Who Wants To Tax Dodge Like A Millionaire?

Arthur Laffer and Steven Moore argue loudly that the worst thing a state can do is tax rich people, because they can afford to simply move to states with lower or no taxes.

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.

California's problem isn't that it's home to 1/7th of America's population, it's that it has high taxes. Here's my favorite little bit of the article however.

Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.

They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.

The Granite State's test scores are great because there's no income tax or sales tax! What these knuckleheads forget is New Hampshire has to pay for schools somehow, and it has arguably the most regressive tax structure in the country, with property taxes, cigarette taxes, meal taxes, car rental taxes, hotel taxes, timber cutting taxes...the list goes on. The poorest residents in the state provide a lion's share of the tax revenue in the state, while the wealthiest in New Hampshire contribute only a few percentage points.

And these two jerks basically want that regressive tax structure to become the norm across the country.

You want to know what the real problem is? States like NH with high property taxes are going to find themselves in deep trouble with falling home prices. They're going to need to cut services and spending on things like schools and police too, just like the states with other types of taxes.

If I was a millionaire, I'd want to live in New Hampshire too, and I could afford to move.