 Aloha everyone and welcome to Hawaii Together on the Think Tech Hawaii Broadcast Network. I'm your host, Kaylee Akina, president of the Grassroot Institute of Hawaii. Just delighted you can join us today. Yesterday was Father's Day and one of the things that I enjoyed was receiving four telephone calls, one from each of my grown children. The only sad thing about it is that they were calling me from mainland United States, all the way away from Hawaii, which they have left, and to which they are not going to be returning anytime soon except for vacation. And that's because my situation is no different than a lot of people. My children have grown up, gotten their college educations on the mainland, and they have discovered that the kinds of jobs with the compensation available to them on the mainland simply don't exist in Hawaii. More than that, the cost of living in Hawaii, especially the cost of housing, is so exorbitant that they are going to take some time before they can actually raise the resources to live the way they want to live in Hawaii. Well, good for them, though, because, you know, they're expanding their horizons and they'll come back if they do to Hawaii and be great contributors. But there's a little sadness there for a lot of people who are in the same situation, who have to leave Hawaii not of their own will, but just for the sake of survival. We have experienced in recent years a negative net migration as more and more residents have left for the mainland. Polls indicate that residents usually leave due to the high cost of living and better opportunities elsewhere. Today we're going to take a look at something that may be a major factor. State fiscal policies and how they determine who stays and who leaves Hawaii. And we're going to examine how people are really voting with their feet and what that says about state taxes. Now, to have this conversation, I'm just delighted that today we have with us Dan Mitchell. He's the co-founder of the Center for Freedom and Prosperity. Dr. Mitchell is one of the nation's leading experts on tax reform. And maybe you've seen his byline in the Wall Street Journal or New York Times or Investors' Business Daily or the Washington Times and numerous other publications. He has a PhD in economics from George Mason University. He's in high demand in terms of his expertise all across the country. And we're proud to say that he supports us as a grassroots scholar here in Hawaii with our grassroots institute network. But he's right now today in his home at Fairfax, Virginia. I want to welcome to the program Dan Mitchell. Dan, so glad to have you back. I'm glad to be with you. Well, you know, sometimes we in Hawaii think we're the only place in the world that people are leaving against their will. But that's not true. This is a national phenomenon to some extent, isn't it? There's a tremendous amount of interstate migration in the United States. Historically, for reasons that in many cases are completely unrelated to fiscal policy, historically, people move, especially when they retire to warmer, sunnier places. So states like in the West, California, Nevada, Arizona, always got a lot of migration. Florida got a lot of migration. But what we're really seeing in a much more pronounced way in the last couple of decades and really probably accelerating in just the last couple of years is we're also seeing that people are moving for tax reasons, both directly and indirectly. The direct reason is if you're an entrepreneur, an investor, a small business owner, and if you're, say, in California with a 13.3% top tax rate, it's a no-brainer to move to zero tax Nevada. If you're in Massachusetts, you might want to move to zero tax New Hampshire. If you're in high tax New York, thousands upon thousands of people are now moving from New York and New Jersey in Connecticut down to zero income tax Florida. So that's the direct reason I want to pay lower taxes, I'm going to move. But there's an indirect reason, which is that if you're in a high tax state that is not very competitive, not a lot of good job opportunities, you might say, well, wow, there's very low unemployment rate in Texas, a very low unemployment rate in Florida, lots of jobs are available, I'm going to move there. Now, you might be a middle class person or even a lower middle income person. You might not have a lot of money yourself, so maybe your tax bill isn't a motivating factor, but you're still going where the jobs are and the jobs tend to be where taxes are lower and there's a more business-friendly economic environment. So those direct and indirect reasons are really playing a role. And of course, Hawaii is a special case as you know better than I do. It's got a high cost of living, which you would have regardless because it's expensive to bring a lot of things to Hawaii. But on the other hand, you do have what should be a big natural advantage people want to be in Hawaii. I mean, nobody wants to be in zero income tax South Dakota, they'd rather be in Hawaii. But nonetheless, because of some self-inflicted mistakes, I think Hawaii is now one of those out migration stories. Well Dan, we're not only seeing the out migration of people, but we're also seeing the out migration of capital. There are individuals who can continue to maintain their homes in Hawaii who have done well and who want to take advantage of what you've referred to. The beautiful weather and the environment and the people here, the aloha spirit and everything we have. But because of what you've talked about in terms of tax policies, I know of a lot of rich folk as well as entrepreneurial class who are actually moving their businesses and the location of their capital away from the state. Do you see this happening elsewhere? We definitely see in terms of business expansion, business creation. The job numbers is really where the rubber meets the road, at least from the perspective of regular people. And those job numbers do tend to favor the lower tax states. And by the way, one thing I should have said that that really drives this home. I mentioned earlier that people historically have moved to warm sunny places. Well, probably the best