I apologize for just now getting around to posting this excellent editorial that appeared in the Wall Street Journal on May 18. Arthur Laffer and Stephen Moore discuss exactly why it’s such a disaster for states with huge budget deficits to try and solve their problems by soaking their rich residents with a litany of new tax increases. States such as California, New York, Illinois, Minnesota and Connecticut have never met a new tax they didn’t like, and now they’re paying the price.
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.
Meanwhile, states like Texas, Tennessee and New Hampshire that have no income tax are weathering this current economic climate just fine.
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.
However, the most compelling and eye-opening statistic that I saw in this report comes at the very end.
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.
It still amazes me that so-called progressives look down on Texas as their states crumble around them. I believe it’s all too apparent that if this country wants to pull itself out of this funk, that it’s the Texas model we’re going to have to follow, not the California one. But, alas, I just don’t see our President having the good sense to make such a bold move.