High taxes pushing family and friends to leave

When you live in Hawaii, you get accustomed to saying goodbye.

As a father, I’ve watched my children leave for the mainland to start college or their careers. And I know there’s a good chance they won’t be coming back, except for short visits.

I am not alone. Who hasn’t had to bid farewell to a friend, relative or child leaving for better opportunities on the mainland? As the Grassroot Institute’s “Why We Left Hawaii” series shows, many residents who move away would prefer to stay, but they believe that leaving is the only way to achieve their dreams.

We have written at length about the problem of Hawaii’s population loss. Not only has the state seen negative population growth for four consecutive years, it also has the third-fastest level of economic flight per capita in the nation.

The tendency is to think about our population decline as a local problem, but as economist and Grassroot Scholar Daniel Mitchell explained this past Monday on my Hawaii Together” program on ThinkTech Hawaii, it’s actually part of a larger national trend.

Mitchell is co-founder of the Center for Freedom and Prosperity and an expert on the impact of fiscal policy. According to Mitchell, there has been an increase in state-level economic migration over the past few years, most notably from high-tax states to lower-tax states.

The motivation for such moving is obvious when you’re talking about high earners. As Mitchell pointed out, it’s a “no-brainer” to move from California’s 13.3% top tax rate to Nevada, where there are no income taxes.

But it also becomes a factor for middle-class and lower-income workers as well. In their case, the motivation to move may not be tied specifically to their tax bills, but rather from a desire to go where the jobs and opportunities are. Because there tend to be more career opportunities in states with lower taxes and business-friendly policies, that’s where people — including Hawaii residents — tend to go.

Mitchell has observed this trend in California, which is losing businesses and residents to places like Texas and Florida, as well as New York and Oregon. The beneficiaries of this out-migration aren’t always states with no income taxes, like Nevada and Florida. South Carolina, Idaho and Montana also have been attracting migrants from higher-tax states, simply because they lack the heavy regulation and fiscal burdens of the states that are losing population.

Some people have tried to put a positive spin on Hawaii’s population loss by pointing out that it saves us from overcrowding. But this perspective ignores another effect of out-migration: the shrinking tax base.

“Yes, we all want wide open spaces, beautiful views and things like that,” said Mitchell, “but somebody has got to pay the bills for the government, and if you’re driving away taxpayers, that means that the burden on the people that remain is going to have to be higher.”

Moreover, the people who tend to stay are those who have obtained a slice of the government budget, such as government employees and other special interest groups. The ones who are leaving are the taxpayers who formerly were helping foot most of the bills. The result is fewer taxpayers left to cover the commitments made by the politicians.

“It’s very difficult once you get in that sort of tailspin, that downward spiral of fewer taxpayers,” Mitchell said. “Then you impose higher tax rates, which of course, leads more taxpayers to leave.”

Mitchell said he isn’t accusing the leaders of the high-tax, high-spending states of intentionally driving people away. But that is what happens when you keep increasing taxes to fund more government.

“They have public employee unions that they’re trying to keep happy,” Mitchell said. “They have different beneficiaries of different government programs in the state. They’re so anxious to play Santa Claus and give government benefits to different constituencies in their state that they wind up over time just pushing the tax rate up and up and up and up.”

Sound familiar?

The good news is that Hawaii already has the tool needed to improve fiscal responsibility: a constitutionally mandated spending cap. The bad news is that the state spending cap lacks an enforcement mechanism and can be easily waived by the Legislature. Mitchell likens it to a speed limit on a road without cops. A meaningful spending cap would keep government spending from outpacing the private sector. Without it, you have a recipe for higher taxes and increased out-migration.

If we want to stop Hawaii’s population loss, we need to learn from what is going on nationally. We need to transform Hawaii from a state that provokes economic flight to a state that attracts business and investment.

Then, perhaps, we won’t have to say so many goodbyes to our family and friends.
This commentary was Keli’i Akina’s weekly “President’s Corner” column for June 25, 2021. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email info@grassrootinstitute.org.

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