The Price Is Not Right

We had fog across the Midwest the day before Christmas, so TV news was full of airport interviews with families camping between flights in this concourse or that.

It's unscientific, but I can't help but get a little depressed about how the flying-in crowd seemed to skew about 20 years younger than the flying-outs. It's the look of a regional brain drain temporarily sloshing back for a harried little Christmas.

If I did have numbers on it, though, I don't think it would make a difference. Studies and rankings and polls and spreadsheets and all that the Census can disgorge add up to this: High-tax states in the Midwest are not attracting people and businesses nearly as well as moderately taxed states.

This doesn't make much of a dent in the region's prevailing faith in high taxes.

New numbers came out this month. Economists Arthur Laffer and Stephen Moore worked up a measure of states' competitiveness. As it turns out, high taxes correlated with poor economic performance, especially heavy outbound migration. States that did well, drawing lots of newcomers and employers, were predominantly places with low taxes and right-to-work laws. Who would have imagined?

Everyone, of course. Messrs. Laffer and Moore were working for a free-market think tank, but enough people around the Midwest have talked with sisters or nephews or former officemates who moved to Texas to know that our taxes are high and theirs aren't. Their population is soaring and ours isn't. And new car factories are going down there, not up here.

Those who argue against moderating our taxes are reduced to two points.

The first is to argue that how much we pay matters less than who pays. So in Wisconsin, a lawmaker from Green Bay is pushing to make companies declare publicly just what strategies they use to reduce, legally, the taxes they owe. State Senator Dave Hansen swears his bill, an idea from a think tank sponsored by public-sector unions, wouldn't raise taxes. On that count it's as innocent as a razor-wielding serial killer paging through an anatomy text: It seems like target refinement.

Meanwhile, there's a "conversation" going on — a series of public meetings around Wisconsin, as in other states, about replacing the property tax with other revenue sources. The campaign is organized by the teachers union, the road builders, and realtors and municipalities, an unsettlingly odd coalition. It leaves a sense of unease, just as with Hansen's bill, that people whose chief interest lies in plump government are looking to bypass taxpayer resistance by opening a new, unirritated vein.

The second response is simply to assert that how much we pay isn't as important as what we get. Wisconsin has high taxes, yes, but it's high-service, too. You hear the same thing in Minnesota: The taxes are vicious but, hey, the roads are paved. In Michigan, a group of universities, cities, and hospitals run a Web site claiming the state's undertaxed — even as it just agreed to a 22% surcharge on its business tax for the next decade.

This trade-off might make sense if it were true. But now Michigan contains the nation's chief example of a high-tax civic corpse, confiscatory Detroit, which scarcely manages to plow streets or keep crime in check. In Chicago, one of the nation's highest sales tax rates may have to rise still higher to keep the transit system merely functioning. The Wisconsin Taxpayers Alliance notes that the state's well-above-average taxes finance public employee benefits about 50% higher than what prevails among private employers, a premium well above average nationwide.

In short, the value equation dims even as we're told that our quality of life is great because our taxes are high. Believing this requires faith, especially after we hear reports back from former neighbors who note that they have schools in Texas and paved roads, too. And no income tax. The drawback for the Low Church of High Taxes is that the religion is voluntary. That's what Messrs. Laffer and Moore are pointing out: That not merely businesses are chased away but people are, too, just the kind a state would want to keep.

"The people who are motivated to move tend to be the entrepreneurial, high-wealth class," Mr. Moore says. What's left is an electorate more inclined to favor redistribution. But who are they to tax? The rich, he points out, "take their capital and businesses with them when they leave." Atlas isn't shrugging so much as just moving to Boise.

So others who can move do, too, chasing the departing economy. It is the most talented who are the most mobile, most able to opt for lower taxes. The tax competition between states, Mr. Moore says, is in the end a competition for people. While places like Wisconsin may do a fine job with their signature public service, schooling, it is an investment lost if, once educated, that human capital decides not to buy into the rest of the high-tax, high-pensions-for-DMV-clerks equation.

In the end, many stay in spite of taxes and because Mother needs her walk shoveled regularly. But net immigration seems a marginal signal for whether the customers of government think the price is right. It should chasten the true believers, as it dismays those who love these states for other reasons, that the price isn't right for so many.

Mr. McIlheran is a columnist for the Milwaukee Journal Sentinel.