Toledo Talk

Lose population by raising taxes

Excerpts from a May 18, 2009 Wall Street Journal story titled Soak the Rich, Lose the Rich - Americans know how to use the moving van to escape high taxes.

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.

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.

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.

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.


WSJ blames taxes

Mar 3, 2008 Wall Street Journal opinion :

Ohio now ranks 47th out of 50 in economic competitiveness, according to the American Legislative Exchange Council. Ohio politicians deplore plant closings even as they impose the third highest corporate income tax in the country (10.5%) and the sixth highest personal income tax (8.87%).

Ohio is a "closed shop" state, which means workers can be forced to join a union whether they wish to or not. Many companies -- especially foreign-owned -- say they will not even consider such locations for new sites. States with "right to work" laws that make union organizing more difficult had twice the job growth of Ohio and other forced union states from 1995-2005, according to the National Institute for Labor Relations.

Toledo Blade blames taxes

June 2006 Toledo Talk posting that pointed to a June 24, 2006 Toledo Blade editorial titled Our Shrinking Cities :

While some blame the often harsh northern climate, we blame taxes: Ohio remains a high-tax state, and the resultant job loss, worsened by the steady erosion of manufacturing as an economic base, seems unrelenting.

Yet, a Mar 2, 2008 Toledo Blade editorial encouraged Toledoans to vote FOR the city's 0.75 percent income tax surcharge that was on the Mar 4, 2008 ballot. This 25-year-old temporary levy passed. It was suppose to prevent the loss of policemen, but Carty has axed policemen in spring 2009 anyway.

Councilman blames taxes

June 2006 posting about Toledo's one-year population decline being the 13th fastest in the U.S., Toledo City Councilman Frank Szollosi said:

"It's an indication that taxes are too high in Toledo."

Allegedly in Feb 2008, Frank Szollosi encouraged Toledoans to vote FOR Toledo's 0.75 percent income tax surcharge that was on the Mar 4, 2008 ballot.

Tax unfriendly states

From a spring 2007 Toledo Talk posting :

Least tax friendly states - Top 5
(State ---- State and local tax burden as % of income)

  • Vermont ---- 14.1%
  • Maine ---- 14.0%
  • New York ---- 13.8%
  • Rhode Island ---- 12.7%
  • Ohio ---- 12.4%

In the 2007 small business survival index ranking, which is about "Which states are low on taxes and light on government regulations?", Ohio is near the bottom, ranked 38th.

Political code speak

Taxes also includes fees, assessments, and revenue enhancements.


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created by jr on May 20, 2009 at 02:34:25 am
updated by jr on May 20, 2009 at 03:01:33 am
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