Tax Burdens and Happiness

The Wall Street Journal has an interesting editorial using TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation data:

Does living in a blue state make people blue? It seems so, according to a new study in Science magazine that ranks states according to their happiness. The study finds that New Yorkers are the unhappiest people in America and their neighbors in Connecticut come in a close second, followed by Michigan, Indiana, New Jersey, California, and Illinois. And the happiest states? Drum roll, please…Louisiana, Hawaii, Florida, Tennessee, and Arizona.

Eight of the ten happiest states lean right while eight of the ten unhappiest tilt left. While the study by no means proves that being liberal makes people unhappy, it does reflect some of the unfortunate implications of living in a blue state.

…According to the Tax Foundation 2008 analysis, three of the top five unhappiest states—New York, Connecticut and New Jersey—have the highest state-local tax burdens. On the other hand, four of the top five happiest states—Louisiana, Florida, Tennessee and Arizona—are among the states with the lowest state-local tax burdens. True, correlation doesn’t prove causation, and high taxes alone don’t always make people miserable, but there’s something going on here.

People generally do not like paying taxes. And while money does not buy happiness, it pays for the search. So having more of one’s cash kept from the government intuitively suggests more happiness. But while unhappiness is correlated with high tax burdens, high income is also kind of correlated with high tax burdens. People in New Jersey, New York, and Connecticut might be taxed a lot, but they earn a lot too. So it is unlikely that disposable income is a major cause of “happiness”, or whatever this survey recorded, because people in those states would still have relatively high levels of disposable income.

Also noteworthy is in a world wide happiness survey Denmark, Finland, and the Netherlands (not thought of as low tax countries) came out on top. Although citizens in those countries receive a lot of quality public services—a point the editorial makes. That is something one cannot say about living in New Jersey.

Focusing on one policy area, like tax policy, and happiness is a mistake. But if there was a causation proven between tax climate and happiness, should one then design tax policy with happiness in mind? Bhutan, a small nation in South Asia, has discarded GNP as a measure of success and instead relies on GNH (Gross National Happiness) in policy evaluation. Having a nominal GDP per capita of just over $2,000 is no bother for the Bhutan King. It is happiness that counts.

Our pet loving Bill Ahern does not think this is how tax policy should be made, and has pointed out that the “tax code should not be used to make people happy.” The tax code should raise revenue in the least distortionary or discriminatory way possible. A good tax code strives for neutrality and simplicity. Of course citizens are able to prosper under sound tax policy, which ought to make them happy. But one should leave happiness goals at least to the services funded by taxes. While the intersection of happiness research and tax policy is interesting, it is mostly inconsequential.

For good measure, here Will Wilkinson gives reasons to be critical of happiness research.

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