Soak the Rich, Lose the Rich and Jobs

Don't you wish we had an income tax, so we could be like California and New York? We could really crank it on the rich. Make them suffer by paying a lot more and reducing the burden on us.

But they can leave and when they do so you can't milk them anymore. And the rich are investros; when they depart, so do jobs. Many academic studies have shown that high state and local taxes send jobs away - more on this below. In New York Thomas Golisano is a Rochester business big wig with strong ties to the community. But Governor Patterson is raising their already high taxes even higher, so Golisano is leaving and New York is going to lose a lot of tax revenue.

Buffalo News

Ending any speculation about another possible run for governor, Rochester businessman and Sabres owner B. Thomas Golisano said Thursday he will be moving his legal residence to Florida to escape New York state taxes.

Golisano told a gathering of Rochester business executives that he will remain as owner of the Buffalo hockey team, but he is fleeing the Empire State to avoid paying $13,000 a day in state income taxes.

And the Wall Street Journal shows that New York is not alone. High tax states are losing people and the lows are gaining. It seems that low-tax is usually synonymous with having no income tax. But we know they are separated in Washington.

WSJ.com: (I don't think a subscription is required.)

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.

Jobs and income growth also:

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.

And we know that first it's only the rich and investment, then it's you. The original US income tax was started at 1% (up to 7%) and only on the richest 1% of taxpayers. But soon the workers were ensnared by increases by Woodrow Wilson, then FDR.