Based on population shifts recorded in the 2020 Census, there were six US states that gained congressional House seats: Texas (2), Colorado, Montana, Oregon, Florida, and North Carolina; and seven states that lost seats: New York, Illinois, California, Ohio, Michigan, West Virginia, and Pennsylvania. Like I’ve done in the past for other measures of US migration (see here and here), we can ask the question: What significant differences are there between America’s six states that gained population and congressional seats and the seven states that lost population and congressional seats when they are compared on a variety of recent measures of business climate, individual and corporate tax burdens, state fiscal health, utility (electricity) costs, economic performance, and labor market dynamism? In other words, why are some states like Texas and Florida gaining businesses, residents, and House seats and why are states like California, New York, and Illinois losing businesses, population and House seats?
Assuming that many Americans and US companies “move/vote with their feet” when they relocate from one state to another, is there any empirical evidence to suggest that Americans are moving to states that are relatively more economically vibrant, dynamic, and business-friendly, with lower tax and regulatory burdens, lower energy costs, with more economic and job opportunities, from states that are relatively more economically stagnant with higher taxes and more regulations, higher energy costs, and with fewer economic and job opportunities?
The table above (click to enlarge) summarizes a comparison between the two groups of US states (six House seat gainers and seven House seat losers) on 11 different measures of economic performance, labor market dynamism, business climate, electricity and housing costs, tax climate, and fiscal stability for those 13 states. And on each of those 11 measures, there is empirical evidence that the six gaining states are on average out-performing the seven losing states, suggesting that migration patterns in the US do reflect Americans and firms “voting/moving with their feet” from high-tax, business-unfriendly, fiscally unhealthy, economically stagnant states with relatively high utility (electricity) costs to lower-tax, more business-friendly, fiscally healthy and economically vibrant states with lower energy costs. Let’s review those 11 measures, one at a time:
1. Right-to-Work. Three (half) of the six US states gaining House seats are Right-to-Work (RTW) states, while five of the seven losing states are forced-unionism states (all except Michigan and West Virginia). In my recent analysis of the top ten inbound and top ten outbound US states in 2019 based on state-to-state migration data from Census, there was even stronger evidence of migration patterns based on states’ union policies. Nine of the top ten inbound US states in 2019 were Right-to-Work (RTW) states (all except Colorado), while eight of the top ten outbound states were forced-unionism states. According to many studies like this one by my AEI colleague Jeff Eisenach (emphasis mine):
There is a large body of rigorous economic research on the effects of
RTW laws on economic performance. Overall, that research suggests that RTW laws have a positive impact on economic growth, employment, investment, and innovation, both directly and indirectly.
Therefore, it would make sense that American businesses and workers are leaving low-growth, forced-unionism states like New York and California for higher-growth, RTW states like Texas and Florida with more dynamic labor markets and greater job opportunities.
2. State Tax Burden. Last month, Wallet Hub released a study on the “Overall Tax Burden by State” that measures the percentage of each state’s total personal income that goes to state and local taxes in the form of (a) individual income taxes, (b) property taxes, and (c) sales and excise taxes. The average state tax burden for the six gaining states is 7.9% compared to a 9.5% average tax burden for the seven losing states. Three of the states losing House seats ranked in the top ten highest-taxed states: New York (No. 1 at 12.79%), Illinois (No. 9 at 9.52%), and California (No. 10 at 9.48%).
3. Income Taxes. a) According to the Tax Foundation, the average top individual income tax rate for the six gaining states was 4.4% in 2020 compared to an average top tax rate of 6.5% in the seven outbound states. Two of the gaiing states — Florida and Texas — have no state individual income tax.
b) Similarly, the average top corporate tax rate based on Tax Foundation data in the six gaining states was 4.3% last year compared to 6.8% in the seven losing states. It’s an ironclad law of economics that if you tax something you get less of it, and it’s therefore, no surprise that Americans and businesses are leaving relatively high tax states and moving to relatively low tax states.
4. Forbes Best States for Business. Based on its most recent annual state ranking that measures six business categories: business costs, labor supply, regulatory environment, current economic climate, growth prospects, and quality of life, Forbes rated four of the six gaining states among the nine best states for business in 2019 — North Carolina at No. 1, Texas at No. 2, Florida at No. 5 and Colorado at No. 9. The average Forbes ranking for the six gaining states last year was 11 out of 50 (top quarter) compared to the average ranking of 34 out of 50 (bottom half) for the seven losing states.
