Over the years, I’ve done numerous posts pointing to the fact that states without an income tax tend to grow faster than more highly taxed states. A part of that growth is related to the post-WWII sunbelt phenomenon. But not all. States lacking an income tax tend to grow faster than even nearby states with a similar climate.
Washington is another interesting case—one of the few northern states without an income tax. And Washington has also been one of the fastest growing northern states—until now. Here’s the Wall Street Journal:
An interesting natural experiment has been Washington state, which gained tens of thousands of people from other states on net each year in the last decade. But since enacting a 7% capital-gains tax on higher earners in 2021, Washington has been losing residents to other states at an accelerating pace—15,276 this past year. Could that be a reason, or is Seattle’s crime problem a better explanation?
I doubt whether crime is the decisive factor—Texas and Florida also have plenty of crime.
That’s not to suggest that taxes are the only issue. Strict zoning laws keep property prices high in places like California and New York, and that also slows population growth. But zoning cannot explain why Washington suddenly went from being a high growth state to a slow growth state. Taxes are very important, especially income taxes.
READER COMMENTS
jensen
Feb 6 2024 at 11:56am
It is not just crime but the *perception of crime*. The media has been harping on the ‘disasters’ in the West coast cities for quite some time – this could drive people away, it certainly did in SF.
And for what it is worth, anecdotally there seems to be a lot more property crime in West Coast cities than other cities. This could drive people away.
It seems unlikely to me that so many people would move away due to capital gains on transactions above 250k. How many people does that even impact (it doesn’t apply to real estate)? It would impact me, but only very very slightly.
johnson85
Feb 7 2024 at 12:03pm
I don’t think anybody uproots their lives because of the “perception of crime”. They move because they or people they know are impacted by it. Once an area gets to where you can no longer leave anything in your car that’s visible, even though it’s “just” property crime, that’s a significant impact on quality of life to a lot of people. And I think more so it just worries people about where things are going and whether they need to get out before it gets worse.
Also, it’s not super helpful to compare overall crime rates for different cities and assume that because the crime rates are similar, people aren’t moving out because of crime. Lots of places have what look to be decently high crime rates, but the vast majority of the crime is concentrated in rough areas of town. People in the decent to nice parts of town are subject to practically no risk of random violence and generally not subject to property crimes, unless it’s the occasional person trying car doors at night, but not busting windows if they are locked. Chicago used to be a great example of this (and may still be; not sure b/c I haven’t been in almost a decade and I have seen some videos of flash mobs at the magnificent mile). The few times I’ve visited Chicago it seemed like one of the cleanest and safest cities I’ve ever been to all while having a relatively high rate of violent and property crime.
Todd Ramsey
Feb 6 2024 at 12:28pm
Since 2019, Washington has also instituted two levies on wage income, ostensibly to support specific programs, that bear uncanny resemblance to income taxes.
0.58% on all wages (WA Cares Fund, employers can apply for exemptions); 0.6% on wages up to the Social Security Maximum (Paid Family & Medical Leave).
Income Tax is prohibited by the Washington State Constitution. Washingtonians have repeatedly rejected ballot initiatives to amend the Constitution to allow an Income Tax. I believe these two wage levies are the Legislature’s foot in the door of income tax policy, and are likely to increase over time. To wit, the tax rate for PFML increased from 0.4% to 0.6% in just the first three years.
steve
Feb 6 2024 at 2:48pm
Chart shows Washington state population growth back to 1970. It actually swings a lot and it was already on a downtrend starting in 2018. If you go back to 1970 it looks like the longer term trend is downwards. I dont think an action taken in 2021 is necessarily the answer for a process that has been going on for so long.
https://ofm.wa.gov/washington-data-research/statewide-data/washington-trends/population-changes/total-population-and-percent-change
Steve
steve
Feb 6 2024 at 4:55pm
Also, if taxes are a factor why isn’t it total tax burden? Wyoming, North and South Dakota, Michigan, Texas and Alaska are the states with lowest total tax burden but only Texas is in the fast growing group.
Steve
MarkW
Feb 7 2024 at 4:37am
Income taxes seem to matter more. Texas, Florida, Nevada, and Tennessee are all no income tax states, and all have grown rapidly.
Scott Sumner
Feb 7 2024 at 5:23am
Mark’s right, state income taxes are the key. States without a state income tax generally grow faster.
And that graph doesn’t really show very much. Population growth for the US slowed during Covid.
Scott Sumner
Feb 7 2024 at 5:34am
I would add that more recent census data shows Washington’s population growth was only 0.36% in 2023, not 1.1%.
https://www.businessinsider.com/state-population-growth-declines-map-moving-migration-census-2023-12
Todd Ramsey
Feb 7 2024 at 10:08am
“If you go back to 1970 it looks like the longer term trend is downwards”. You’re referencing the rate of change in population. The actual population has increased every year since 1947. And it’s not clear that what it “looks like” to you is even correct about the rate of change.
WA population growth in each of the years 2021-2023 increased by a lower percentage than any of the preceding 50 years. https://fred.stlouisfed.org/series/WAPOP And before you say it was COVID, know that Florida and Texas have not experienced similar slowdowns.
steve
Feb 7 2024 at 10:49am
You are using FRED data from US census I believe, which are estimates. I went to the state of Washington source, which will still be estimates. If you look at their hard numbers and not the chart there are many years with a lower rate of increase than recent changes. Other than wanting to believe them, is there any reason to prefer one set of numbers over the other? When in doubt I usually use the more local source but tell me why that is wrong.
Steve
Todd Ramsey
Feb 7 2024 at 9:38pm
Steve, you are probably right that the Washington State numbers are better than the FRED numbers. Thanks for showing me a better source.
Using Washington State estimates, the 2023 increase of 1.1% is the 6th lowest since 1987. Only 2009-2013 were lower. I think the new taxes are a major contributor to the slowing growth.
If I’m right, the slowing growth will continue going forward. Especially relative to states with no income tax like Texas, Florida, Tennessee, Nevada. Time will tell.
robc
Feb 7 2024 at 12:56pm
2022 was higher than 1983, but both 21 and 23 were lower. So there was one year in the last 50 that was lower.
Before that, you have to go back to 1972, so just over 50 years. It was lower than any of 2021-23.
Bobster
Feb 6 2024 at 6:49pm
There’s a proposition on the ballot to repeal Washington’s capital gains tax
Would be another interesting experiment
Thomas L Hutcheson
Feb 7 2024 at 8:33am
States are just too substitutable for redistributive taxation.
That should be done at the national level with a progressive consumption tax.
Ryan
Feb 7 2024 at 10:10pm
Washington recently implemented a gross receipts tax, which is a percentage tax on… well, gross receipts.
So it’s like a sales tax, applied to every transaction. The tax pyramiding, etc, is at full force.
Local coffee shop that purchases beans from a local roaster? Tax on that purchase, plus your sale. Starbucks, with its vertical integration? Only tax on the final sale!
Joy.
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