September, 2019, By The Numbers: Why HIgh Taxation Will Bankrupt Illinois, New Jersey and Several Other HIgh Tax States

Today we are going to focus on Americans’ desire for freedom and humans desire to keep the fruits of their labor. We have often asserted that in this country there is no separating economic freedom from political and individual freedom. The more economic freedom a person or family has the better their life is: they have more money to spend on enjoyment, they have more money to spend on shelter, they have more money to start a business, they have more money to better educate their kids, they have more money to give to charity etc. They have more freedom.

Economic freedom in this case is the ability to enjoy lower taxation and retain more of one’s earnings. In theory, government should be doing, and being paid to do, only elementary sets of functions that are better and more efficiently done by an impartial third party. These minimal functions should include road and infrastructure maintenance, a judicial system, police protection, disaster relief, and one could include public education. Those are the only functions that government should be doing and should be paid for.

But we all know there are two realities about government in this world:

1. Government entities do such much more which is unnecessary, inefficient, and costly from a taxation perspective.
2. Even the functions they should be doing, e.g. infrastructure support, they generally do badly and costly.

The other reality that we have often discussed is the counter intuitive reality that states with the highest taxation rates are the ones that do the worst job at their functions AND are the most likely to go bankrupt in the very near future. One would think that those states with the highest taxes would be the most financially solvent, they are taking more from their citizens then other states.But that is not the case, the more those state politicians take from taxpayers the more they overspend and waste.

Connecticut, New York, New Jersey, Illinois, and California have often been discussed in this blog as the states that are hurtling towards bankruptcy. Yet, they collect more taxes on both an absolute basis and a percentage basis than most other states. This indicates a massive inability to function efficiently and effectively.

Which brings us to a wonderful and insightful website, “How Money Walks”:

https://www.howmoneywalks.com/irs-tax-migration/

The owners of this website did an amazing and detailed analysis. They looked at IRS data over time with the intention of figuring out where the wealth in this country is moving into and out of. If everyone was happy with their economic freedom where they lived, than you would expect that wealth would be pretty static and stationary. Obviously people move because of new jobs, family matters, and retirement so one wouldn't expect wealth distribution to remain totally static.

But I thought it would be interesting to see if there was MASSIVE shifts in wealth going on with my theory being that if humans love economic freedom, they would be migrating to states where they can maximize that economic freedom, i.e. states with lower taxation rates. 

Since this is a “by the numbers” post there will be a lot of numbers discussed below. But the emerging picture is clear: the states with the highest taxation rates are driving out the wealth from their states’ citizens as that wealth is generally moving, in massive amounts, to states with much lower taxation rates. This leads the high taxation states to raise their state tax rates to compensate for the wealth migrating out of the state which means higher taxes for those people that did not move out of the state which means that more people will migrate out and the financial death spiral is set in place.

Let’s get started:

• From 1993 to 2016, my former home state of New Jersey lost $35.4 billion in adjusted gross income as New Jersey residents fled to Florida and elsewhere, resulting in Florida picking up about $18.3 billion in adjusted gross income of that $35.4 billion from New Jersey outward migration.
• From 1993 to 2016, New York lost a whopping $99.5 billion in adjusted gross income as New York residents fled to Florida and elsewhere, resulting in Florida picking up $27.9 billion in adjusted gross income from New York.
• Connecticut lost $16.3 billion in adjusted gross income as Connecticut residents fled to Florida and elsewhere, resulting in Florida picking up the majority of that Connecticut loss, $10.6 billion.
• Massachusetts lost $17.2 billion in adjusted income as Massachusetts residents fled to Florida and elsewhere, resulting in Florida picking up $8.2 billion from Massachusetts
• Illinois lost $50.2 million in adjusted income as Illinois residents fled to Florida and elsewhere, resulting in Florida picking up $12.9 billion in adjusted gross income from Illinois.
• California lost $58.0 billion in adjusted gross income as California residents fled to Nevada and elsewhere, resulting in Nevada picking up $14.1 billion in adjusted gross income.
• Michigan lost $21.1 billion adjusted gross income as Michigan residents fled to Florida and elsewhere, resulting in Florida picking up $7.6 billion in adjusted gross income.
• Ohio lost $26.1 billion in adjusted gross income as Ohio residents fled to Florida and elsewhere, resulting in Florida picking up $9.6 billion.

