The recipe for economic growth

There's a reason thousands of people move here every month, year after year, and it's not the sunny weather. If that were the case, why would so many people flee the breezes and beaches of California for 110-degree Julys and cold, blustery winters?

It's the taxes, stupid. That's true in other fast-growing Western and Southern states, whose inviting climates get most of the credit that should be directed at their welcoming economies. Nevada businesses and workers simply have more opportunity and get to keep more of their money.

The high-tax wastelands of the Golden State, the Midwest and the Northeast, meanwhile, are on the opposite end of this migration, watching helplessly as decades of profligate government spending sends productive citizens and industries running for the lower tax bills of Nevada, Florida, Texas and other business-friendly, job-producing environs.

The country's continuing population shift and the reasons for it are documented in "Rich States/Poor States," a study recently released by the American Legislative Exchange Council. The research, compiled by Arthur Laffer and Stephen Moore, sounds a warning to the liberal and political elite of Nevada who are bemoaning proposed state and local government spending cuts as a result of lagging tax receipts: "They neglect one simple economic fact: No state has ever taxed its way into prosperity."

But plenty of states have taxed their way into near oblivion. The populations of Michigan, Illinois, Pennsylvania, New York and New Jersey are falling as a percentage of the country's total. In California, illegal immigration is skewing the numbers -- the state's population is growing, but citizen departures outnumber citizen arrivals this decade, according to Mr. Laffer and Mr. Moore. Few good jobs are being created in these states, shrinking their tax bases.

But governments in these states can't curb their spending habits. They spend like drunken sailors during good times, growing their bureaucracies faster than the private-sector economy. During downturns, they shriek that budget cuts aren't possible, making tax increases the solution to every economic and social woe.

Sound familiar, Nevadans?

Raising the tax burden on the businesses and workers foolish enough to stay only sends more of them scurrying across the borders. It's no coincidence, Mr. Laffer and Mr. Moore write, that the economies of the states with the highest income tax rates -- California, New York, New Jersey, Maine, Ohio and Pennsylvania among them -- are being left in the dust by states that have no income tax at all -- Nevada, Texas, Florida, Tennessee, Wyoming and a few others.

High-tax states ignore several principles of taxation that are proved correct time and again. Chief among them is the fact that tax rates can be raised so high that they result in a reduction in receipts. People who live in states with punitive liquor and tobacco taxes, for example, frequently travel across state lines to buy beer, wine and cigarettes, bolstering the treasuries of their low-tax neighbors and leaving their home governments with an empty bag.

Equally important, the authors conclude, is a right-to-work law like Nevada's. States in which workers can be forced to pay union dues against their wishes have much lower rates of job growth. "Many companies say they will not even consider locating a factory in a state that does not have a right-to-work law," Mr. Laffer and Mr. Moore wrote in Monday's Wall Street Journal.

There was a bit of bad news for Nevada in "Rich States/Poor States": The Silver State's economic prospects are slipping as a result of a policy climate that increasingly favors the needs of government over the interests of businesses and workers. Had the study been completed prior to the record tax increases of 2003, Nevada might have ranked No. 1. Instead, it's ranked No. 11. Nevada's economic performance over the past 10 years ranked 14th.

That's not likely to discourage university system Chancellor Jim Rogers, MGM Mirage CEO Terry Lanni and others, who remain adamant that higher and new taxes will bolster the economy and make Nevada a more desirable place to live, work and do business. If that were the case, Michigan, Maryland, New Jersey and Maine would be hot spots for investment and relocation -- all have either raised their taxes or proposed raising taxes recently, and none have seen the returns promised by Mr. Rogers and Mr. Lanni.

At the state and local level in Nevada, government spending has tripled over the past 15 years. The current tax structure has provided predictable, monumental revenue growth year after year. But if Nevada makes the mistake of piling on higher and new taxes, the numbers say it will eventually go the way of California, Michigan and New York -- the tidal wave of tax revenue will slow to a trickle, leading to all-new calls for tax increases, diverting prospective new residents and businesses elsewhere and, one day, compelling longtime residents to seek greener pastures.