A referendum on freedom

Red vs. blue states and the future of the American Dream

This article originally appeared in the Spring 2026 issue of Thinking Minnesota magazine.

With the exceptions of 2017, 2018, and 2025, Minnesota has lost residents to other states every year since 2001. Despite a modest gain of 8,300 people last year, the five-year trend remains stark: Minnesota has lost nearly 40,000 residents to other states between 2020 and 2025.

Minnesota is not an outlier; it is part of a broader exodus from states where the Democratic Party has a stronghold, commonly known as blue states. For example, the country’s most populous state, California, lost nearly 2.6 million residents between 2010 and 2025. It is rivaled only by New York, which lost over 2.5 million people during the same period. Both states remain at the top of the blue state exodus even after controlling for their large populations.

Where are these people going?

Texas and Florida, the most populous red states, have together gained over 4 million residents from other states since 2010, remaining the top destinations for people leaving from states like Minnesota, California, and New York. While California and Texas were each other’s top relocation targets in 2025, the exchange was heavily lopsided: 70 percent more people moved to Texas than made the reverse trip. New York was the fourth-choice destination for Floridians, but 80 percent more New Yorkers relocated to Florida than vice versa. Of the top 15 states that gained residents in 2025, 10 are red states, characterized by lower taxes, affordable housing, and faster job growth.

This is both good and bad news. The bad news is that some states are failing to deliver results for their constituents. Through a combination of high taxes and restrictive policies, blue states have inadvertently engineered an affordability crisis, forcing residents to move to other states. The good news is, if states are to be taken as laboratories of experiment, as Supreme Court Justice Louis D. Brandeis stated, these migration patterns are a necessary referendum on state-level governance.

The 250th celebration of this country’s founding in July will rightly invite a discussion on whether the American Dream — the promise, as coined by James Truslow Adams in his 1931 book, “The Epic of America,” that no matter their “circumstances of birth or position,” in the United States, “each man and each woman shall be able to attain to the fullest stature of which they are capable” — remains viable, and how it survives for centuries to come. To aid in this discussion, we need to look no further than the states for an honest accounting of what works and what will continue to safeguard opportunity for the next 250 years.

Red vs. blue states

For nearly a century, the American dream — that with hard work, anything is possible in this boundless land of opportunity — has served as powerful economic fuel, incentivizing the hard work and innovation that transformed the United States into an economic superpower, if not the most prosperous country on earth. Yet Americans, particularly the young, are approaching the country’s 250th birthday with less faith in the idea central to the nation’s identity.

According to the Pew Research Center, in 2024, only about half of all Americans believed that the American Dream was possible. Forty-one percent said the dream was once possible but no longer, and a tiny minority (six percent) said it was never possible. When Pew asked a similar question in 2017, only 17 percent of respondents said the American Dream was out of reach.

When broken down by age, two-thirds of adults aged 65 and older believed the American Dream was still possible in 2024, while less than half — 42 percent — of those under 50 did. A January 2025 survey by the UCLA Center for Scholars & Storytellers, which interviewed individuals aged 14 to 27, also found a similar sour perspective among youth. Specifically, while the vast majority (86 percent) still find the American Dream desirable, 60 percent said it would be “challenging to achieve personally.”

These sentiments, while at odds with aggregate data, deserve to be taken seriously, as they are likely indicative of specific policies that have slowed progress, particularly in high-tax, high-spending states, reducing the level of economic opportunity available there. Indeed, the data suggests a growing opportunity gap. While the American Dream persists, it has become significantly more difficult to realize in blue states than elsewhere in the country.

It cost Alaskans six percent of the state’s total personal income to finance state and local government activities in 2023. On the high end, New Yorkers handed over 15 percent of their income — over twice Alaska’s tax burden — to fund state and local government. California had the ninth-highest state and local tax burden among the 50 states (11 percent). Florida had the third-lowest tax burden (seven percent), and Texas had the eighth lowest (eight percent).

In addition to low taxes, it is also procedurally easier to start and operate a business in states like Texas and Florida, as opposed to New York and California — an advantage that has proven especially consequential for residential markets. For example, according to a survey of over 100 housing projects published by the RAND Corporation, it took, on average, 22 extra months to complete a multi-family housing project in California compared to Texas. And while municipal fees cost less than $1,000 per unit in Texas, they averaged $29,000 per unit in California and exceeded $30,000 in San Diego.

Across studies that have quantified economic freedom in the United States, Texas and Florida have consistently ranked among the freest states, owing to their low taxes and less intrusive government. The Cato Institute, for instance, ranked Florida the second freest state in its 2023 edition of “Freedom in the 50 States” report. It was surpassed by New Hampshire, another low-tax state. New York was the least free state, and California ranked as the third least free. In its 2025 edition of the “Economic Freedom of North America” study, the Fraser Institute crowned New Mexico the least free state, followed by New York, Hawaii, and California. New Hampshire was also the freest state, followed by Tennessee, South Dakota, Texas, and Idaho.

Unsurprisingly, every year since 2010, Texas has, on average, created 16 percent more businesses per resident than California, according to U.S. Census Bureau data. Total non-farm employment has grown by 38 percent in Texas and 40 percent in Florida, compared to 17 percent in New York and 26 percent in California.

