Policies explain why some states grow and some shrink

Raymond Keating
Raymond Keating

The four largest states are split on the direction people are moving.

According to the latest U.S. Census Bureau estimates, the four largest states are California with 39.1 million residents, Texas with 27.5 million, Florida with 20.3 million and New York with 19.8 million.

These four states are split evenly in terms of exporting or importing people to and from other states. Likewise, they’re split in terms of the policy costs they impose on entrepreneurs and businesses.

This is not coincidental.

In excluding natural births, deaths and international migration, one arrives at net domestic migration — that is, the movement of people between states.

From July 2014 to July 2015, the state with the largest net domestic migration loss — that is, the largest exporter of people to other states — was New York at 157,992. After Illinois, which lost 105,217 residents in domestic migration, California was the next largest exporter of people to other states at 77,219.

Meanwhile, the largest gainers in terms of net domestic migration – that is, the largest importers of people from other states – from July 2014 to July 2015 were Florida at 202,510 and Texas at 170,103.

Extending the analysis to the period from April 2010 to July 2015, New York exported the most people to other states, with a net domestic migration loss of 653,071, while California came in fourth behind Illinois and New Jersey with a net domestic migration loss of 266,115.

In contrast, the biggest gains in net domestic migration from 2010 to 2015 were registered in Texas at 736,492 and Florida at 650,660.

How to explain these differences? Let’s first understand that people effectively vote with their feet, seeking out improved opportunities and quality of life. That very much includes, of course, opportunities for improving job and income opportunities, such as starting and building businesses. Therefore, policies affecting entrepreneurship, business and investment matter a great deal.

In fact, the glaring difference between Texas and Florida versus New York and California is that tax and regulatory policies are far less costly in Texas and Florida than New York and California.

In the Small Business & Entrepreneurship Council Small Business Policy Index for 2014 — which ranks the 50 states according to 42 different policy measures, including a wide array of tax, regulatory and government spending measurements — Texas ranked third best and Florida fifth best, while New York came in at 48th and California 50th.

In the Small Business & Entrepreneurship Council Small Business Tax Index, Texas ranked third best and Florida sixth, while New York registered a miserable 45th and California, again, dead last at 50th.

Quite simply, since elected officials impose tremendous burdens on entrepreneurs, businesses and investors — along with all other taxpayers — in New York and California, no one should be surprised people seek and create opportunities in other states.

Naturally, the flip side is true as well. Texas and Florida present far more favorable environments for living, working and risk taking than in most others states — including no income-based taxes in Texas and no personal income taxes in Florida, among other favorable policy attributes. As a result, Texas and Florida lead the states in terms of positive net domestic migration.