Why Do The States In The Worst Financial Shape Also Have The Highest Tax Burden? A Lesson In Reality and Economics For Ocasio-Cortez

People, mostly Democrats and liberals, constantly want to raise Americans’ taxes to fund programs that never work and often cause more damage to an existing problem. The problem is that raising taxes often backfires on these folks since Americans are very good at protecting their assets or politicians never to do the math to understand the idiocy of raising taxes.

We have previously discussed what happened when the state of Maryland raised the tax rates for state millionaires. Although they raised the tax rates on millionaire earners they ended up getting LESS tax revenue from millionaire earners since these folks just moved to other states:

https://loathemygovernment.blogspot.com/2011/05/why-overtaxing-rich-is-usually-stupid.html

We have discussed the idiocy of Alexandria Ocasio-Cortez who wants to raise the tax rate to 70% on Americans’ income over $10 million. She thinks that raising tax rates just on these high earners high income will fund such socialistic pipe dreams like Medicare For All, free college, the New Green Deal, etc. The problem is she did not do the simple math analysis of IRS records, something we did which we showed her 70% tax rate would fund a only tiny, tiny portion of only one of the programs listed above, never mind funding most, if not all, of the programs:

https://loathemygovernment.blogspot.com/2019/01/january-2019-part-8-political-class.html

Raising taxes rarely works, as we will see below.

According to a recent article on the Godfather Politics website by Warner Todd Huston on January 2, 2019:

• Blue states, or highly liberal and Democratic states, usually earn a grade of F when one analyzes the state government’s financial health.
• This is a finding by the watchdog organization, Truth In Accounting.
• This organization recently released its ninth annual “Financial State of The States” analysis.
• The report is “a nationwide analysis of the most recent state government financial information. This comprehensive analysis of the 50 states’ finances includes the most up-to-date state finance and pension data, trends across the states, and key findings.”
• But they are not alone since 40 states do not have enough financial resources to pay all of their bills and liabilities.
• The ten worst are traditionally heavily Democratic states with the exception of Kentucky.

Sad state of affairs that is going to blow up on some state governments in the very near future. Keep in mind that these state politicians have managed to get their states in such desperate financial shape despite us not having an economic downturn in about ten years. Imagine how quickly things will go down the toilet when the next recession hits.

The thing that is so ironic is that the states in the worst economic and financial shape usually have the highest taxes and tax burdens on its residents. In other words, these states got into dire financial straits not because they did not tax enough but because they spent too much, as the following analysis shows.

The worst states from a financial perspective in descending order are:

1. New Jersey
2. Connecticut
3. Illinois
4. Kentucky
5. Massachusetts
6. Hawaii
7. Delaware
8. California
9. New York
10. Vermont

As we stated above, nine of the ten are blue states or liberal/Democratic states.

On the other hand, the top ten states are nearly all controlled by the Republican Party. The top ten, most financially secure states include:

1. Alaska
2. North Dakota
3. Wyoming
4. Utah
5. South Dakota
6. Idaho
7. Tennessee
8. Nebraska
9. Oregon
10. Iowa

Wallethub does an annual analysis of which states have the heaviest tax burden. Turns out, many of the states in the worst financial shape, almost always Democratic states, ALSO have the highest overall tax burden according to WalletHub (the states that are common to the worst financial condition and highest tax burden have a star next to their names):

Most heavily taxed states:

1. New York *
2. Hawaii *
3. Maine
4. Vermont *
5. Minnesota
6. Connecticut *
7. Rhode Island
8. Illinois *
9. New Jersey *
10. California *

So, seven of the highest tax burdened states somehow are also in the top ten of states in worst financial condition.

The following states have the highest income tax rates with a star placed next to those that also make the ten worst financially strapped states:

1. New York
2. Hawaii *
3. Maine
4. Vermont *
5. Minnesota
6. Connecticut *
7. Rhode Island
8. Illinois *
9. New Jersey * 
10. California *

So six of the top ten states with the highest income tax rate also fall in the top ten list of states in dire financial shape.

Conversely, the following states have the lowest overall tax burden with those that are also in the best financial shape marked with a *:

1. Alaska *
2. Delaware 
3. Tennessee *
4. Florida 
5. New Hampshire *
6. Oklahoma
7. South Dakota *
8. Alabama
9. Montana
10. Virginia

Thus, four of the lowest taxed states are also in the top ten most financially secure states. Thus, from this analysis and looking at the data of all 50 states, we see a pretty strong relationship between taxation and financial condition, namely the heavier the state tax burden the more likely that state is in worse financial shape than states that have a lower tax burden.

Thus, raising taxes is often a recipe for failure in that the amount of revenue that politicians expect to receive from increasing the tax burden often does not materialize. But politicians continue to spend more and more of a state’s wealth, eventually driving that state's government into financial crisis mode while reducing economic growth and economic freedom of that state’s residents. 

And yet politicians like Ocasio-Cortez continue to think that the solution to all of life’s ills is to simply raise taxes, a historically erroneous assumption that has caused havoc on the financial future and viability of both the the Federal government and dozens of state governments.

Conclusion: the government that taxes the least governs the best, the numbers do not lie at least when it comes to financial viability of the governing unit.

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http://www.reason.com
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http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w