"This is the flip side (of) tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?" said New York Governor Andrew M. Cuomo on Feb. 4
After the Trump tax cut went into effect one year ago, we predicted that the Trump tax reform would supercharge the national economy but could cause big financial problems for the highest-tax states: New Jersey, Illinois, Connecticut, and New York.
The capping of the state and local tax deduction at $10,000 raised the highest effective state tax rates by about 66% (for example, in New York City, the rate on millionaires rose from about 8% to 13.3%). In New Jersey, the highest rate has risen from 7.5% to 12.75%.
Now, we have Andrew Cuomo conceding that the trend of rich people moving out of New York has caused the loss of $2.3 billion of tax revenue in Albany’s coffers. Cuomo called this tax change “diabolical.” We think it was a matter of tax fairness. No longer do residents of low-tax states have to pay higher federal taxes to support the blob of excessive state/local spending and pensions in the blue states.
As we predicted, the wealthy are fleeing these states. The new United Van Lines data were just released that are a good proxy for where Americans are moving to and from. Guess what four states had the highest percentage of leavers in 2018: 1) New Jersey, 2) Illinois, 3) Connecticut and 4) New York. Even high-tax California had more Americans pack up and leave than enter.
Ironically, liberals like Cuomo who argued for years that businesses don’t make location decisions based on taxes in their states are now forced to admit that the cap on the state and local tax deduction (which primarily affects the richest 1%) is depleting their state coffers. The rich change their residence by moving for at least 183 days of the year to low taxers such as Arizona, Florida, Tennessee, Texas and Utah.
We advised Cuomo and other blue state governors to immediately cut their tax rates if they wanted to remain even semi-competitive with low-tax states. They are doing the opposite. Connecticut, Illinois and New Jersey have led the nation in tax increases on the rich over the last three years, while “progressives” have cheered them on.
Last year, legislators in Trenton went on a taxing spree, raising the income tax on those making more than $5 million a year to 10.75% — now the third-highest in the country — and then enacting a health care individual mandate tax on workers, a corporate rate increase and an option for localities to impose a payroll tax on businesses. And they are still short of cash. Idiotically, these tax hikes were passed after the state and local tax deduction cap was enacted, thus pouring gasoline on their fiscal fires.
How has this worked out for them?
In addition to New York’s fiscal woes, the deficit in Illinois is pegged at $2.8 billion (with a $7.8 billion backlog of unpaid bills), and Connecticut faces a two-year $4 billion shortfall despite three tax increases in five years.
New Jersey has a $500 million deficit this year (even after the biggest tax hike in the state’s history) and Moody’s predicts that gap will widen to $3 billion over the next five years. This is all happening at a time when most states have healthy and unexpected surplus revenues due to the Trump economic boom and the historic decline in unemployment.
A Pew study published late last year on which states are bleeding the most red ink ranked New Jersey worst, Illinois second worst and Connecticut seventh worst. New York was also in the bottom 10.
Let us state this loud and clear in the hopes that lawmakers in state capitals across the country are paying attention: The three states that have raised their taxes the most now have the worst fiscal outlook.
Worst of all, things don’t look like they are going to get better in any of these states.
Last fall, Connecticut, Illinois and New Jersey voters elected mega-rich Democratic Govs. Ned Lamont, J.B. Pritzker and Phil Murphy, who have promised to sock it to the rich — the ones who haven’t yet left. In Illinois, Pritzker would eliminate the state’s constitutionally protected flat tax so that he can raise the income tax on the rich by as much as 50%. After raising income taxes three times in the last five years, Connecticut’s legislature now wants to raise the sales tax rate. No one in any of these progressive states even dares utter the words tax cut. In just one decade, New York lost 1.3 million net residents; Illinois 717,000, New Jersey 516,000 and Connecticut 176,000. California has lost 929,000.
There is also a useful warning for the soak-the-rich crowd of progressives in Washington. If a rise in the state tax rate from 8% to 13% because of the state and local tax deduction cap can have this big and immediate negative impact, think of the economic carnage from doubling of the federal tax rate from 37% to 70% as some want to do. The wealthy would relocate their wealth and income in low-tax havens like Hong Kong, the Cayman Islands and Ireland. That would do wonders for the middle class living in those countries.
