# Soak the rich lose the rich and the jobs they create



## Bobm (Aug 26, 2003)

ANother interesting article in the Wall Street journal, note in the middle of the article the middle class takes the hit

Soak the rich lose the Rich

By ARTHUR LAFFER and STEPHEN MOORE 
With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.

Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that "tax increases, particularly tax increases on higher-income families, may be the best available option." A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to "raise tax rates for high income families right away."

Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.

And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.

Martin Feldstein, Harvard economist and former president of the National Bureau of Economic Research, co-authored a famous study in 1998 called "Can State Taxes Redistribute Income?" This should be required reading for today's state legislators. It concludes: "Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust. . . . A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees."

More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found "a significant negative impact of higher marginal tax rates on state economic growth." In other words, soaking the rich doesn't work. To the contrary, middle-class workers end up taking the hit.

Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the "soak the rich" tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.

This result was all the more remarkable given that these were years when the stock market boomed and Wall Street gains were in the trillions of dollars. Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect. New Jersey now has one of the largest budget deficits in the nation.

We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.

Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.

They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.

Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation -- much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.

One last point: States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.

The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late.

Mr. Laffer is president of Laffer Associates. Mr. Moore is senior economics writer for the Wall Street Journal. They are co-authors of "Rich States, Poor States" (American Legislative Exchange Council, 2009).


----------



## Plainsman (Jul 30, 2003)

That was real good Bob. I have been telling people for years look at states like California and New York, then look at North Dakota. I usually get the same story about how we sap from the rest of the nation. My point however, is that we do not spend beyond our means. We have a surplus. If this keeps up states like North Dakota and South Dakota etc will be the new high tech and business states. For those who left to become sophisticated please don't come back.


----------



## R y a n (Apr 4, 2005)

Plainsman said:


> That was real good Bob. I have been telling people for years look at states like California and New York, then look at North Dakota. I usually get the same story about how we sap from the rest of the nation. My point however, is that we do not spend beyond our means. We have a surplus. If this keeps up states like North Dakota and South Dakota etc will be the new high tech and business states.


Good article Bob. I agree.

Plainsman to be clear. North Dakota does sap from the rest of the nation. If you (the state of North Dakota) didn't receive an imbalance of tax resources, you would NOT have a state surplus, as the state would have to make up the difference on their own.

States like North Dakota and South Dakota will never become the go-to states for high tech and business. Sure they will get some, but they never will be the epicenters. Simply put, those types of jobs pay higher, and attract brighter, wealthier workers. Those types of workers have choices on where they want to live, and they almost invariably go where it is warmer. Businesses won't locate where people won't move to. Microsoft in Fargo has a hard time attracting, and retaining non native workers (non ND/Mn)right now as we speak. They can't hack the bitter cold 6 month winters.



> For those who left to become sophisticated please don't come back


Who left to "get sophisticated"? Sounds like a bit of an inferiority complex to me... the state and certain groups of citizens seem to suffer from that quite a bit IMO. Maybe if they bring up wages to somewhere closer to the national average, it would begin to be more attractive to those who left? hmmm?

I've been looking at jobs recently in North Dakota Plainsman. I'm trying to prepare and cushion the blow of shock to Kayte, as I tell her what she can expect. For my career in anything technological related, we are looking at between a 30 and 50% pay cut. And that is before we also add in North Dakota's income tax.  I've got news for y'all... it isn't 40% cheaper to live in North Dakota. And if I go to work for the state Technology Dept, the pay cut is even steeper. On top of that, I would be almost forced to live in Fargo, and not somewhere further west which is much more preferable to me...as most high tech jobs are in Fargo only that begin to pay a competitive rate.

That is the "scenario" that a prospective job seeker encounters the first time they start looking at jobs in North Dakota. Until North Dakota resolves these discrepancies in wage gap and the reality of the job market to North Dakota businesses, the more the state will continue sticking it's proverbial head in the sand and never become a "hub" for high tech businesses that are looking to move there.


----------



## Bobm (Aug 26, 2003)

Ryan you probably know enough to start your own IT service company and have your own business that would probably be a equal or even possibly better paying situation.

Try it you are young if it doesn't work out fall back on plan B.

And running your own business would let you see the light in other areas as well :wink:


----------



## swift (Jun 4, 2004)

> Simply put, Those types of workers have choices on where they want to live, and they almost invariably go where it is warmer. Businesses won't locate where people won't move to. Those types of workers have choices on where they want to live, and they almost invariably go where it is warmer. Businesses won't locate where people won't move to.


Having lived in Tacoma/Olympia the weather there sucks 10 months out of the year. Here it only sucks 6 months out of the year.

Another flaw in your post is


> Simply put, those types of jobs pay higher, and attract brighter, wealthier workers.


