A Tale of Two States

“It was the best of times, it was the worst of times… The famous opening of Charles Dickens’ A Tale of Two Cities is just as applicable to life today as it was when Dickens was first published. No example of that is clearer than the tale of two states. The contrast between California and Florida was debated on primetime television with the showdown between Florida Gov. Ron DeSantis and CA Gov. Gavin Newsom.

The free state of Florida, a success story in state public policy, is a model for other states to imitate. California, on the other hand, is a model for other states to avoid. California most reminds us of the famous line from the great Ronald Reagan, the liberal view of the economy can be summed up as this: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Just look at where people are voting with their feet. Data from the IRS as well as United Van Lines and U-Haul show that Americans are increasingly moving from high-tax states to low-tax states. Families and businesses cannot get out of California fast enough! On the other hand, Americans are flocking to the Sunshine State. From 2012-2021 Florida gained more than 1.6 million residents from net domestic migration while California lost more than 1.5 million residents.

Naysayers would argue that taxes don’t matter when it comes to where people choose to move. But from domestic migration alone it is clear that this is a myth. The nine states without a personal income tax gained a total of 3.6 million residents from 2011 to 2020, while the nine states with the highest personal income taxes lost 3.3 million residents during that same period.

The same naysayers will argue it is the weather causing Americans to move. We are often told that Americans are moving south and west for better weather, into states that just happen to have lower taxes and pro-growth policies. The case of California clearly refutes that migration can be explained by weather alone: The Golden State, with its highly desirable Mediterranean climate is losing residents at a faster pace than any other state besides New York. When asked to decide between two warm climates—Florida and California– the data show people move to Florida, the place with better economic policy.

In the latest edition of the Rich States, Poor States: ALEC-Laffer Economic Outlook Rankings,  Florida came in 9th for economic outlook and 1st for economic performance. Meanwhile, California ranked 45th in economic outlook. Florida beats out California in 13 out of the 15 variables considered in Rich States, Poor States.

As Kansas Policy Institute’s Dave Trabert and I noted in The Wall Street Journal in 2020, the 41 states with an income tax spent 55% more per resident in 2018 than did the nine states without an income tax. Florida, which doesn’t have an income tax, spent roughly half as much per resident as California, which has a top marginal personal income tax rate of 13.3%

Another element to look at is government debt. Government debt represents spending today that will be paid for by future taxpayers. In terms of unfunded pension liabilities, our annual report Unaccountable and Unaffordable shows California has the largest amount at over $1.4 trillion (over $35,000 per resident) while Florida has $234 billion ($10,743 per resident).

If all else remains equal going forward, Californians will be paying even higher taxes to pay off the debt and seeing no increase in the quality of public services – assuming anyone is left in the Golden State. While Florida has debts of its own, they are considerably smaller than those accrued by decades of careless spending in Sacramento. The Sunshine State is much better positioned to pay off its obligations without hiking tax rates.

The time has long passed for lawmakers in California to see the error of their ways and make serious changes to tax and fiscal policy.  The state’s high taxes and regulations have led millions of Americans to vote with their feet, moving to states like Florida which keep taxes low and exercise responsible spending.

This enhanced focus on this tale of two states is an incredible educational opportunity for Americans as we decide what sort of government policies work best for us. It is clear Florida beats California by nearly every objective economic measure and gives states across the nation a template to create greater prosperity for all.

(Jonathan Williams is Chief Economist and Executive Vice President at the American Legislative Exchange Council.)