinguish correlation and causation. It may be that these states favor Democrats because they are wealthy and unequal, while Republicans thrive in more egalitarian environments.

But a detailed new analysis by Joel Kotkin and Wendell Cox in New Geography points to yet another flaw in this dubious defense of the blue model: High-earners are leaving blue states in droves:

Some analysts have claimed that the people leaving California are mostly poor while the more affluent are still coming. The 2014 IRS data shows something quite different. To be sure the Golden State, with its deindustrializing economy and high costs, is losing many people making under $50,000 a year, but it is also losing people earning over $75,000, with the lowest attractiveness ratios among those making between $100,000 and $200,000 annually, slightly less than those with incomes of $10,000 to $25,000.

Overall, many of the most affluent states are the ones hemorrhaging high-income earners the most rapidly. As in overall migration, New York sets the standard, with the highest outmigration of high income earners (defined as annual income over $200,000) relative to in-migrants (attraction ratio: 53). New York is followed closely by Illinois, the District of Columbia and New Jersey, which are all losing the over-$200,000-a-year crowd at a faster pace than California.

To be sure, there will always be some wealthy people who aren’t bothered by sky-high tax rates and soaring housing costs, and are willing to trade that for a hip cultural scene and a panoramic view of Central Park or the San Francisco Bay. But on the evidence of the past several years, the broad upper-middle class—including small business-owners, professionals, and other high-skilled workers—does not find blue-state governance particularly enticing. One of the biggest drivers of this trend, in addition to higher income tax rates and regulatory red tape, is housing policy: Blue states enact more building restrictions, which have put family-friendly housing out of reach for broad swathes of the population.

The Kotkin and Cox data points to a dispersion of high-earners—and the investment capital they bring with them—away from the coasts, and toward less dense, less costly, and more conservative parts of the country. This ought to puncture the widespread illusions about the inherent superiority of the blue coastal model, and exert far-reaching effects on the geography of U.S. economic growth over the next several decades.

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