climate, certainly in the continental United States, is California. California used to be the great place to go because you didn't have the humidity of Florida. You had the cool nights, all sorts of just things that made it a magnet. You had beautiful topography and climate and mountains and beaches and you name it, yet California is now suffering out migration. Now, I don't want to pretend it's all due to tax policy. And maybe this is actually an issue for Hawaii. There are very restrictive building rules in California. And that means that the existing housing stock becomes very expensive because the politicians aren't letting new homes get built. And so, yeah, unless you want to like move to some very isolated part of the state, you're going to be much better off moving to Texas, which a lot of California entrepreneurs have done moving to South Florida, which is now becoming a high tech hot spot because of all the California tax exiles. So there's directed indirect effects and all these things we want to be careful not to say it's one factor. That's always the key deciding force in every single case. And on net, boy, you don't want to have high taxes. You don't want to have anti housing rules. And a lot of states are making these mistakes. Well, you mentioned many of the reasons that people are migrating from one state to another. And obviously there are some states that are going to benefit from this tremendously in terms of receiving these people who are leaving other states. What are some examples? You mentioned a couple of them, like Texas, for example. But what are some of the states that are really benefiting from the migration across the country? And what are some lessons we can learn from them? What are they doing right in terms of being able to attract capital and individuals to their state? Mark Perry of the American Enterprise Institute. I have to give him credit because he's done some of the best research on this where he'll take states that have a lot of in migration and he'll compare the policy and levers in those states compared to the states that have a lot of out migration. So he'll look at everything from the top income tax rate to whether there are right to work laws to all sorts of different things that measure in effect the size and scope of government policy. And you see that zero income tax states almost always dominate in terms of drawing in and attracting a lot of people. But it's not just zero income tax states. South Carolina, big beneficiary. I suspect it's a lot of retirees because coastal South Carolina has not become very popular. They don't want to pretend it's all taxes. Idaho has become an attractive place. A lot of people in Oregon and California, they don't want to move to Arizona or Nevada because it's very hot. They like mountains and a little bit of green in their climate. And so Arizona and Montana are even though, again, they're not zero income tax, but they're not the super high tax heavy regulation. So it's a big footprint of government that you can define in Oregon and California. You know, one of the interesting things that's taking place now as we are moving out of the lockdown stage of the COVID pandemic here in Hawaii is that as hotels are opening up, restaurants are opening up and other businesses. Many are finding it very difficult to find employees. For one reason, I mean, one reason is that there are some incentives to collecting unemployment. But beyond that, it seems as though we have a difficult time getting people to work in labor sectors that are essential to our economy. Some of them are at the lower end of wage paying. Others happen to be at the higher end. What are your thoughts about this phenomenon? Well, some of it is just classic economic supply and demand. If a sector is not fun to work in, and there's not a lot of surplus labor, that's the way economists tend to think of these things, then employers may very well just have to raise their wage rates. And if you're a worker in that sector, that's good news for you. From a public policy perspective, what concerns me is that the government in many ways is the chief competitor to businesses, especially small businesses. Because if you can wind up getting unemployment benefits, especially with this extra bonus unemployment payment that you're getting, and you can benefit from Medicaid and food stamps and housing subsidies and all these other things. I mean, we do have a major problem, and it's especially severe in some states, people just becoming dependent. They've decided that they don't really need to work much, if at all. And that means that that labor isn't available to contribute to the health of the general economy. But you know, I don't want to be an economist, at least not totally when I'm talking about this, because I think there's a real human cost. When you in effect as a government official, and the decisions that you're making as a politician and the state legislature, when you're in effect bribing people to drop out of the workforce, and basically just become a dependent, you run the risk of creating intergenerational poverty. And I think there's a lot of despair and unhappiness that accompanies that. And so I worry about it, not just from a dollars and cents perspective, not just from a GDP, you know, gross domestic product perspective. I worry about it from the human cost that some of these government programs luring people into dependency. I think it's just bad news, especially in the long run. Do the trends show that there's a certain kind of person or taxpayer that's more likely to move from a high tax state to a low tax one. There's no question that entrepreneurs and investors, they tend to be the most put loose and fancy free if you will, because they can oftentimes manage their investments, run their businesses from wherever they want. And now if you're heavy manufacturing, that's a lot more expensive to move that kind of business. So corporations tend to move their businesses slowly. Entrepreneurs and investors tend to move themselves and their money. Much more quickly. And that's why we're seeing a lot of the business from Wall Street and if I was talking to a New York Bay to