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Manhattan Institute

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Why Service Is Lousy in High-Tax States

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Why Service Is Lousy in High-Tax States

The Wall Street Journal February 20, 2019
Urban PolicyTax & Budget

There’s an almost inverse relationship between burdensome levies and infrastructure quality.

Shortly after New Jersey Gov. Phil Murphy proposed steep tax increases last year, his Texas counterpart, Greg Abbott, wrote an op-ed in New Jersey’s biggest newspaper inviting residents to consider moving to the low-tax Lone Star State. Mr. Murphy countered with a piece in the Dallas Morning News touting the new investments his government planned as a reason for Texans to come north. New York Gov. Andrew Cuomo recently attempted to stir up a similar feud, complaining to President Trump that low-tax Florida is “stealing” his state’s population.

These face-offs between states are part of a larger national debate that has intensified this year as new Democratic governors in California, Connecticut, Illinois and New Jersey push to raise taxes even higher. They say higher taxes are necessary to pay for better services. But it’s far from clear that the already-high taxes in these Democratic strongholds have created better government and happy residents. People in states with high taxes are more likely to say they are eager to move elsewhere, and polls show residents increasingly questioning whether they are getting value for government “investment.”

Seven of the eight states with the highest percentages of people who want to move elsewhere are solidly Democratic in party affiliation, according to Gallup polling. Most are high-tax environments. “Even after controlling for various demographic characteristics including age, gender, race and ethnicity, and education, there is still a strong relationship between total state tax burden and desire to leave one’s current state of residence,” Gallup concludes.

When Monmouth University’s poll asked New Jersey residents why they wanted to leave, 30% listed taxes. But 24% said the overall high cost of living soured them on the Garden State, and 28% listed quality-of-life issues, including corruption, traffic and lack of economic opportunity.

In most polls, infrastructure—roads, bridges and airports—ranks high among the basics that citizens and businesses expect government to provide. This should be an area in which rich, high-tax states vastly outperform their peers, but the opposite is true. In CNBC’s annual ranking of the best and worst states for business, seven high-tax states were among those ranked lowest in infrastructure quality—Connecticut, Hawaii, Maryland, Massachusetts, New Jersey, New York and Rhode Island.

Even more startling, Texas ranked as having the best infrastructure. Also scoring high were Tennessee, which has the third-lowest tax burden as a share of state personal income, and Florida, ranked fourth-lowest in taxes. There seems an almost inverse relationship between the resources that state governments take in and quality of infrastructure.

J.D. Power polling shows that the U.S. airports ranked lowest among travelers include New York’s LaGuardia and JFK, New Jersey’s Newark Liberty, Philadelphia International, Chicago O’Hare, Los Angeles International, Honolulu Inouye International and Boston Logan. Almost all serve high-tax blue states.

A major driver of these failures is the alliance between left-leaning politicians (mostly, but not exclusively, Democrats) and public unions. As state and local budgets have fattened, public employees have captured a growing share of the rising revenue. Connecticut, the state with the second most heavily unionized public workforce, introduced an income tax in 1991. According to a Yankee Institute report, state revenue has since expanded 71% faster than inflation. The fastest growth has been spending on employee benefits and debt payments—aptly termed “nonfunctional spending.”

Labor-friendly laws make it tough to restrain these costs. Illinois’s pension woes, among America’s worst, keep deepening because of powerful state protections prohibiting government from altering the rate at which public workers earn retirement benefits, even for future work.

Infrastructure building costs have become stratospheric thanks to union-friendly policies. While Europe and Japan typically build rail and subway tunnels for between $160 million and $480 million a mile, according to calculations by Israeli transit writer Alon Levy, New York’s Second Avenue subway line cost $2.8 billion a mile, and its No. 7 subway-line extension cost $2.1 billion a mile. Unionized tunnel workers, so-called sandhogs, receive $111 an hour in New York, compared with $38 an hour in Detroit and less than $40 an hour in Germany.

Costly regulations also plague the blue-state-model. Metro markets where residents are most dissatisfied with the availability of affordable housing are overwhelmingly high-tax Democratic locations, including Los Angeles, New York and San Francisco, according to demographer Wendell Cox. Blame regulations. “High prices have little to do with conventional models with a free market for land,” wrote Harvard economist Edward Glaeser and Wharton’s Joseph Gyourko in a 2002 paper. “Instead, our evidence suggests that zoning and other land use controls, play the dominant role in making housing expensive.”

Blue-state failures are so grave, they outweigh occasional successes. High-tax Democratic states spend from 50% to nearly 100% above the national average per student in public schools. That’s paid off in quality, according to a study by the financial website 24/7 Wall St., whose list of top public schools by state includes Massachusetts, New Jersey and New York.

But even as these states educate young people, they’re losing them. From 2011 through 2015 the three top states exited by millennials were New York, Illinois and New Jersey, according to a study of census data by the think tank Illinois Policy. Texas attracted the greatest number of young adults.

That’s a problem, Gov. Murphy would no doubt say, that Jersey could fix with a few billion dollars’ more government investment.

This piece originally appeared at The Wall Street Journal

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Steven Malanga is the George M. Yeager Fellow at the Manhattan Institute and a senior editor at City Journal.  This piece was adapted from City Journal.

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