RICHARD RIDER COMMENT: Studies continue to find a correlation between the level of state taxation and domestic migration of the wealthy between states. More state tax — more net outmigration.
Gee, what a surprise! Who’d ‘a thunk it? Certainly not spendthrift politicians.
I’ve written on this several times. Those of you who get my “Breaking Bad — CA vs. Other States” know of our state’s net loss of 1.4 million Californians to other states over eight years.
Here’s the latest study reaching the same conclusion about the effect of high taxes. It’s based on New Jersey — a state which in just a few years changed from a low income tax state to a high income tax state — especially for the wealthy. When the change took effect, so did net migration change direction.
I don’t think this lesson can be repeated often enough. High taxes drive the wealthy and businesses away — and discourage their in-migration. Yet this “soak the rich” mentality is spreading to some other states — the latest to fall is Oregon.
For Californians, the more dumb states that boost their taxes (especially on the prosperous), the better — it reduces our state’s financial refugees’ options. Sadly for us, some states are not following suit — notably income tax-free Florida, Nevada and Texas. But also South Dakota, Wyoming and Washington state have no personal income tax. In addition, Tennessee and New Hampshire don’t tax “earned” income — only dividends and interest.
When the “wealthy” have departed — taking their earning power and wealth with them — watch what our Big Spenders conclude. The solution I suspect we’ll see from pinhead politicians will be that we need to raise taxes on the less prosperous — lowering the “millionaires” tax”bracket down to a half million (already there for NJ), a quarter million, $150K and so on.
If you can’t see the chart of NJ tax bracket changes over time, go directly to the link on Paul Caron’s website.
Escape From New Jersey (Taxation)
Based on Wall Street Journal editorial, Escape from Taxation: A New Study Shows that Wealth Flees After Taxes Rise:
New Jersey’s Governor Chris Christie must be following the economic news from Greece. Its tattered reputation for fiscal control has turned Greece into an international financial nightmare and laughingstock. Perhaps tiring of New Jersey jokes, Governor Christie this week handed down a stiff freeze on spending.
Announcing the freeze on $1.6 billion of unspent money, Mr. Christie was blunt: “Today, we come to terms with the fact that we cannot spend money on everything we want. Today, the days of Alice in Wonderland budgeting in Trenton end.”
Not a day too soon, judging from the striking data that a just-released study reveals about the number of residents of the Garden State fleeing to greener pastures.
The study by Boston College’s Center on Wealth and Philanthropy—Migration of Wealth in New Jersey and the Impact on Wealth and Philanthropy—looked at 1999 to 2008. It found that in the decade’s first half New Jersey experienced a “substantial increase in both household wealth and charitable capacity,” otherwise known as “expected giving.” During those five years the Garden State had a $98 billion net influx of capital due to wealthy households moving into the state, and it enjoyed a corresponding $881 million increase in “charitable capacity.”
The Garden State was blooming. Then the trend reversed. From 2004-2008, author John Havens found “a large decline in the number of wealthy households entering New Jersey” as well as “a moderate increase in the outflow of wealthy households leaving.” The result: a net decline of $70 billion in household wealth while the “expected giving” became a net outflow of $1.132 billion.
So what happened in 2004? The study doesn’t purport to explain what caused the wealth movements. But the state’s most notable economic policy event that year was an increase in its top income tax rate to 8.97% from 6.37%, on incomes starting at $500,000. That’s a 40% increase. …
The nearby table shows the upward march in taxation in New Jersey, which was once a fast-growing state but has now joined California and New York as high-tax, high-debt states with budget crises. As Jim Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers, told NJ.com recently, until the tax picture is improved, “we’ll probably see a continuation of the trend, until there are no more high-wealth individuals left.”
Last year, Democrats raised the top rate for one year to 10.75%. This year New Jersyans elected Chris Christie.