you, almost all the discussion would be, oh my goodness, we're losing all these Wall Street type businesses. They're moving to Florida. There's no state income tax in Florida. You have politicians in New York that want to raise the already high tax rates even further and don't forget there's a local income tax in New York City. And so that's almost almost suicidal on the part of New York, because they have a mobile workforce, or the businesses that they work in can can be moved very, very easily. And so it's especially destructive for a state like New York to be following that policy. Well, Dan, thank you. We're going to take a quick break and an advisory to our viewers. We're watching Dan Mitchell, co-founder of the Center for Freedom and Prosperity. And in just one minute, we're going to return and keep talking about this issue of people leaving Hawaii for economic reasons. Don't go away. This is Hawaii Together on the Think Tech Hawaii Broadcast Network. I'm Mitch Ewan, host of Hawaii, the state of clean energy on Think Tech Hawaii. Hawaii, the state of clean energy is about following the many clean energy initiatives in Hawaii. Hawaii, the state of clean energy appears weekly on Think Tech Hawaii at 4pm on Wednesdays. Thank you so much for watching our show. We'll see you then. Aloha. Welcome back from our break. This is Kaylee Iakina on Hawaii Together on the Think Tech Hawaii Broadcast Network. I'm talking with Dan Mitchell about why people are leaving Hawaii, particularly due to fiscal policy reasons. And that's an abstract concept in and of itself, fiscal policy. Dan, just to kind of recap, in a practical sense, what does that mean about how states are incentivizing people to actually leave? People vote with their feet when they look at their taxes in one state and they calculate how much money they would save if they move to another state. And it's really, really pronounced in some areas of the United States. You can escape California's 13.3% topping income tax rate and simply move across the border to zero tax Nevada. The same thing is happening now with people by the thousands and thousands that they're moving from New York and they're going down to Florida, which also has zero income tax. And what you find is looking at this data all over the country, we find that millions of people every year are migrating from one state to another. In many cases, it might have nothing to do with taxes, but in a lot of cases, both directly and indirectly fiscal policy matters. And one thing I should have said when we were talking earlier about this is, for the most part, politicians don't impose high tax rates just because they're motivated by spite or envy. Yeah, the other maybe are a few like that. But usually they impose high tax rates because they want to fund a lot of government. You know, they have public employee unions that they're trying to keep happy. They have different beneficiaries of a different government programs on the state. And so they're so anxious to play Santa Claus and give government benefits to different constituencies in their state that they wind up over time just pushing the tax rate up and up and up and up. And that's what tends to then lead, especially entrepreneurs and investors to sort of sit there, they scratch their head and say, I could save a lot of money. And especially when you consider the indirect costs that we were talking about before, which is that even if you're not a rich person calculating your tax bill, you might suddenly realize there just aren't good job opportunities where I'm living. And if I move to say booming zero tax, Texas or Florida, I'll have a lot of job opportunities. So these things matter, and it doesn't take that many people. If there's just a steady stream of especially entrepreneurs and investors moving every single year, over time you get this wedge effect where the economic cost to your state economy can really become significant. Well, you've given some economic analysis here of the impact of people and particular groups leaving the state. But we have diverse opinions here in Hawaii amongst the populace and even amongst our political leaders. Some Hawaii residents would say that we don't want to be a state that attracts more people and we don't mind the fact that we're unattractive to some people because it's getting too crowded over here. How do you respond to that kind of sentiment? Well, I suppose that's a genuine preference that a lot of people have. And if you live in a beautiful setting in a beautiful state like Hawaii, the last thing you probably want is a bunch of high rise apartment buildings rising up all around your neighborhood. But just keep in mind that there are trade-offs that are made in that type of situation. When you have fewer people in your state, fewer businesses creating jobs, fewer people earning incomes, guess what that means? It means that your tax base. And when economists say tax base, that's simply a reference to how much taxable income is there in the state. You could impose a high tax rate on it. You could impose a low tax rate on it. But your tax base is what funds all the different government services and especially in a state like Hawaii where you have a somewhat substantial state government workforce, you better make sure that there are some people in the private sector generating the income that can finance all the benefits and compensation and all the other different types of government programs that there are. So be careful what you wish for. Yes, we all want wide open spaces, beautiful views and things like that, but somebody's got to pay the bills for the government. And if you're driving away taxpayers, that means that the burden on the people that remain is going to have to be higher. And that's probably one of the reasons that many of our public officials talk about raising taxes in order to compensate for the fact that we're shrinking in terms of our tax base. Now, as you point out, then population loss does have an impact upon state finances. Are there other ways related to this that we also experience a problem for our state finances with a smaller tax base? Well, I suppose the direct way that where