Raising Taxes, The Best Method of Attracting Residents and Businesses

It sounds reasonable, right?  I mean every good business person knows the best way to attract customers and make lots of money is to have the highest prices.  What?  That’s not right? As someone who’s actually run a business I learned the hard way that the store with the lowest prices sells the most product.  That’s why often businesses get into this crazy race for the bottom and some businesses actually sell at a loss hoping to make up for it in high volume.  But never have two businesses been in a race for the highest prices.  Even in luxury items we rarely see this.

So why do people in government think raising taxes will attract business, keep residents, and solve their budgetary problems?  Why don’t they promote business opportunities in their states with the idea that more businesses within their boundaries will result in more people employed and thus more people paying taxes?  Oh, don’t look at me for the answer, I’m asking you.  Really I’m asking elected officials since I know a good number have visited this blog and read it.  Somehow, like Beck’s red telephone, I don’t expect to see a good response from a state official.  But if I do I will post the reply in full.

IMAGE SOURCE: The Heritage Foundation. (but before you impeach the source you can find this in college textbooks as well.)

You see, there is solid statistical and historical evidence that raising taxes does not increase taxes revenues.  First, on the Federal level let’s look at the graph above.  This is Hauser’s law, less a law than a historical graph.  If you look up Hauser’s Law you’ll see the critics fault it for including SS taxes, so The Heritage Foundation did us the favor of removing all taxes except income taxes since income taxes are generally at the center of class warfare as well as governmental tax increase proposals.  The general trend is that no matter what the top tax bracket is, the revenue (as a percentage of GDP,) remains roughly the same.  As one blogger put some time ago, you simply “can’t soak the rich.”

Now let’s look at what happens to states who think they can continue raising taxes without any consequences.  Yesterday, The Wall Street Journal reported that the state of New York has been bleeding people.  Yes, since 2000 1.5 millions people, mostly from NYC, have fled the state and its ridiculous tax structure.  In fact, 2004 recorded the highest taxes and the next year recorded the highest exodus.  In 2006 the state watched $2.4 Billion in tax revenue flee the state, in spite of increased tax rates.  Over the period 200-2008 the WSJ reports amounted to $30 Billion!  Coincidence?  I think not.

As people left others came to take their places, but there is something interesting to notice about this migration.  The average income of those leaving New York was $93,264, while the average income of those migrating into the state was only $72,726.  We can argue about why these people made less and likely there are multiple reasons for it.  Partly, the reason is due to an influx of international immigrants and probably a larger reason is that higher paying jobs are being moved elsewhere to avoid the confiscatory tax structure of NY.  The article cites the Empire Center’s study so I decided to wander over there and take a look.

IMAGE SOURCE: The Empire Center for New York State Policy

The Empire Center provided a very interesting graph in their report.  As mentioned earlier and confirmed in the report NY’s losses were offset by foreign immigrants likely taking lower paying jobs.  The Center blames the outflow primarily on retirees and normal migration patterns, but I want to explore the possibility that there might be a tax connection.

Notice the states losing the most population are those known to have the highest state and local taxes.  Other states topping the exodus list include, California, Illinois, Michigan, New Jersey, Ohio, Louisiana, Massachusetts, Connecticut, Maryland, and Kansas.  Now that last one I can understand might be due to something other than taxes but I don’t want to go there.

What are the state taxes like in these states?  These get pretty harried to figure out.  States don’t have simple tax structures and taxes range on everything from sales, property, income, to “sin” taxes on cigarettes, booze, and in some cases junk food.  Retirement Living‘s website has a comprehensive breakdown but I really wanted to look at aggregate taxes not have them broken down as they did here.  Elsewhere on their site I discovered a list that sums things up much better.  Here is a list of the top 10 tax-heavy states and their rank on the exodus Chart above. (I know DC is not a state but it is included in both reports.)

Taxrates_v_Migration

Notice that six of the highest taxing states also have the highest number of people leaving the state and all are in the top 20 out of 51.  Even Hawaii!  You would at least expect people would tolerate higher taxes there if no where else in the nation.  Now let’s us examine where these people are going and compare that to the tax burden and see if we are observing a trend that transcends “normal migration” as suggested by The Empire Center.

