Yesterday's Wall Street Journal ran an opinion piece by ARTHUR LAFFER and STEPHEN MOORE about the states who are planning to raise taxes to cover budget deficits. According to the article:
"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."
Interesting idea, but as usual we come right up against the 'law of unintended consequences'. Mr. Laffer and Mr. Moore recently did a study for the American Legislative Exchange Council entitled "Rich States, Poor States." The study, published in March, showed that 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 article points out that when you continually raise taxes on 'the rich', they relocate to places where the taxes are lower. Since 'the rich' are usually people who generate jobs, any jobs they provide move with them. New Jersey is cited as an example of what happens when taxes are continually raised--in the 1960's New Jersey had no state income tax and no sales tax. It was a state that was growing rapidly and consistently had budget surpluses. Today New Jersey has income and sales taxes that are among the highest in the nation and the state has growing budget deficits. People are leaving the state because of the excessive tax burden.
As some states (including Massachusetts) look to raising taxes as a solution to their economic woes, they might want to consider that raising taxes may be the problem--not the solution.
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