September 7, 2012

By Rex Sinquefield

This week, a wide spectrum of state political delegates, from progressives to moderates, occupied Charlotte, NC for the Democratic National Convention. North Carolina is one coastal state that has been fortunate to attract more working wealth than it has lost over the last fifteen years.
According to the Internal Revenue Service taxpayer migration data, North Carolina has been adding an average of $1.4 billion in net adjusted gross income (Net AGI) each year for the last fifteen (1995-2010.)

Many economists, including those at Missouri’s free-market think tank,the Show Me Institute, have studied how states with high marginal tax rates on personal income tend to lose wealth compared with those economies with relatively low tax regimes. With North Carolina gaining wealth due to migration from other states, analyzing where this migration is coming from is useful to states that want to improve local opportunities for job growth and economic expansion.

It is not surprising that two California counties, Orange County and Santa Clara County, contributed nearly $800 million in adjusted gross income to North Carolina’s state economy. The move from these two counties alone from the higher tax regime of California, to the relatively lower taxes of North Carolina represents nearly 12,000 taxpayers. The next two counties that appear down the migration list by AGI are Queens and Monroe Counties in New York State. Since both New York and California are known for complex tax codes and some of the highest tax rates, the attraction to Carolina growth regions, such as the Research Triangle, is not at all surprising.

When it comes to positioning a state’s overall business climate, less certainly can be more. Compared with many other states, the tax code in North Carolina is flatter and simpler. If you look at the North Carolina state income tax forms, they’re not complicated by extra deductions, credits or offsets for a basic household or filer. As Art Laffer and the National Taxpayers Union have published, the business of tax compliance employs more workers than Wal-Mart, UPS, McDonald’s,IBM, and Citigroup combined.

Given the fact that personal income is our most mobile of resources, high wage earners have a strong incentive to avoid higher taxes.

This can be true even within a fast-growing county such as Delaware County, Ohio, which has given the State of North Carolina its largest financial gain on a per person basis over the last 15 years. While less than 500 residents moved from the greater Columbus, Ohio region, those who did were exporting an average of $105,610 in annual adjusted gross income every time a moving van headed to North Carolina.

What economic factors would cause a Buckeye State resident to transfer to the Southeast? For some, it may be the ocean or early retirement. Perhaps there was a strategic merger or corporate relocation from another Ohio employer. However, for many, life in the Carolinas may look a lot simpler. Take for example the Ohio state tax table along with its numerous forms and descriptions. By the time the State of Ohio informs you of your rights, obligations, and special programs, your tax manual is longer than 40 pages in length.

In light of the current political debate about everyone paying their “fair share”, one needs to look no further than what’s happening with state-to-state wealth migration rates to see what economic policies are really working.


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