Politicians may say that tax rates don’t matter, but the number of people who move away from Minnesota to low-tax states suggest otherwise. So do the actions of politicians who offer selective tax breaks. But today, I’d like to tell a story about one person whose life choices suggest that tax rates do affect personal behavior–sometimes to the detriment of the taxing authority.
Earlier this month, I went on a snowboarding trip to California. One of my companions on the slopes loves the world of wine. She’s such an insider that she has a legitimate business reason to live in Napa Valley. And she does–but no more than just under half the year. Her detailed calendar and bevy of receipts offer proof.
Why is she so precise about her comings and goings? Taxes, to start with. California has the seventh-highest income taxin the country, as measured by per-person collections. It also has the highest top marginal rate, after Hawaii. (Stop to consider that: The state with the highest income tax rate among the continental United States does not have the highest collections. Why not?)
To get around California’s income taxes, my skiing friend spends a slight majority of the year in the state of Washington. Washington, in addition to having all the natural beauty of the Pacific Northwest, has a top income tax rate of 0.0 percent. That’s right: No income tax. So my friend’s state income tax liability is zero dollars and zero cents. Wouldn’t you like to write that check to Minnesota Revenue each year?
I don’t know what my friend’s political beliefs are. I don’t know if she has read Milton Friedman or any supply-side economists on the effects of the income tax. But the way she lives her life suggests that she knows they speak the truth.
(First published by the Center of the American Experiment)