Taxrates_v_Migration_In

Again, notice that five of the states with the lowest tax burdens also experienced the highest population growth.  I believe it is safe to assume the negative impacts of hurricane Katrina greatly contributed to Louisiana’s population decline.  When we remove Louisiana from the chart we see that the only negative growth state was Alaska and yet it still ranks better than any of the states on the heavy tax-burden chart.  A major contributing factor to the population loss in Alaska may well be the reduction in personal income as salaries there have declined 3.2%I’d move too.

The relationship between a state’s tax-burden and it’s population growth seem clear.  Population growth also impacts tax revenues.  My final chart lists the states with the greatest declines in tax revenue.  (SOURCE: The Nelson A. Rockefeller Institute of Government.)

StateRevenueChange_Q1-2008_2009

States with the lowest tax-burdens tended to do better than states with heavy tax-burdens.  Alaska being the most notable exception and we have already noted the income problem.  The other big exception is Florida.  Florida’s tax base is heavily dependent upon tourism.  Poor economic times mean fewer tourist, that in-turn reduces tax revenues in this state.  Arizona and Maryland escape me and they may well just be blips and anomalies.

Returning to the point, it is especially interesting that two of the states with the lowest tax burdens actually saw increases in their revenues.  Meanwhile New York and California followed the predicted results.  Admittedly, this is only a comparison of a single quarter and is limited to only two years.  However, Q2 was just as interesting, but  I’ll let you peruse the pdf file.

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  1. Raising taxes takes money out of my pocket and either shrinks my pile of discretionary income or reduces it to zero.

    The effect is to keep me and others like me home more often and on the local economy less often.

    As a direct result merchants see less revenue. Orders placed to factories to replenish stock slows. People are laid off and consequently everyone’s income-based taxes reported to government will reflect that reality.

    The citizen-consumer loses, the merchants and factories lose and the government loses and serves to begin a vicious cycle.

    The left-leaning government, now faced with budgetary shortfalls does what it only knows to do; raise taxes.

    DOH!

    Contrast this with reducing taxes, a concept which a right-leaning government understands. Suddenly I and others like me have a little more income in our pockets to play with.

    I spread it on the economy. Merchants are seeing their wares fly of the shelves. They order more, causing factories to produce more and keeps people employed to meet consumer-demand.

    When it’s time to report their income and send in their taxes the amount government receives reflects that economic activity. Their budgetary needs are met and hopefully, if they’ve learned anything about economics 101, they won’t raise my taxes.

    Everyone wins.

    Why is this so hard for some to understand?

    Excellent post. Just where do you get your source data?

    • The Empire Center & Retirement Living. Links are embedded. I merged the data sources to create the 3 comparisons. Yeah, businesses that EMPLOY people are being encouraged to go elsewhere. The Feds have been doing this for years as well. A policy China hopes will never change. Meanwhile, elected officials everywhere spend spend spend like there’s an endless supply of money. All-the-while the administration is devaluing the currency and encouraging the world to replace the dollar standard. Those in the formerly communist world are marveling at the gross stupidity in America. American Idiots want to follow the Soviet example and socialize us into a third world nation. I am now convinced that is the unspoken goal of the left now. Waters said it out-loud last year and more and more are coming out of the closet everyday. Didn’t work in Eastern Europe, isn’t working in Iceland, Germany, and elsewhere, it won’t work here. I’m beginning to think “working” isn’t the goal. I’m beginning to wonder if Hannity and Beck just might be right or partially right when they continue to point at Sal Alinsky. I hate conspiracies and really want to believe the left is merely misguided not evil. But when Pelosi changes the name of government health care everyday and says dumbass stuff like, “Health insurance reform is entitlement reform” which she attributes to Obama, you have to wonder. I guess massively expanding entitlements to everyone to bind up all the votes in the nation might be termed “entitlement reform.”

      Seriously? I thought reform was to improve a current entitlement not create a new untested entitlement. And they say it’ll only cost a trillion dollars. Nothing the government has ever done has cost less than 3 times the CBO estimate. Medicare cost 10 times the CBO estimate. Are they stupid or scheming? Obviously they think America is populated by idiots.