Thus, excluding California, where most of their outbound wealth went to Nevada, Florida picked up almost $110 billion in wealth over the period, 1993 to 2016, from just the other six states listed above. Other states that made out quite well with wealth migrating to their states include South Carolina, North Carolina, Georgia, and Texas.

Now look at the states that have no state income tax imposed on their state residents (the net gross adjusted income gains those states received over the 1993 to 2016 time period are in parentheses):

• Florida ($156.1 billion)
• Texas ($47 billion)
• Nevada ($24.3 billion)
• Washington ($18.8 billion)
• Tennessee ($14.3 billion)
• New Hampshire ($4.0 billion)
• Wyoming ($2.3 billion)
• South Dakota ($989.0 million)

Note: Alaska also has no state income tax on residents but for whatever reason Alaska was not included in the analysis from the website.

So all of the states in the continental United States that have no state income tax saw a gain in their adjusted gross income over time and some cases, e.g. Florida and Texas, those increases were huge. The states with the highest state tax burdens include all of the states listed above who lost adjusted gross income over time, e.g. New York, New Jersey, Illinois, etc. Thus, we have a pretty strong relationship that says those states with the highest taxation levels are the states that are losing wealth, and residents, fastest. People want to be free.

Even states that have some form of state income tax did quite well in this wealth migration. North Carolina for example, is not on the list of states with no state income tax but they picked up over $12 billion in adjusted gross income from just three states, California, New York and New Jersey, from 1993 to 2016. The top state income tax rate in North Carolina is 5.25% compared to a whopping 13.3% in California, 10.75% in New Jersey, and 8.82% in New York. People want to be free.

This correlation gets even stronger when you get down to the county levels, especially if you look at counties that include a major metro area. The reasons for this is that very often local cities impose additional taxes on their residents, on top of the extra state taxes. 

For example, Cook County in Illinois, home of Chicago, lost an incredible $40.6 billion in adjusted gross income from 1993 to 2016. $40.6 billion! Imagine how much more financially solvent Chicago would be if it still had that $40.6 billion within the city limits and county. In fact, Chicago accounted for about 80% of the adjusted gross income that has left the entire state of Illinois over the period studied. And yet, Chicago politicians, and their peers in the Illinois state government, continue to raise taxes, causing more migration, a smaller tax base which requires higher tax rates which leads to more migration, and the death spiral is in full gear.

Los Angeles County, home of Los Angeles, is in a similar fix. It lost $46.1 billion over time, almost 80% of what the entire state of California lost. Suffolk County in Massachusetts, home of the city of Boston, lost $6.2 billion, over one third of what the entire state of Massachusetts lost. New York City lost about $70 billion, about 70% of what the entire state of New York lost.

Like I said up front, a lot of numbers. But also a lot of lessons and conclusions:

• States with lower taxation rates appear to be getting much richer as a result of residents from high taxation states moving to the lower taxation states, taking their wealth and tax money with them.
• This reality is even worse when you consider the counties in the high taxation states that are home to big cities where the taxation level is increased by local taxes being piled on.
• It is human nature to want to keep what you earn, a reality that is lost on politicians that are in charge of states like New York, New Jersey, etc. where their view is higher taxation levels will solve their problems.
• And it is clear from these numbers that the states we thought were leading the way to state government bankruptcy are still correct: Illinois, New Jersey, New York, Connecticut, and California.

People want to be free and that includes having economic freedom to retain as much of their hard earned wages as possible. As a resident of Florida, I am thankful that the high taxation states have driven over $150 billion of adjusted gross income to my now home state, that kind of wealth increase makes life much easier for us down here the sunshine. So keep it up, politicians in Illinois, New Jersey, etc., we welcome your former residents and the economic power they bring with them.

