WASHINGTON – California, which once lured Americans from near and far, is now driving out millions of the most productive residents – including high percentages of the most affluent.

"When California faced a Mount Everest-sized $14 billion deficit in 2003, one of the major causes for the red ink was the stampede of millionaire households from the state," says a report called "Rich States, Poor States" by economists Arthur Laffer and Stephen Moore. "Out of the 25,000 or so seven-figure-income families, more than 5,000 left in the early 2000s, and the loss of their tax payments accounted for about half the budget hole."

And it's not just the rich leaving.

Based on data from moving companies, California had the second-highest domestic population out-flow of any state in 2005, according to the report, "despite the beautiful weather, beaches, and mountains."

The bad news for California is that it faces a $14 billion deficit this year, despite boasting one of the highest tax burdens in the nation.

The report, published by the American Legislative Exchange Council shows jobs are not just leaving the country – they are moving from state to state, with the population following.

"States are in direct competition with each other for human capital and business investment. State governments that think they can attract jobs and people, and grow their economies, by taxing their citizens at a higher rate than their neighbors are sadly mistaken," said Democratic Arkansas state Sen. Steve Faris, ALEC's 2008 national chairman. "Legislators should take a close look at where their state ranks in this book and use it as a tool to help them improve."

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Moore told the Heartland Institute he is discouraged that government officials at all levels apparently have failed to recognize the benefits of tax cuts, spending controls, and open markets.

"We've gone from $25 trillion to $56 trillion of asset value in 25 years," said Moore. "Policies that were enacted in the 1980s to bring this about are being reversed."

Laffer's "Laffer Curve" analysis of tax rates, economic growth, and government revenues shaped the tax-cutting policies of the Reagan administration in the 1980s. Laffer served as a member of President Ronald Reagan's Economic Policy Advisory Board for both of Reagan's terms as president. Moore is founder of the Club for Growth and senior economics writer and editorial board member at the Wall Street Journal.

The report provides economic competitiveness rankings for all 50 states based on 16 policy variables with a proven effect on the migration of people and investment capital in and out of states. States with the lowest tax, spending, and regulatory burdens win the competitiveness contest. These are primarily in the South and Southwest regions of the nation.

According to the findings, a record 8 million Americans moved from one state to another in 2006, revealing which states have the most dynamic and desirable economies and which are "has-been" states, according to Laffer and Moore.

 

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