      • RE:I am now convinced that is the unspoken goal of the left now.
        RE:and more and more are coming out of the closet everyday

        I truly believe Obama’s unbridled control over the federal government allow the true colors of the DNC to shine through. He is the epitome of the party and the quintessential Democrat.

        RE:Waters said it out-loud last year and more and more are coming out of the closet everyday.

        Yes, and I commented about that harbinger from the left on From the Right’s About page’s second paragraph. ( http://rightamerican.wordpress.com/about/ ) and again on Our Obama Nation’s About page ( http://ourobamanation.wordpress.com/about/ )

        RE:I hate conspiracies

        As do I, but when I go back to the late ’50s to the days of the precursor to the hippie and into the ’60s, campus riots, free love, sex and rock-n-roll I see this as the point in time when America “turned”. Why? Subversion and I believe you are familiar with my thoughts about it. Here’s a hint of it for those who don’t know what I am talking about :

        The following quote from Nikita Kruschev:

        We will take America without firing a shot…….We will BURY YOU! We can’t expect the American People to jump from Capitalism to Communism, but we can assist their elected leaders in giving them small doses of Socialism, until they awaken one day to find that they have Communism. “We do not have to invade the United States, we will destroy you from within.

        In the video above Yuri Bezmenov, a Russian born, KGB trained subverter tells about the influence of the Soviet Union on Western media and describes the stages of communist takeovers. This interview was conducted by G. Edward Griffin in 1984.

        In it he says:

        ” The main emphasis of the KGB has not been in the area of intelligence gathering. Only 15% of time, money and man-power is spent on espionage. The other 85% is spent on “ideological subversion” or “active measures”. It is a great brain-washing process. It takes a long time.

        The process consists of 4 stages, one of which is called “Demoralization”. This stage takes between 15 and 20 years. This is because this is the minimum number of years required to educate one generation of students. The process exposes the students to the ideology of the enemy i.e. the Marxism-Leninism ideology and is pumped into the soft heads of young students for at least 3 generations without being challenged or contra-balanced by the ideology of the basic values of American patriotism.

        Most of the people who graduated in the ’60s, the drop-outs, the half-baked intellectuals now occupy the positions of power in the government, civil service, business, mass media and education system. America is now stuck with them.

        The process of demoralization is then complete and irreversible. It will take another 15 to 20 years to wash away the intellectual contamination and corruption of values. A person who is demoralized is unable to process truth.”

        Sal Alinsky was only a small yet effective element of that effort.

        America needs to wake up. But I fear too many have been subverted and unable to process truth.

  2. To further your point, a plethora of New Yorkers are leaving the state due to taxes which are proving to be incompatible with the fomenting of healthy economic activity. Not just private citizens, but businesses as well.

    Why?

    Taxes.

    The left-leaning government of the state of New York do not appear to understand this fundamental.

    More:

    The Tax Capital of the World
    http://online.wsj.com/article/SB123940286075109617.html

    New York’s Taxes Send People and Businesses Out Of State
    http://www.americanissuesproject.org/blogs/aip/archive/2009/05/28/new-york-s-taxes-send-people-and-businesses-out-of-state.aspx

  3. Reinforcing what I already know about taxes and consumer spending and “Real disposable incomes”

    http://www.foxbusiness.com/story/consumer-spending-retreats-clunkers/

    • reedkeys
    • October 31st, 2009

    Interesting you hit on a subject I was writing about earlier this week as well. Taxes are the key to economic health. Even that dolt Ronald Reagan knew that. So did the imbecile George W. Bush. Wait, maybe they weren’t as dumb as we were led to believe. As we know, Reagan completely revolutionized the way we do business in this country which has led to unprecedented economic health for the last 25 years. While I have my problems with the way Bush handled the crisis last year, he also knew the power of a tax cut and led this nation to economic health for most of his Presidency. Check out “If I paint my house white, can I be President” at reedkeys.wordpress.com for the effect one little tax cut is having on our economy. Good work on all the research!

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