Despite spending more than twice as much as Texas per person living in poverty on welfare programs, New York’s poverty rate has remained stagnant since 2010. However, in Texas, the share of the state’s population living below the poverty line has declined by a quarter between 2010 and 2024. Marking a significant reversal of long-standing regional trends, the poverty rate in Texas dropped below New York’s for the first time in 2024. Similarly, Florida’s poverty rate has been lower than that of New York since 2017, despite the latter spending more than twice as much per person in poverty.

Driven by high housing prices, California, Hawaii, New York, and New Jersey have consistently ranked among the top five most expensive states to live in since 2008, the first year for which data is available. Edging out its competitors, California has claimed the top spot in each of the most recent three years (2022, 2023, and 2024). In 2024, seven of the top 10 most expensive metro areas were in California.

It’s easy to see why this is the case.

Since 2008, housing price levels in California have averaged 60 percent above the national average, making it the country’s most expensive residential market. According to Realtor.com, while the median home price averaged $748,000 in California between 2020 and 2024, it cost half the same amount in Texas. Parents in Texas spent 14 percent of the state’s median household income to send an infant to a licensed daycare center in 2024, compared to nearly a quarter of income in California.

Overall, the annual cost of center-based infant care ranged from 11 percent of income in South Dakota to a quarter of income in Massachusetts. As with housing, the top 10 most affordable states were also red states and among the least taxed, including Texas. Among the top 10 least affordable states, which included New York, half were also among the top 10 most heavily taxed, a double whammy. Consequently, after adjusting for differences in the cost of living and high tax rates, red states came out on top, with higher incomes than seemingly more prosperous blue states, such as California.

Looking at per capita disposable income — money left over to households after deducting federal, state, and local taxes, including income and property taxes (except for sales tax) — residents in Wyoming had the highest income level of any state in 2023, followed by South Dakota. Texas outpaced California, which slipped to the 25th most prosperous state, but was barely outdone by New York. Among the top five states with the highest per capita disposable incomes, four were red states, boasting below-average tax burdens.

Keeping the dream alive: The role of federalism

By all accounts, the American Dream is far from dead. But it is under threat — not by a lack of government action, as some persistently argue, but by an unchecked expansion of the state beyond what the founders envisioned, particularly at the federal level.

Before the Great Depression, federal government spending accounted for approximately 3 percent of the country’s total economic output, or Gross Domestic Product (GDP), less than half the size of state and local government spending. That changed during the Great Depression, when, as the Tax Foundation notes, “the Hoover administration initiated a number of public works and relief projects,” leading federal spending to exceed 10 percent of GDP. To raise revenues, “the Hoover administration aggressively raised taxes (for instance, hiking the top marginal individual income tax rate from 25 percent to 63 percent).” The Roosevelt administration continued this trend, raising the top marginal tax rate to 79 percent.

While down from its historic high during World War II, at 23 percent of GDP in 2025, the federal government was still the largest it had ever been relative to any peacetime, non-recession period in history, and nearly two-thirds larger than all state and local spending combined. In inflation-adjusted terms, the federal government spent nearly $16,000 per U.S. resident in 2024, surpassing spending at any period except for the pandemic-era surge of 2020 and 2021, when three stimulus packages drove federal outlays to a record high.

Americans are seeing less of their paychecks and exercising less control over the fruits of their labor, directly anathema to the American Dream. On top of that, rising debt — to support runaway spending — has driven up borrowing costs for families (for things like housing and cars), making the American Dream even less affordable. While previously constrained to national defense, administering federal laws, and the mail service, the federal government is now involved in health care, childcare, education, transportation, and myriad other social welfare programs, effectively upending state autonomy on these issues.

Medicaid — now the single largest welfare program, and the single largest government program for most states — did not exist until 1965, after the declaration of the War on Poverty. And while previously limited to low-income pregnant women, parents and children, elderly adults, and individuals with disabilities, the program was expanded in 2012 with the passage of the Affordable Care Act (ACA) to include health insurance coverage for able-bodied adults with no dependents. For individuals whose incomes are too high to qualify for traditional Medicaid, the ACA includes tax credits that subsidize private health insurance.

Yet this tremendous growth in the federal government and its increased meddling in state affairs has accomplished little, if any, progress in expanding opportunity for Americans. If anything, the costs of health care, housing, and childcare have skyrocketed despite federal government intervention and trillions of dollars in government spending.

Certainly, some of the growth in government is warranted to keep pace with the complex needs of a growing population and economy. But with high-tax, high-spending states such as New York, California, and Minnesota consistently losing out to low-tax, low-spending, less-regulated, and more affordable states like Texas and Florida, small government is the clear winner in the experiment.

As pessimistic sentiments give way to calls for an even larger, centralized bureaucracy and programs purportedly designed to “revive the American Dream,” the fact remains that numerous states have produced superior results precisely because they maintained a leaner government, effectively sustaining a climate where residents and businesses are free to invest, innovate, and thrive.

If nothing else, this July should instigate a national reflection on the concerning expansion of the federal government. Instead of further centralization, true progress lies not in centralizing power, but in reclaiming federalism — the profound success of the American experiment that empowers individuals to seek out environments where they can realize their full potential.

That said, federalism only works if the “laboratories of democracy” are open for business. Yet across the blue-state landscape, the machinery of these laboratories is stalled by governance that prioritizes regulation over innovation. Only by dismantling these barriers can stagnant states rediscover the very dynamism required to make the American Dream the undisputed law of the land once again.