P.S. We still stand by our on the previous forecast that Illinois will be the first state to go bankrupt, they are in a financial death spiral already and their ignorance continues to lead them to continually increase taxation levels and rates. The adjusted gross income levels do not lie.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

https://www.amazon.com/Walter-Bruno-Korschek/e/B002KYU08Q/ref=dbs_a_mng_rwt_scns_share

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:


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

Lower Tax RATES Result in Higher Tax REVENUE..And A Freer and Happier Country

Today is a discussion about taxation and what that does to human behavior. It seems that over the years, the American political class has somehow convinced itself that raising taxes does not have negative ramifications across the economy and people’s lives. A percentage point here, a percentage point here, a small new tax there, it is just a little more in taxation, always for a good cause.

But over time, these taxes and their gradual increases add up. We have shown any number of times in this blog how we have possibly moved from a taxation country into a repression country. Our tax freedom day gets farther and farther out every year, with most Americans working well into the spring months just to pay their annual tax bill to all levels of government. 

The more wealth that goes to government taxes is less wealth that an American family can spend on better housing, better education options for their kids, less money that is available to possibly start a new business, less money available to enjoy the pleasures they find in life, etc. And more globally, by restricting life choices as a result of high taxation, politicians deny freedom and liberty for people to enjoy the fruits of their labor.

And adding insult to injury, the taxes that are supposed to be used for wonderful goals and projects never materialize. The five decade war on poverty has estimated to cost taxpayers over $20 TRILLION but we are at the same poverty levels today as we were fifty years ago. 

The war on drugs has also cost TRILLIONS of dollars and has done nothing to treat addiction problems in this country but it has created and enriched violent drug cartels around the world.

Our Social Security taxes were supposed to ensure that Americans had an income stream for retirement years but that program is rapidly heading for insolvency.

The failed programs that our high taxes went to have almost failed miserably in delivering value. And still politicians insist on getting more and more wealth from us, promising great things but failing miserably to deliver. Obama Care introduced many, many new taxes which have depressed economic growth and business expansion. Its medical device tax, for example, has resulted in tens of thousands of jobs disappearing or being shipped overseas. 

Several years ago Maryland state politicians raised taxes on the wealthy with the promise that overall tax revenues would go up. A few years afterwards, tax revenues from high income groups actually decreased overall despite the higher rate. Why? People are not stupid. Those high earning Maryland residents just moved to preserve their wealth, knowing that paying more in Maryland state taxes was not going to make their lives any better so why put up with it.

Which gets us to today’s examples of taxation futility. Below is a set of demographic and economic trends that show when taxation goes down, life and citizens are much better off and citizens will take rational, sane steps to ensure that their wealth and family’s welfare comes first, not the welfare and greed of politicians.

1) I was born and raised in New Jersey. Went to school in New Jersey, raised a family in New Jersey, had a corporate career in New Jersey, and started and operated a small business in New Jersey. However, I have lived and been very happy in Florida for the past nine years.

Why leave my home and heritage behind? Simple, overbearing taxes. Nine years ago my New Jersey property taxes were just over $4.00 per square foot of our home. I am sure that cost has gone up substantially in those nine years.Nine years later, my Florida property taxes are less than $2.00 per square foot of my home. I probably save over $10,000 a year just in property taxes by living in Florida.

Oh, by the way, I pay no state income taxes in Florida compared to a pretty hefty state income tax bill in New Jersey. And I am not the only one who has seen the light. According to recent research from the largest mover of households in the country, nearly two thirds of families making an interstate move of their household involving New Jersey in 2014 were leaving New Jersey, the highest moving out rate in the country. New Jersey has been number one in this dubious category for four of the past five years.

Long term you cannot operate a vibrant financially state, or state government, if far more people are moving out than moving in. But other high tax states are suffering the same fate with New York, Pennsylvania, Connecticutt, and Pennsylvania also in the top ten states losing more movers than gaining.

People want to be free, according to an old Rascals song. And that includes not only political freedom but also financial freedom. Higher and higher taxes for less and less quality and quantity of government services in return makes for an unhappy, and mobile citizenry. And lower and lower tax revenue for state and local governments.

2) In a related subject, consider some recent information from the Census Bureau. Florida recently passed the state of New York to become the third most populous state in the union. Could it be that high property taxes, state income taxes, and local income taxes had something to do with New York losing and Florida gaining?

