High tax states are driving largest tax payers to leave

Gary Shilling:

The U.S. Tax Cuts and Jobs Act enacted at the very end of 2017, which limited the deduction of state and local taxes to $10,000, has focused attention on the vast differences among municipal levies. It also provided an incentive for high earners to leave high-tax states such as New York for lower-tax climes including Florida and New Mexico in a trend that will only intensify.

From 2011 through 2015, New York was among the top three states exited by millennials, and more Americans are moving out than moving into the Empire State. New York faces a $2 billion tax shortfall and will, no doubt, speed the exodus with higher taxes on those remaining. Under Mayor Bill de Blasio, New York City’s spending has risen 20 percent this fiscal year to $61.3 billion. Pension obligations are up $1.2 billion from four years ago to $9.5 billion annually, the Wall Street Journal reported, with more to come due to new municipal union contracts.

This strategy of tax increases that encourage taxpayers to leave is the government equivalent of a private-sector firm raising prices when its products are already overpriced. New Jersey incurred a major tax hole when a high-profile hedge fund manager decamped several years ago, and yet Governor Phil Murphy wants to raise taxes on millionaires.

In government, there is no bottom line watched by shareholders, so there is no incentive to run efficient organizations — as long as voters don’t revolt and the disgruntled taxpayers simply leave for lower-tax venues. Former Indianapolis mayor Stephen Goldsmith said famously that politicians can go to jail for stealing money, but not for wasting it.

To be sure, state government leaders claim they strive for efficiency, but if they did, wealthy states with high incomes per capita would have low tax rates. Those tax rates applied to large incomes, property values and retail sales would generate ample revenue to cover the costs of efficient operations.
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Texas is an example of a low tax state that has prospered and attracted businesses and workers from high tax states like California and New York.  The leadership in the high tax states seems locked into a bad economic model and refuses to consider changing course.  They also tend to be part of the anti-energy left which further drives up the cost of living in those states.