Michael Hicks is an economist on the faculty of Ball State University. He recently published two columns in the Indianapolis Star that deserve widespread attention.
Hicks documents two inconvenient facts: more people move into high-tax areas than into low-tax precincts, and economic conditions in Blue cities and states are significantly better than conditions in Red parts of the country.
Hicks makes that first assertion in a column discussing the repeated mantra of candidates for Indiana’s legislature--elect me and I’ll cut property taxes! High property taxes are why Indiana keeps losing population! He points out that–despite the popularity of these proposals, property tax cuts would be highly unlikely to grow population, employment, GDP or household incomes. The data shows that population growth tends to cluster in high-tax places.
In Indiana, the 10 counties with the highest effective property tax rates alone accounted for 27,105 new residents since 2020, a whopping 61.3% of the state’s entire population growth. The 10 counties with the lowest effective property tax rates saw only 878 new residents, or less than 2% of the state’s growth.
I know many readers will recoil at this challenge to a long-held notion that lower taxes cause growth. However, it is a cold, hard fact that both population and employment growth is positively correlated with tax rates on income and property.
In Indiana, a 1% increase in the average tax rate leads to a 2% increase in population growth. That is simple mathematics.
Why would that be? As Hicks concedes, no one looks at tax rates and says “Let’s move to where taxes are higher.” What they do look at are indicators of quality of life–public services and amenities that will be available to them.
These are places where families judge themselves better off. If you live in a state where families are moving from low- to high-tax regions, your state is underinvesting in local amenities such as schools, parks, and public safety.
That reality–anathema as it is to those who view all taxation as evil–goes a long way toward explaining another phenomenon Hicks has discussed–the difference between the economic performance of Red and Blue areas of the country.
Nationwide, it is unambiguously clear that the U.S. economy is performing historically well. On every important measure — employment, wages, GDP, or wealth — the overall economy is not just performing at record levels, but also outperforming the rest of the world.
Robust national economic performance has benefits for every county and small town, but that does not mean every place shares equally in economic growth. There are plenty of places that continue to do poorly.
And the gap between them is growing. Rich places are, for the most part, getting richer and poor places poorer–in contrast to what has typically happened before. Moreover,
poor places are increasingly governed by Republicans and rich places by Democrats. The gap between rich and poor places might help explain the partisan differences in perceptions of the economy.
The regional differences are compelling across dimensions of rural and urban places, as well as between cities and rural areas.
Comments