You work for Microsoft so they all can't be that bright. :lol:


----------



## R y a n (Apr 4, 2005)

Bobm said:


> Ryan you probably know enough to start your own IT service company and have your own business that would probably be a equal or even possibly better paying situation.
> 
> Try it you are young if it doesn't work out fall back on plan B.
> 
> And running your own business would let you see the light in other areas as well :wink:


Possibly so Bob... I've already started my own LLC, and have gone down that road. There are pluses and minuses to that possibility, depending on which route you go. In the future I will be running a couple different business with the first LLC as the umbrella parent company. However that is a few years down the road. In the mean time, if we moved back to ND sooner, it is much easier to do move to an existing company and work there for a period of time while re-adjusting your home to your new state...

But it is in the works! 

p.s. I think I have "seen the light from that perspective" you just didn't realize I've gone down that path in business before ... right?


----------



## Plainsman (Jul 30, 2003)

Plainsman wrote:


> I usually get the same story about how we sap from the rest of the nation.


Ryan wrote:


> Plainsman to be clear. North Dakota does sap from the rest of the nation. If you (the state of North Dakota) didn't receive an imbalance of tax resources, you would NOT have a state surplus, as the state would have to make up the difference on their own.


Am I good at predicting or what. Same old whine. I know we get more than we pay, but that isn't my point. I didn't hide it or anything, I said clearly we don't spend beyond our means.



> p.s. I think I have "seen the light from that perspective" you just didn't realize I've gone down that path in business before ... right?


Did you see it from your own business perspective as Bob hinted at? If so I would have thought you would have learned a lot more.


----------



## R y a n (Apr 4, 2005)

swift said:


> > Simply put, Those types of workers have choices on where they want to live, and they almost invariably go where it is warmer. Businesses won't locate where people won't move to. Those types of workers have choices on where they want to live, and they almost invariably go where it is warmer. Businesses won't locate where people won't move to.
> 
> 
> Having lived in Tacoma/Olympia the weather there sucks 10 months out of the year. Here it only sucks 6 months out of the year.
> ...


Yes Swift I knew you lived out here. But you can't tell me that Tacoma is bitterly colder than North Dakota? The weather in Tacoma (which for everyone's info is roughly a half hour south of me), is on average 47 degrees in winter, give or take 10 degrees in winter, and in summer is around 68 give or take 10 degrees... with a few days in the upper 90's. Can ask for better weather if you ask me, as we have no mosquitoes, and 35% humidity year round. Never too scorching hot, never bitter cold. The rain thing is highly over played, as New York City actually has just as many rainy days as we do.

Ohh and I never said Microsoft was smart did I? :thumb:


----------



## R y a n (Apr 4, 2005)

Plainsman said:


> > p.s. I think I have "seen the light from that perspective" you just didn't realize I've gone down that path in business before ... right?
> 
> 
> Did you see it from your own business perspective as Bob hinted at? If so I would have thought you would have learned a lot more.


I did indeed. But many things I advocate for are geared towards big business/large employers...

I knew (and know) exactly what you and Bob were hinting at.. that if I only had my own business, that I would gain a better perspective on what it is like to pay business taxes, payroll taxes etc.. and that it would help "evolve" my understanding of business and politics.

Sadly you continue to underestimate me, believing that only with age will I obtain enough knowledge and worldliness to gain your perspective.

I smile thinking about that notion....

take care


----------



## Plainsman (Jul 30, 2003)

> Sadly you continue to underestimate me, believing that only with age will I obtain enough knowledge and worldliness to gain your perspective.


That's not true Ryan. I think if you live to 150 you still will not get it.

Correct me if I am wrong, but you worked for the state in the past right? I worked as a wildlife biologist for the feds. Being old school I was completely aware that I worked for the American taxpayer. It's different today with many thinking they work for the round eyed cuddly little animals.

Even though I was paid with taxes I watched time after time business hurt by heavy taxes. As I traveled around mostly west of the Mississippi I talked with farmers and businessmen. Yes, I only worked ten to twelve hours a day and had night time off. Most who owned their own business would reinvest in that business and grow if they could make money beyond supporting their families. When they grew they would hire more people, and support another family.

To me this is simply all logical. If a business pays $25,000 in taxes that's money they can not buy new equipment with. Maybe it's money they can't hire another employee with. Many pay taxes far beyond that and into the hundreds of thousands. Yet the socialists want to tax them more.

Listening to Rush a couple of weeks ago he talked about closing his office in New York because of the taxes. He relocated in Florida years ago because of the taxes, but kept a New York office. Now he is closing that. Taxes have gone up in New York, and Rush, among others predict they will loose many of the wealthy who will relocate. Tax and they leave. I would, wouldn't you? If you could make the same amount no matter where you located your business Ryan would you locate it in South Dakota or California? All else other than taxes being equal.


----------



## Bowstring (Nov 27, 2006)

Minnesota's democratic legislature is run just like congress, we are fortunate to have a governor that will stand up and veto their spend a tax legislation. I can't believe these clowns get reelected to the state legislature. 2 democrats allied with the minority republicans to sustain the veto.

With budget talks stalled, the Democrats who run the Minnesota Legislature on Sunday turned to trying to cancel some of Gov. Tim Pawlenty's high-profile vetoes before the session's mandatory adjournment at midnight tonight.