We are sticking with our warnings from last year. If the four states of the Apocalypse — Connecticut, Illinois, New Jersey and New York — do not reverse their taxing ways and choose to keep making things worse, these once very rich and prosperous states will see thousands more rich taxpayers leave. The politicians in these states just don’t seem to understand math. A soak-the-rich tax rate of 8%, 10% or even 13% on income of zero yields zero income when the wealthy leave the state. Cuomo was right: The bleak outlook for the four states of apocalypse is “as serious as a heart attack.”
By Chris Edwards • National Review
Senator Elizabeth Warren is pushing a wealth-tax plan on the presidential campaign trail. She is promising that her tax would counter a rigged political system and raise enough money to pay for universal child care, a Green New Deal, student-loan relief, Medicare for All, and more housing subsidies.
Warren’s tax would be an annual levy of 2 percent on “net wealth” — meaning wealth minus debt — above $50 million and 3 percent on net wealth above $1 billion.
Wealth-tax supporters do not seem concerned about the likely damage to economic growth. But they should know that from a practical standpoint, wealth taxes in other countries have raised little money and have been a beast to administer.
More than a dozen European countries used to have wealth taxes, but nearly all of these countries repealed them, including Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden. Wealth taxes survive only in Norway, Spain, and Switzerland.
By Victor Davis Hanson • The National Review
Californians brag that their state is the world’s fifth-largest economy. They talk as reverentially of Silicon Valley companies Apple, Facebook, and Google as the ancient Greeks did of their Olympian gods.
Hollywood and universities such as Caltech, Stanford, and Berkeley are cited as permanent proof of the intellectual, aesthetic, and technological dominance of West Coast culture.
Californians also see their progressive, one-party state as a neo-socialist model for a nation moving hard to the left.
But how long will they retain such confidence?
California’s 40 million residents depend on less than 1 percent of the state’s taxpayers to pay nearly half of the state income tax, which for California’s highest tier of earners tops out at the nation’s highest rate of 13.3 percent.
In other words, California cannot afford to lose even a few thousand of its wealthiest individual taxpayers. But a new federal tax law now caps deductions for state and local taxes at $10,000 — a radical change that promises to cost many high-earning taxpayers tens of thousands of dollars.
If even a few thousand of the state’s 1 percent flee to nearby no-tax states such as Nevada or Texas, California could face a devastating shortfall in annual income.
During the 2011-16 California drought, politicians and experts claimed that global warming had permanently altered the climate, and that snow and rain would become increasingly rare in California. As a result, long-planned low-elevation reservoirs, designed to store water during exceptionally wet years, were considered all but useless and thus were never built.
Then, in 2016 and 2017, California received record snow and rainfall — and the windfall of millions of acre-feet of runoff was mostly let out to sea. Nothing since has been learned.
California has again been experiencing rain and cold that could approach seasonal records. The state has been soaked by some 18 trillion gallons of rain in February alone. With still no effort to expand California’s water storage capacity, millions of acre-feet of runoff are once again cascading out to sea (and may be sorely missed next year).
The inability to build reservoirs is especially tragic given that the state’s high-speed rail project has gobbled up more than $5 billion in funds without a single foot of track laid. The total cost soared from an original $40 billion promise to a projected $77 billion. To his credit, newly elected governor Gavin Newsom, fearing a budget catastrophe, canceled the statewide project while allowing a few miles of the quarter-built Central Valley “track to nowhere” to be finished.
For years, high-speed rail has drained the state budget of transportation funds that might have easily updated nightmarish stretches of the Central Valley’s Highway 99, or ensured that the nearby ossified Amtrak line became a modern two-track line.
California politicians vie with each other to prove their open-borders bona fides in an effort to appeal to the estimated 27 percent of Californians who were not born in the United States.
But the health, educational, and legal costs associated with massive illegal immigration are squeezing the budget. About a third of the California budget goes to the state’s Medicare program, Medi-Cal. Half the state’s births are funded by Medi-Cal, and in nearly a third of those state-funded births, the mother is an undocumented immigrant.
