The idea that the poor will mass migrate to California and the rich will mass migrate to South Dakota is pretty unrealistic. The poor can't afford to live in California even with social assistance, and the rich don't want to live in South Dakota no matter how low the taxes are.
Because money buys stuff taxpayers want. Middle class people want good schools and functioning transit and to know they're going to have a secure retirement. The premise of having the government do these things is that they can do them at least as well as the market. If they succeed they'll have no trouble attracting people to come there and pay taxes in exchange for receiving those services. If they fail and are then out-competed by other states that do better, whether by leaving things to the market or otherwise, isn't that a good thing? It requires the underperforming states to improve or lose population.