The Democratic-Farmer-Labor majority attempted to override Pawlenty's vetoes of funding for a health care program for the poor and a $1 billion tax increase they contended is needed to prevent deep cuts in health care, education and other vital services.

But both efforts failed as the House Republican minority stuck by the governor and prevented DFLers from getting the two-thirds majority needed to override.

Meanwhile, negotiations deadlocked between Pawlenty and DFL leaders over how to plug a $3 billion gap between state tax collections and spending. After trading offers back and forth Saturday, the Republican governor and the legislators did not meet on Sunday.

The two sides might make an 11th-hour stab today at negotiating a budget agreement. "We're going to try everything to reach a compromise and get a budget passed," said House Majority Leader Tony Sertich, DFL-Chisholm.

Lawmakers have passed $34 billion in spending over the next two years, when the state expects to collect $31 billion in revenue. Pawlenty wants to close most of that gap with spending cuts and delayed school aid payments. DFLers insist on a permanent tax increase or some other form of new revenue to prevent damaging cuts.

the rest of the article at,
http://www.twincities.com/allheadlines/ci_12392527

:beer:


----------



## R y a n (Apr 4, 2005)

Plainsman said:


> > Sadly you continue to underestimate me, believing that only with age will I obtain enough knowledge and worldliness to gain your perspective.
> 
> 
> Correct me if I am wrong, but you worked for the state in the past right?
> ...


Yes I used to once work for the state.

If all other things were equal except taxes? Meaning everything? And if I were to start a technology related business that I would expect to be a national company in scope? (Meaning I had an idea for the next Microsoft?)

If that is the criteria, and I needed to recruit a bunch of star employees you tell me... Should I start up in SD or CA? which place would I be more likely to attract/recruit, and retain the best pool of talent?

I'm just trying to understand if you are driving at business taxation rates as being the only criteria by which someone decides to incorporate in a certain state.


----------



## TK33 (Aug 12, 2008)

> Plainsman to be clear. North Dakota does sap from the rest of the nation. If you (the state of North Dakota) didn't receive an imbalance of tax resources, you would NOT have a state surplus, as the state would have to make up the difference on their own.


I have heard this statement made by people from all over the country. This is just untrue. Look at the crops, meat, milk, oil, and electricity. Drive near Center, all those power lines end up somewhere. Most of them do not end up in ND. Case in point is FPL, they are everywhere here.

ND gets a lot of funding per capita, but ND gives a helluva a lot back at a minimal cost. I would like to see a study of federal tax dollar return on investment.

The most ironic things about the flood of 2009 to me was that the rest of the nation marveled at our efforts here (the entire state). The comments were everywhere, yet not one single article or commentary paid any attention to how we live and govern ourselves here.


----------



## Plainsman (Jul 30, 2003)

Plainsman wrote:


> All else other than taxes being equal.


Ryan wrote:


> I'm just trying to understand if you are driving at business taxation rates as being the only criteria by which someone decides to incorporate in a certain state.


Yes. I was trying to eliminate the squirming.


----------



## Plainsman (Jul 30, 2003)

Don't forget they include every federal dollar coming into the state, and the Native Americans and the reservations get a pile of federal funds. A lot is spent on U. S. highways that would go through here anyway, and the third big tax return to the state is agriculture.


----------



## swift (Jun 4, 2004)

Ryan, there has never been a correlation between the nations highest suicide rate and the weather in ND. The Pacific Northwest holds that honor. Maybe global warming has dried up the SeaTac area over the last 25 years.

This is from Live Science.


> The study ranked 195 cities in the contiguous 48 states by the amount of rainfall they received annually over a 30-year period, although Olympia actually had the most rainy days on average across the three decades (63) of all the cities in the study


Annual rainfall is just manipulating the numbers.


----------



## R y a n (Apr 4, 2005)

swift said:


> Ryan, there has never been a correlation between the nations highest suicide rate and the weather in ND. The Pacific Northwest holds that honor. Maybe global warming has dried up the SeaTac area over the last 25 years.
> 
> This is from Live Science.
> 
> ...


Hmmm

You know I looked and looked. I couldn't find any study that backed up that oft repeated little ditty.

The CDC put out a study stating that Nevada (with Las Vegas) as the hightest, likely due to gambling related problems.

*Regional Variations in Suicide Rates -- United States, 1990-1994*

Then there was this poll which doesn't back up the anecdotal musings of many: http://www.msnbc.msn.com/id/22044451/

Then I found another analysis that ranks states with best, meaning lowest rates of depression and suicide as #1, which is South Dakota. Washington is in the bottom half, but is no where near being considered the worst. It looks like Utah, worst depression, shares that distinction (highest per capita depression rates) with Alaska, highest per capita suicides. Washington ranks 35th and 36th respectively.
http://www.mentalhealthamerica.net/go/state-ranking
Again, bear in mind that, on this chart #1 is lowest/best, not highest/worst rate of occurrence.

Hmmm not seeing any coorelation yet...

Maybe you meant Tacoma specifically? I could understand that stat if I had to live in Tacoma...


----------