you could see this is if you have more taxpayers leaving, and then the tax consumers, you know, government workers, people relying on government benefits, different special interest groups that get slices of the budget. But those are the people that are staying and the people who are paying the bills are leaving. That's just not a good recipe. Sooner or later, I mean, that's what got Greece, the country of Greece in trouble. There just simply weren't enough taxpayers left to put the bills for all the commitments that politicians were making. And you don't want that to happen in your state. It's very difficult once you get in that sort of tailspin, that downward spiral of fewer taxpayers, and then you impose higher tax rates, which of course lead more taxpayers to leave. Let me give you an analogy. Imagine that your business was running a restaurant. And all of a sudden you notice that fewer people are coming to your restaurant. Would you automatically think as a restaurateur, Oh, I should just raise the prices of all my meals by 50%. No, because you would realize if I raise all the prices of my meals by 50%, I might have fewer people coming to my restaurant. And yet, I'm afraid that some politicians and not just not just states but entire country sometimes, they sort of act like they're restaurant owners raising prices when they're already losing customers. That's just not I think a very good long run recipe for prosperity. And this reminds me of some conversations I've had with some of our policy leaders here in Hawaii state policymakers like to point out point to something that they call the quote multiplier effect to legitimize tax and spending policies. In essence, they say that the high government spending is actually good for the local economy and will help working families. Anything wrong with this approach. Anything wrong with that approach, unless you think you should look at both sides of the equation and I think you should, because, of course, when when the ones politicians in the state legislature, legislature and the governor, when they make decisions to spend of course you can identify the people who are benefiting from that spending. But you have to look at the other side of the equation which is that the Hawaii government can't spend money without first taking it out of the private economy. And you're taking it out of the businesses and out of the households that make up the bulk of the state. You are taking so much out of those businesses and so much out of those households that some of them want to leave. That gets to exactly what we were just talking about this pressure to raise taxes higher and higher on a smaller and smaller group of people who are actually paying the bills. So yes, government can put money into the economy's left pocket in Hawaii, or elsewhere, but first they have to take money out of the economy's right pocket. So there's no net plus for the state economy. What you really need to do, if you want to be a fiscal policy wank, is you have to look at the costs and benefits of any type of government spending. Okay, how much should be spent on welfare in the state? And what are the potential costs of that in terms of luring people in the dependency? How much should be spent on the K to 12 education system? And you should look at the costs and benefits. What could we get a better educational outcomes with something like school choice? How much should be spent on the University of Hawaii and other higher education institutions? Well, that's usually a subsidy to higher income people. Is that a good use of taxpayer money? How much should be spent on roads? I mean, there's a thousand budget decisions that state legislators have to go through. And if you want to get the best bang for your buck, you need them to focus on what's good in terms of the cost benefit for the state's economy. You're going to create more prosperity, more opportunity in the long run for the state. And I just have to warn that you can see from the continental United States, places like Illinois that have been spending and spending and spending. They've put themselves deeply in debt. They've driven out hundreds of thousands, in the case of places like Illinois, hundreds of thousands of productive taxpayers. And I think they're really in a very difficult long run position. And Hawaii can afford to make some mistakes because it's such a beautiful place. But you can't afford to make too many mistakes. And I do worry that some people aren't fully appreciating the cost side of government. They're just looking at the benefit side. Dan, we've reached the last minute and a half. What are one or two policies or best practices that could be implemented in Hawaii that would help us to incentivize the retention of our population? Well, here's the blunt truth. Usually high taxes are a result of high spending. Now, Hawaii actually has the right kind of policy. You have a spending cap in your constitution. Unfortunately, it's a spending cap that can be waived very easily by the state legislature. And so it's sort of like having a 30-mile-an-hour speed limit in a school zone, but everyone knows there's no cops to enforce it. So you can go whizzing down the street at 70 miles an hour. That's not a good outcome. So Hawaii has exactly what a state should have, but there's no enforcement mechanism. As long as government spending is growing faster than the underlying private sector is growing, that's a very bad recipe for higher and higher taxes over time, which of course is a recipe for out-migration, especially of those entrepreneurs and investors that are so good to have in a state. Very good. Well, Dan, these have been great insights. Appreciate your research and your work. And thanks so much for being with us today. And just want to wish you the very best. Thank you, Dan. Thank you so much for having me on. My guest today has been Dan Mitchell. He does some tremendous work across the country in terms of taxes. He's the co-founder of the Center for Freedom and Prosperity. We'll be back again in two weeks. This is Kayleigh Akina with the Grassroots Institute on Hawai'i Together on the Think Tech Hawai'i Broadcast Network. Aloha.