5. Business Tax Climate Rankings. Every year The Tax Foundation calculates and reports its State Business Tax Climate Index based on each US state’s corporate income taxes, individual income taxes, sales taxes, property taxes, and unemployment insurance taxes. In the most recent Tax Foundation rankings, two of the seven losing states — New York and California — were among the three US states along with No. 50 New Jersey with the worst business tax climate. For the six gaining states, all but Montana were in the top half of states for the best (lowest) tax climate. The average business tax climate ranking for the six gaining states was 11 (top quarter) compared to an average ranking of 34 (bottom half) for the seven losing states.
6. State Fiscal Stability Rankings. US News and World Report recently ranked US states by “fiscal stability” based on both on a short-term and long-term basis (No. 1 being the most fiscally stable state and No. 50 the most fiscally unstable state). State credit ratings and public pension liabilities measure long-term financial health, while asset liquidity and a state’s budget management (spending vs. revenue) are used to measure short-term health. According to the report, “The fiscal stability of a state’s government is vital to ensuring the success of government-sponsored programs and projects and the quality of life of the state’s residents.”
The average fiscal stability ranking for the six gaining states is 17 (top one-third) compared to the average ranking of 35 for the seven losing states. Three of the six gaining states ranked among the ten most fiscally stable states — North Carolina at No. 7, Florida at No. 8 and Texas at No. 10. Two of the seven losing states ranked among the most fiscally unstable states — Pennsylvania at No. 47 and Illinois dead last at No. 50.
7. Average Electricity Cost by state is another factor that might contribute to businesses and households moving from states with relatively high energy costs to states with lower energy costs. According to the most recent data from the Energy Information Administration on the “Average Price of Electricity to Ultimate Customers,” the average price of electricity for all sectors (residential, commercial, industrial, and transportation) is 9.4 cents per kilowatt-hour in the six gaining states. For the seven losing states, the average cost of electricity is 11.3 cents per kilowatt-hour, which is more than 20% higher than the gaining states. Compared to the US average price of electricity is 10.29 cents per kilowatt-hour, the average price of electric power in the six gaining states is almost 9% below the national average and the average price in the seven losing states is nearly 10% above average. Because electricity costs affect both the cost of living for households and the cost of operation for businesses, it’s not surprising that the states with higher electricity costs are losing population while the states with lower energy costs have gained businesses and residents.
8. Economic Performance. The last three categories in the table above show economic performance measures for each of the 13 states for (a) state real GDP growth rate in 2019, b) the average state jobless rate in 2019, and c) the annual employment growth in 2019. Figures for 2020 are available but were so distorted by the effects of the pandemic that I’m using 2019 figures here as more representative. For the six gaining states, the average real GDP growth rate in 2019 was 2.9% (above the national average of 2.2%), the average jobless rate was 3.4% (below the national average of 3.7%), and the average annual job growth was 1.9% (above the national average of 1.35%). In contrast, the average figures for the seven losing states were below-average 1.6% for real GDP growth, above-average 4.2% for the jobless rate, and below-average 0.6% for annual job growth. In other words, compared to the seven losing states, output grew almost twice as fast (2.9% vs. 1.6%) in the six gaining states, the average jobless rate was almost a percentage point lower (3.4% vs. 4.0%), and annual employment growth was more than three times higher (1.9% vs. 0.6%).
Those three key economic indicators suggest that the gaining states are stronger economically on average than the seven losing states with faster economic growth, and more robust labor markets with lower jobless rates and greater rates of job creation.
Bottom Line: Based on population changes between 2000 and 2020 recorded in the 2020 Census that will be reflected in changes in House seats, the migration patterns of US households (and businesses) followed the predictable patterns that have been documented in previous CD studies. To answer the questions posed above, there are significant differences between the six states that gained House seats and seven states that lost seats when they are compared on a variety of 11 measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal stability, electricity costs, and labor market dynamism. There is empirical evidence that Americans and businesses “vote with their feet” when they relocate from one state to another, and the evidence suggests that Americans are moving away from economically stagnant, fiscally unhealthy states with higher tax burdens and unfriendly business climates with higher energy costs and fewer economic and job opportunities, to fiscally sound states that are more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens, lower energy costs and more economic and job opportunities. And the fact that those population shifts are reflected in changes in Congressional delegations every ten years is an effective way to reward economically successful, low-tax, business-friendly states like Texas and Florida and punish economically stagnant, high-tax, business-unfriendly states like New York and California. Let’s hope for even more changes in House seats ten years from now in 2030 as states might better learn the economic lesson that they have to compete to attract and retain businesses, residents, and workers.