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Why Raising State Taxes Will Fail

By Gene J. Koprowski   |   Wednesday, 20 May 2009 10:12 AM

Economists Arthur Laffer and Stephen Moore said that many state governors are embracing a losing strategy — soaking the rich. Policymakers in California, Connecticut, Illinois, Minnesota, and other states, are planning to raise income taxes on the top one percent, two percent, or five percent of their citizens.

"New Illinois Gov. Patrick Quinn wants a 50 percent increase in the income tax rate on the wealthy because this is the 'fair' way to close his state's gaping deficit," the economists write in The Wall Street Journal.

Gov. Quinn and other tax-obsessed governors have been empowered 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, to balance state budgets.

"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," write Laffer and Moore.

The economists reported in a new study called "Rich States, Poor States," published in March, 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," the economists write.

From 1998 to 2007, more than 1,100 people every day, including weekends, 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, the economists found.

"We also found that over these same years the no-income tax states created 89 percent more jobs and had 32 percent faster personal income growth than their high-tax counterparts," the economists wrote.

Did this propensity to greater prosperity in low-tax states happen by chance?

"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," the economists indicated.

That advice may be falling on deaf ears.

The Chicago Tribune today reports that Quinn — who replaced the impeached Rod Blagojevich — celebrated his 100th day in office on Friday by boasting that he has the support of the General Assembly's top two Democrats for his unpopular proposal to raise state income taxes to help erase the state's record spending deficit.

Conservative groups, like Family PAC Illinois and Illinois Policy Institute are targeting key legislators, hoping to foil Quinn's tax plan when the legislative session ends later this month.

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Economists Arthur Laffer and Stephen Moore said that many state governors are embracing a losing strategy — soaking the rich. Policymakers in California, Connecticut, Illinois, Minnesota, and other states, are planning to raise income taxes on the top one percent, two...
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2009-12-20
 

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