By Rex Sinquefield, October 19, 2012

America’s 44th Vice President, Dan Quayle, once said: “I love California, I practically grew up in Phoenix.” Today, Dan Quayle is not alone in the sense that many Californians might consider Phoenix to be practically like living in California — with far less of the economic mess.

Many of California’s millionaires, under the threat of such tax hike plans asProposition 30, are likely to be moving more and more assets to lower tax burden regions such as Phoenix or Las VegasEntrepreneurs with a wider range of mobility are leaving the Southwest altogether for states that do not levy a personal income tax, such as Texas, Washington, or Florida.

Thanks to Internal Revenue Service taxpayer files, economists and think tanks can measure the long-term migration trends of individuals from high tax states towards states with a better business climate. By contrasting the wealth transfers into the state with relocations out of the state, we can confirm what is happening to entrepreneurial capital over the last fifteen years (1995 to 2010). Another way to track such interstate movement is from population changes available from the U.S. Census Bureau over the same period.

Since 1995, the greater Phoenix area has added a cumulative total of more than 326,000 new residents. Nearly a quarter of those people left California. More than 34,000 moved from Los Angeles County, California alone. Orange County lost nearly 13,000 residents to the Phoenix area. San Bernardino, Riverside, and Santa Clara lost 7642, 6726, and 5679 residents, respectively, over the same period.

When these taxpayers leave, they take their working wealth with them. The Metropolitan Phoenix area received $1.5 billion in net adjusted gross income (Net AGI) from Los Angeles County alone. Orange County contributed about $660 million in Net AGI to the Phoenix area. More than twenty-three percent (about $4 billion in Net AGI) of the growth in income inside the Phoenix beltway came straight from California.

But why should Californians move to Arizona to save 5% or more off their personal income tax burdens when they could move to a dry, sunny climate nearby and pay no state income tax? That’s precisely what many Californians have concluded for themselves by relocating to Nevada (where there is no personal income tax).

Between 1995 and 2010, the greater Las Vegas area added more than 232,000 new residents. More than 118,000 came from California. Nearly 60,000 alone left the Hollywood area for better opportunity in Vegas. Economists would bet that, once a move is imminent, more Californian wealth would choose Las Vegas over Phoenix due in part to the favorable tax advantages that Nevada offers.

That is precisely what has happened. More than $5.3 billion in net adjusted gross income has left California counties for the greater Las Vegas region. Californians account for 46% of all working wealth that has moved into the Las Vegas area since 1995. States without a personal income tax, like Nevada, know that what is produced in Vegas will stay in Vegas.

Several years ago, the Pacific Research Institute issued a Californian studysaying, “If policy makers want to understand why the Golden State’s economy is lagging behind those of other states, the punitive and steeply progressive personal income tax is a good place to start looking.”

When income earners leave one state for another, the tax benefits realized by the receiving state go to fund programs that contribute to the sustainability of that state’s economy, such as education, health care, transportation, economic development initiatives, environmental projects, state police and aid to local governments. For California voters at this November’s ballot box, it is important to note that the school funding that you are most likely to increase by voting in income tax hikes will be that of Nevada or Arizona.

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