High Income Tax States Fail to Provide Improved Government Services Despite Increased Spending

Overview

The Left often argues that state income taxes should be raised to pay for government services like public education and transportation infrastructure.^1-2 Proponents of these tax hikes call them “public investments,” but do higher income taxes lead to better governance?³

The states can be thought of as laboratories of democracy. Including Washington, D.C., the 51 different tax systems allow for easy comparisons between high income tax and low income tax states. The 11 jurisdictions with the highest maximum marginal tax rates—California, Hawaii, Maine, Massachusetts, Minnesota, New Jersey, New York, Oregon, Vermont, Wisconsin, and Washington, D.C.—range from 7.15 percent to 13.3 percent.⁴ Nine of the 11 states with the lowest maximum marginal tax rate, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, do not tax regular income.⁵ The other two, Arizona and North Dakota, max out at 2.5 percent.⁶

Comparing these two sets of states for outcomes in education, crime and policing, transportation, and net domestic migration shows that high taxes do not lead to better governance. If anything, the opposite is true.

High-tax states spend more on education with nothing to show for it

Across all states, K-12 education represents the largest chunk—one third—of general fund spending.⁷ Higher education spending accounts for nearly another tenth of general fund spending.⁸ The amount of money states commit to these programs shows that education is of utmost importance to lawmakers across the country.

One of the most often used, and most persuasive, arguments for raising taxes is that the money is needed to educate the state’s children.^9-12 Everybody wants to give children the best chance to succeed, and no elected official wants to be seen as anti-child or anti-education. But does raising state income taxes to increase education funding result in better education outcomes?

Comparing the two sets of states shows little difference in education outcomes for high-tax and low-tax states, with both coming out on top in different metrics.

In 2022, average mathematics test scores for 8th graders were slightly higher in the low-tax states compared to the high-tax states.¹³ For that same subset of students, reading scores slightly favored high-tax states, but neither subject showed much difference between the two sets of states.¹⁴

The last year that data is available for 8th grade science test scores is 2015. Again, there was minimal difference between the two groups, but low-tax states did have higher scores and higher percentage proficiency than their high-tax peers.¹⁵

The similar education outcomes are not the result of high-tax states neglecting K-12 education and spending tax dollars elsewhere. Low-tax states spent an average of $14,640 per student, whereas high-tax states spent an average of $20,636 per student.¹⁶ This 34 percent difference in spending resulted in a minimal difference in education outcomes. Higher taxes and more spending do not buy higher test scores or a better education.

Spending more has done nothing to help high-tax states reduce crime

One of, if not the most, important government tasks is to keep citizens safe in their persons and possessions and punish criminals who break the peace. If taxpayers are willing to pay a little more for any services, it is likely for those that help keep them safe. However, high-tax states do a worse job of prosecuting the ultimate offenders than their low-tax peers.

In high-tax states, the murder clearance rate from 2013-2022 was 64 percent—noticeably lower than the 71 percent in low-tax states.¹⁷ This trend continues over a longer period, as the homicide clearance rate from 2000-2022 again shows low-tax states doing a better job at prosecuting these heinous crimes.¹⁸ In high-tax states, more murderers escape without punishment and more families of victims are left without justice.

While there are few differences between high-tax and low-tax states in terms of property crime rates, removing blue state outliers like Nevada and Washington from the low-tax states paints a different picture. With the remaining nine low-tax states, this grouping has an eight percent lower property crime rate, six percent lower car theft rate, and 10 percent lower larceny rate.^19-21

But again, maybe low-tax states spend a disproportionate amount on police and corrections compared to their high-tax states and this discrepancy leads to these results. In fact, low-tax states spend 77 percent less than high-tax states on police per person and 38 percent less on corrections per person.^22-23

Just like education, high-tax states spend more taxpayer money without any added value to taxpayers to show for it.

More spending results in worse roads in high-tax states

A final important role that governments generally play is maintaining roads so that people can safely arrive at their destination. Road maintenance reveals a stark contrast between high-tax and low-tax states, but not in the way many would suspect.

Despite the burden they place on their taxpayers, only 71 percent of roads in high-tax states are deemed acceptable.²⁴ On the other hand, 86 percent of roads in low-tax states are acceptable—a 19 percent difference between the two groupings.²⁵

Much like education and policing, this is not due to low-tax states spending a disproportionate amount of their tax receipts on transportation maintenance. Low-tax states spend roughly $340 per person on transportation, while high-tax states spend $680 per person.²⁶ High-tax states spend two-thirds more but get worse results for their money.

These higher costs for similar or inferior services in education, policing, and road maintenance have resulted in a massive migration from high-tax states to low-tax ones.

People are fleeing high-tax states for low-tax ones

Ultimately, the determining factor for whether high income taxes result in good governance is public opinion. People vote with their feet for the government they want through internal migration from state to state, and the recent movement is telling.

