by Mitch Kokai
Senior Political Analyst, John Locke Foundation
[New Jersey Gov. Phil] Murphy’s stance was typical of officials in high-tax states, who’ve long argued that businesses and families care about more than just taxes. They also want quality government service, on this view—and are willing to pay extra for it. In late 2017, when the Trump administration proposed nixing the federal exemption for state and local taxes, defenders of the policy, mostly from high-tax Democratic states, said that ending it would hurt them by making local taxes more expensive to residents.
But this decades-old argument about the payoff from high taxes is increasingly at odds with reality. In polls asking whether residents and businesses want to leave a state, the most discontented respondents come from heavily Democratic and high-tax states. Many who say that they plan to leave say that taxes are indeed a factor. But lurking in the data are other reasons, including mounting discontent with what residents actually get for their tax dollars. Independent studies show that on the core tasks that people think government should do—building roads and bridges, running airports and transit systems, or otherwise spending tax dollars well—high-tax states rank low, despite enormous financial resources. States that tax a lot also tend to regulate heavily, and that has emerged as another underlying cost that this high-tax, high-spending model imposes on citizens and businesses.