People will optimize their happiness and many of them are maximizing their happiness by leaving New York and New Jersey. Those that are left behind will find it much harder to pay for the promises and commitments that the state politicians have made since the tax base will continue to both shrink andbe less affluent. This will result in even higher tax rates resulting in even more financially able citizens to continue to leave further reducing tax revenue. etc., a death spiral of dwindling tax revenue and shrinking government services.

Meanwhile, low tax states will see growth in both population and tax revenue creating more economic opportunities and growth that actually increases tax revenue without increasing tax rates.

3) But it is not just Florida that is seeing the merits of respecting citizens’ wealth and keeping taxes low. According to the Washington Examiner, the state of Texas, a state with lower taxes and no state income tax and no corporate tax, has seen more job growth since 2007 than the rest of the other 49 states COMBINED:

Since the so-called Great Recession began in December 2007, 1.2 million incremental  jobs have been created in Texas. Only 700,000 incremental  jobs in total have been created in the other 49 states. Total non-farm employment has grown by 11.5 percent in Texas since December 2007. Employment in the rest of the United States has grown only 0.6 percent. Until September 2014, total employment growth in the rest of the United States since December 2007 was still negative.

California, a state with high and numerous taxes and Texas’ biggest economic rival, has created 985,600 fewer net jobs during the same period. California’s 1.5 percent job growth is a whopping ten percentage points lower than Texas’ percent job growth

4) But it is not just Americans who “get it”: consider the disasterous impact of high taxation has had in France. In 2012, the French central government raised the top income tax rate to a mind boggling 75%. Less than three years later, the government is dumping the 75% rate.

Why the quick reversal? Wealthy Frenchman made an easy move out of France into Belgium and elsewhere to get out from under the repressive 75% rate. Those that moved included the country’s richest man, Bernard Arnault, and greatest actor, Gérard Depardieu, who actually moved to Russia of all places

Over its lifespan, the 75% tax rate raised a tiny fraction of the original forecast. Rich, and sane,  people don’t sit around waiting to be taxed. They have all sorts of ways of beating the system, with emigration not being a problem for those of means. So not only did the French government not get what they expected from their wealthier residents, they got far less when those wealthier residents took ALL of their potential tax dollars elsewhere. Those who were left behind now have to pay more taxes to make up for the loss and the financial death spiral begins

What is the lesson to be learned from all of this reality? As paradoxical as it seems, raising tax rates almost always REDUCES the total amount of tax revenue a government receives. This has been proven over and over, in Maryland and in France and is likely behind the growing migration from high tax states to lower tax states. A state being sapped of its wealthier population loses tax revenue, forcing its remaining, less wealthy citizens to shoulder the burden of that tax revenue shortfall, which means the state has to raise taxes on those who least can afford a tax increase.

Thus, ironically, raising taxes on the wealthy usually results in the middle class and  poor paying more in taxes. That is why Step 1 from our book, “Love My Country, Loathe My Government,” is so important. Step 1 proposed that the Federal government reduce its operating budget by 10% a year for five years. This would get its revenue stream inline with its expenses and would funnel some tax relief back to taxpayers.

Wealthier taxpayers make for more robust economic growth which increases tax revenue without increasing tax rates. History proves it is that simple. According to the Washington Examiner article that researched the French tax screw up we discussed above: “Between and 2007, the US cut taxes at all income levels. Result? The wealthiest one percent — those chaps that the Occupy crowd keeps banging on about — went from paying 19.5 percent of all taxes to 40 percent. In Britain, after the top rate of income tax was lowered in stages from an eye-watering 98 percent in the late 1970s to 40 percent by 1988, the share of income tax collected from the wealthiest percentile rose from 14 to 27 percent. In other words, flat taxes don’t just make avoidance pointless; they don’t just boost the economy; they also ensure that the rich pay more. If President Hollande were to embrace them, he might edge even France out of its nosedive.

Lower taxes equals happier citizens equals higher economic growth equals more tax revenue. It is that simple but apparently still too complex for the American political class.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com

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