This follow-up post is only for tax nerds; it gets pretty deep in the weeds, or wheat fields. I was interested in this comment in a WSJ piece on Governor Brownback, who’s struggled to enact supply-side reforms in Kansas:
During a brief presidential run in 2007, Mr. Brownback said he saw economic growth in parts of South Dakota””where there is no income tax””outpacing activity just across the border in Iowa, which has such a tax.
Iowa doesn’t just have a state income tax; they have a relatively high one, topping out at 8.98%. Sioux City, Iowa and Sioux Falls, South Dakota are both quite close to the border, and so I decided to investigate these two “urban” areas. Both towns are mostly in one county, with some suburbs that spill into another county. Sioux City, Iowa also has some suburbs that cross state lines into both South Dakota and Nebraska. I’ll consider the cross-state suburbs later. Here’s the general area:
From Sioux City, Interstate 29 extends northwest into a wedge of South Dakota, and highway 20 goes west into Nebraska.
Now let’s compare the population of the two South Dakota counties containing the Sioux Falls area with the two Iowa counties containing the Sioux City area:
Year Sioux City Sioux Falls
1990 121,664 139,236
2000 128,726 187,093
2010 127,158 228,261
2014 127,145 240,204
1990-2014: +4.5% +72.5%
That’s quite a difference. The spillover counties don’t have enough people to change the overall picture, but S. Sioux City, Nebraska is growing faster than Sioux City, perhaps due to the lower tax rates in Nebraska, and N. Sioux City, South Dakota is growing even faster (despite being less conveniently located):
Year S. Sioux City N. Sioux City
1990 16,742 10,189
2000 20,253 12,584
2010 21,006 14,399
2013/14 20,947 15,029
Growth +25.1% +47.5%
There’s good and bad news here for supply-siders. The good news is that substantially lower tax rates may lead to faster growth in border areas. The bad news is that this growth may involve merely a beggar-thy-neighbor effect, not true supply-side inducements to work, save and invest more. Indeed it’s exactly this concern that has progressives in Europe worried about a corporate tax race to the bottom, and has them calling for minimum tax rates. Is Brownback merely trying to steal jobs from Kansas City, Missouri, which is right on the state line?
In a recent interview, the governor pointed to a record number of Kansans employed in the private sector and a jump in new business starts, all while one of the state’s largest industries, aviation manufacturing, struggles. The governor added that employment is particularly strong along the Kansas-Missouri border, where it is easiest for businesses and people to cross state lines to respond to the tax cuts.
“It’s like going through surgery. It takes a while to heal and get growing afterwards,” Mr. Brownback said in his office, a painting of Ronald Reagan hanging behind him. “The left in the country desperately wants this to fail. They want to say, ‘You can’t cut taxes and grow your way out of things.’ “
Surgery, or stealing kidneys from one person and implanting them in another?
Here’s Brownback’s problem; Iowa’s top rate is 8.98% higher than South Dakota’s, whereas even after the tax cut Missouri’s top rate is just 1.4% above Kansas. And Kansas is still 4.6% above Texas and South Dakota. I believe Kansas will gradually steal some jobs from Kansas City, especially due to the elimination of taxes on small businesses. But there won’t be any supply-side miracles.
If you look at cities using google maps, the old neighborhoods often follow a grid, and the newer suburbs have curvy streets. If they are particularly affluent, the development will line a golf course. That’s what happened across the river from Sioux City, in the only part of the metro area having any growth since 2000:
And here’s what Wikipedia has to say about the upscale community:
Dakota Dunes has five main neighborhoods including the Country Club Estates, the Meadows, the Prairie, the Willows, and Upscale Apartment Living.
Dakota Dunes is owned and developed by Berkshire Hathaway Energy of Des Moines, Iowa, which unveiled plans for the community in 1988. The development is home to Dakota Dunes Country Club, a golf course designed by Arnold Palmer‘s design company.
I might have known the Sage of Omaha would be involved in this somehow.
And Wikipedia has this to say about Union county:
Union County is part of the Sioux City, IA–NE-SD Metropolitan Statistical Area. Progressive Farmer rated Union County second in the 2006 “Best Place to Live” in the U.S., because “its schools are good, its towns neat and its people friendly.”
I’m packing my bags right now. (No one ever described Boston people as “friendly.”) I can’t end this post without saying at least something good about Iowa. The Wikipedia page for Sioux City has this picture of the courthouse:
Tyler gives you pictures of ugly buildings that are actually sort of beautiful. I make things easier for you; I give you pictures of attractive buildings that are actually kinda beautiful.
And since we are out in that area, I’ll bet not one American in ten could name America’s longest river (it’s not the Mississippi):