In 2022, the 11 high-tax states lost more than a combined 750,000 citizens through net domestic migration—an average of nearly 70,000 per state.²⁷ That’s three-quarters of a million more people leaving these high-tax states for another state than moving to them.

Three of the four states with the largest net domestic migration deficit were high-tax states (California, New Jersey, and New York), with the other state being Illinois.²⁸ Only three high-tax states had a net positive domestic migration—Maine, Vermont, and Washington, D.C.—which combined welcomed only 12,571 people.²⁹

Many of these individuals fleeing high-tax states had low-tax states as their destinations. Low-tax states welcomed 565,806 people through net state-to-state migration—an average of more than 50,000 new citizens per state.³⁰

Completely the opposite of high-tax states, three of the four states with the highest net domestic migration were low-tax states—Arizona, Florida, and Texas—with the other state being North Carolina.³¹ Only one low-tax state lost citizens to other states, deep blue Washington state, which lost 9,430 people to other states.³²

People are fleeing high-tax states for low-tax sanctuaries as data from U-Haul shows. Last year, the top two states for incoming one-way movers were Texas and Florida, and the top two states for outgoing one-way movers were California and Massachusetts.³³ In 2021, the moving truck company even ran out of trucks to rent in high-tax California.³⁴ When moving trucks were available, it was twice as expensive to take a truck one way from California to Texas than Texas to California because of the greater demand to flee the high-tax state for one with no income tax.³⁵

The Bottom Line: High income taxes do not lead to good governance, with taxpayers obtaining little to no benefit for the additional money extracted.

While some argue higher taxes are needed to provide necessary services like education, policing, and quality roads, a study of high-tax and low-tax states shows that higher taxes do not lead to higher-quality services. The proof is not just in the numbers, but in people voting with their feet by moving from states with oppressive income taxes to those with no or minimal income taxes.

REFERENCES

1. Wesley Tharpe, “Raising state income tax rates at the top a sensible way to fund key investments,” Center on Budget and Policy Priorities (2019), https://www.cbpp.org/research/state-budget-and-tax/raising-state-income-tax-rates-at-the-top-a-sensible-way-to-fund-key.

2. Wesley Tharpe, “States should protect or raise revenues as uncertainty looms,” Center on Budget and Policy Priorities (2023), https://www.cbpp.org/blog/states-should-protect-or-raise-revenue-as-uncertainty-looms.

3. Wesley Tharpe, “Raising state income tax rates at the top a sensible way to fund key investments,” Center on Budget and Policy Priorities (2019), https://www.cbpp.org/research/state-budget-and-tax/raising-state-income-tax-rates-at-the-top-a-sensible-way-to-fund-key.

4. Andrey Yushkov, “State individual income tax rates and brackets, 2024,” Tax Foundation (2024), https://taxfoundation.org/data/all/state/state-income-tax-rates-2024/.

5. Ibid.

6. Ibid.

7. The National Association of State Budget Officers, “Summary: 2023 state expenditure report,” NASBO (2023), https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Issue%20Briefs%20/Summary_2023_State_Expenditure_Report.pdf.

8. Ibid.

9. Evie Blad, “Tax higher incomes to fund schools? National debate gets traction at the state level,” Education Week (2020), https://www.edweek.org/leadership/tax-higher-incomes-to-fund-schools-national-debate-gets-traction-at-the-state-level/2020/10.

10. Stephen Caruso and Katie Meyer, “Raising taxes on the table as Pa. weighs how to pay for education court ruling,” 90.5 WESA (2024), https://www.wesa.fm/politics-government/2024-02-06/pennsylvania-education-funding-raise-taxes-budget.

11. The K-12 conundrum: Americans want more education funding, but not higher taxes,” Governing (2019), https://www.governing.com/archive/gov-raising-funding-public-schools.html.

12. Kelly Phillips Erb, “States get creative in efforts to fund schools while not raising taxes,” Forbes (2023), https://www.forbes.com/sites/kellyphillipserb/2023/07/18/states-get-creative-in-efforts-to-fund-schools-while-not-raising-taxes/.

13. Author’s calculations based on data from The Nation’s Report Card. Low-tax states averaged a score of 274.6 and high-tax states averaged 274.5. See, Data Tools, “State performance compared to the nation,” The Nation’s Report Card (2024),  https://www.nationsreportcard.gov/profiles/stateprofile?sfj=NP&chort=2&sub=RED&sj=&st=MN&year=2022R3.

14. Author’s calculations based on data from The Nation’s Report Card. Low-tax states averaged a score of 259.1 and high-tax states averaged 260.8. See, Data Tools, “State performance compared to the nation,” The Nation’s Report Card (2024), https://www.nationsreportcard.gov/profiles/stateprofile?sfj=NP&chort=2&sub=RED&sj=&st=MN&year=2022R3.

