How Much Are You Willing to Pay in Taxes?
Anyone who spends time reading the comments on this blog will have encountered people complaining about a phenomenon that afflicts low-tax states that border high-tax states: People from the high-tax states (which often have high costs of living in other ways, much of it driven by local regulation) eventually get fed up with how little of their paychecks they get to keep, so they pick up and move to a nearby state with lower taxes and prices ... whereupon they vote to replicate the government policies that produced the high taxes, insurance, electricity bills, land prices and everything else that made them so unhappy in their old location. Their new neighbors, who liked things the way they were, end up stuck with the bill for all the new services required to accommodate the newcomers, and pretty soon everyone's talking again about moving next door, where they can finally keep some of their paychecks.
These discussions offer a combination of bemusement and rage at this stupidity. Don't they understand that the low cost of living was the result of minimal government? Why are they so irrational? If they liked the high costs, why didn't they stay where they were? And if they liked the low costs, why did they vote to get rid of them?
This seems like a good question for Tax Day. So let me hypothesize a way in which this might be somewhat less crazy than it sounds.
Basically, these voters are heterogenous. All of them want lower taxes and prices, but each of them also wants some stuff from the government. Young parents want more spending on schools; retirees want a generous Medicaid program to make sure Nancy can stay in the house when Hiram goes to the nursing home. People who came to operate their consulting businesses while staring at breathtaking views and enjoying the quaint historic downtown want to make sure that those things are preserved.
Each of them is willing to part with a little bit of tax money to make those things happen. In fact, they're willing to part with quite a lot of tax money to make those things happen, even as they want to keep spending low on everything else, because in their old location, they came to think of these things as basic human entitlements. And so the logrolling begins in the state legislature. A state program for ambulating elderly non-drivers gets traded for funding to establish enhanced International Baccalaureate programs at local high schools. The environmentalists get their viewshed protected from developers, and in exchange their representative has to support the teachers union's bid to change the way that health benefits are negotiated. In each case, the change is relatively small -- and it may take years to show up as higher taxes or prices. But if you rinse and repeat for 20 years, then whoops! Suddenly Vermont looks surprisingly similar to New York and Massachusetts rather than the once-legendary land of dour Republican tightwads.
The important part to note is that for each voter, this is rational. If you can live in a place with lower taxes and still get 85 percent of the services you used to enjoy, that's a pretty good deal financially. It's only when all of this is aggregated over time that it produces irrational results.
So there's your thought for this special occasion. And may you all have a Tax Day as happy as the folks who just moved from California to Arizona.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
(Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter at @asymmetricinfo.)
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