15. Author’s calculation based on data from The Nation’s Report Card. Low-tax states averaged a score of 156.5 with a 36% proficiency and high-tax states averaged 155.5 with a 35.9% proficiency. See,  Data Tools, “State performance. Compared to the nation,” The Nation’s Report Card (2024), https://www.nationsreportcard.gov/profiles/stateprofile?sfj=NP&chort=2&sub=SCI&sj=&st=MN&year=2015R3.

16. Author’s calculations based data from the U.S. Census Bureau. See, Summary Tables – Table 8, U.S. Census Bureau, “2022 public elementary-secondary education finance data,” U.S. Census Bureau (2024),  https://www.census.gov/data/tables/2022/econ/school-finances/secondary-education-finance.html.

17. Author’s calculations based on data from 24/7 Wall St. See, Samuel Stebbins, “States where the most murders go unsolved,” 24/7 Wall St. (2023), https://247wallst.com/special-report/2023/12/14/states-where-the-most-murders-go-unsolved/.

18. Author’s calculations based on data from the Murder Accountability Project. See, Murder Accountability Project, “Clearance rates,” Murder Accountability Project (2024),  https://www.murderdata.org/p/blog-page.html.

19. Author’s calculations based on data from Statista. See, Statista Research Department, “Property crime rate in the United States in 2022, by state,” Statista (2024), https://www.statista.com/statistics/232575/property-crime-rate-in-the-us-by-state/.

20. Author’s calculations based on data from Bankrate. See, R.E. Hawley, “Car theft statistics 2024,” Bankrate (2024),  https://www.bankrate.com/insurance/car/car-theft-statistics/#where-do-the-most-cars-get-stolen.

21. Author’s calculations based on data from Statista. Statista Research Department, “Larceny theft rate per 100,000 inhabitants in the United States in 2022, by state,” Statista (2024),  https://www.statista.com/statistics/232583/larceny-theft-rate-in-the-us-by-state/.

22. Author’s calculations based on data from The National Association of State Budget Officers and the U.S. Census Bureau. See, The National Association of State Budget Officers, “State expenditure report: Fiscal years 2021-2023,” NASBO (2023), https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/2023_State_Expenditure_Report-S.pdf and U.S. Census Bureau, “State population totals and components of change: 2020-2023,” U.S. Census Bureau (2023), https://www.census.gov/data/tables/time-series/demo/popest/2020s-state-total.html.

23. Author’s calculations based on data from Statista and the U.S. Census Bureau. See, Veera Korhonen, “State government spending on police protection in the United States in 2021, by state,” Statista (2024),  https://www.statista.com/statistics/746872/state-government-spending-on-police-protection-by-state/ and U.S. Census Bureau, “State population totals and components of change: 2020 -2023,” U.S. Census Bureau (2023), https://www.census.gov/data/tables/time-series/demo/popest/2020s-state-total.html.

24. Author’s calculations based on data from Appraisal Engine. See, Appraisal Engine, “Top states with the smoothest roads in America,” Appraisal Engine (2024), https://totallossappraisals.com/top-states-with-the-smoothest-roads-in-america/.

25. Ibid.

26. Author’s calculations based on data from The National Association of State Budget Officers and the U.S. Census Bureau. See, The National Association of State Budget Officers, “State expenditure report: Fiscal year 2021-2023,” NASBO (2023), https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/2023_State_Expenditure_Report-S.pdf and U.S. Census Bureau, “State population totals and components of change: 2020-2023,” U.S. Census Bureau (2023), https://www.census.gov/data/tables/time-series/demo/popest/2020s-state-total.html.

27. Anat Nusinovich, “State-to-state migration trends in 2022,” National Association of Realtors (2024), https://www.nar.realtor/blogs/economists-outlook/state-to-state-migration-trends-in-2022.

28. Ibid.

29. Ibid.

30. Ibid.

31. Ibid.

32. Ibid.

33. Joey Schneider and Addy Bink, “The states movers flocked to the most in 2023, according to U-Haul,” The Hill (2024), https://thehill.com/changing-america/enrichment/arts-culture/4385097-the-states-movers-flocked-to-the-most-in-2023-according-to-u-haul/.

34. Michael Rozzen, “Fact or fiction: California ran out of U-Hauls in 2021?,” ABC 10 News San Diego (2022),  https://www.10news.com/news/fact-or-fiction/fact-or-fiction-california-ran-out-of-u-hauls-in-2021.

35. Luther Ray Abel, “Californians are paying double the national U-Haul rate to escape state for Texas, Florida,” National Review (2024), https://www.nationalreview.com/corner/californians-are-paying-double-the-national-u-haul-rate-to-escape-state-for-texas-florida/.