California is facing a perfect storm of homelessness. Its labyrinth of zoning and building regulations discourages low-cost housing. Its generous welfare benefits, non-enforcement of vagrancy and public health laws, and moderate climate draw in the homeless. Nearly one-third of the nation’s welfare recipients live in the state, and nearly one in five live below the poverty line.
The result is that tens of thousands of people live on the streets and sidewalks of the state’s major cities, where primeval diseases such as typhus have reappeared.
California’s progressive government seems clueless how to deal with these issues, given that solutions such as low-cost housing and strict enforcement of health codes are seen as either too expensive or politically incorrect.
In sum, California has no margin for error.
Spiraling entitlements, unwieldy pension costs, money wasted on high-speed rail, inadequate water storage and delivery, and lax immigration policies were formerly tolerable only because about 150,000 Californians paid huge but federally deductible state income taxes.
No more. Californians may have once derided the state’s 1 percent as selfish rich people. Now, they are praying that these heavily burdened taxpayers stay put and are willing to pay far more than what they had paid before.
That is the only way California can continue to spend money on projects that have not led to safe roads, plentiful water, good schools, and safe streets.
A California reckoning is on the horizon, and it may not be pretty.
In the first two months of the new fiscal year, tax revenues are up. But so is the deficit. Why? Because spending continues to outpace revenues. So why do tax cuts keep getting blamed?
The latest monthly budget report from the Congressional Budget Office shows the deficit jumping $102 billion in just the first two months of the new fiscal year.
That sure looks like the deficit is “soaring,” as one news outlet claimed. But as the CBO makes clear, almost all that deficit increase was the result of quirks of the calendar. Depending on where weekends fall, significant sums of spending can get shifted into different months.
A true apples-to-apples comparison, the CBO says, shows that the deficit climbed by just $13 billion. Continue reading
by Haris Alic • Washington Free Beacon
Democratic Rep. Nancy Pelosi (Calif.) has yet to take the speaker’s gavel of the U.S. House of Representatives, but Democrats are already laboring to make it easier to dismantle the achievements of the Trump presidency.
The incoming chairman of the House Rules Committee, Rep. Jim McGovern (D., Mass.), confirmed to colleagues on Wednesday that he would not honor the three-fifths supermajority requirement to raise income taxes, as reported by the Washington Post.
McGovern’s decision overturns a rule implemented under outgoing Speaker Paul Ryan (R., Wis.) that mandated a three-fifths majority approve any proposed hike to the income tax.
The change comes after a standoff between Pelosi and her moderate allies in the Democratic conference, such as incoming Ways and Means Committee chairman Richard Neal (Mass.), and younger, more progressive members like Rep.-elect Alexandria Ocasio-Cortez (N.Y.). Continue reading
By Samuel Hammond • National Review
The ability of businesses to grow rapidly is a one of the most defining and precious features of the American economy. Amazon went from a fledgling online bookstore to an “everything store” and the second-largest employer in the United States in just two decades. Uber emerged from nowhere less than ten years ago to become a dominant transportation option in cities around the world. And earlier this month, Apple became the first U.S. public corporation to reach a $1 trillion valuation — a far cry from its sorry state in 1996, when it looked doomed to fail.
It’s not just the information sector. The United States is home to 64 percent of the world’s billion-dollar privately held companies and a plurality of the world’s billion-dollar startups. Known in the industry as “unicorns,” they cover industries ranging from aerospace to biotechnology, and they are the reason America remains the engine of innovation for the entire world.
Unless Elizabeth Warren gets her way. In a bill unveiled this week, the Massachusetts senator has put forward a proposal that threatens to force America’s unicorns into a corral and domesticate the American economy indefinitely.
Dubbed the “Accountable Capitalism Act,” Warren foresees Continue reading
Taxes: Whatever you think about the issue of taxing internet sales, the simple fact is that the Supreme Court has just guaranteed that people across the country will now be paying more in state taxes. It’s hard for us to see how this is good news.
In its 5-4 decision on South Dakota v. Wayfair, the court overturned two previous rulings that prevented states from taxing sales of out-of-state companies. That meant a catalog company based in Maine didn’t have to navigate 45 state sales-tax laws to figure out how much each customer owed, and then remit that money to the right states.
Brick-and-mortar stores have been trying to lift this ban for decades, because, they say, it unfairly tilts the playing field in favor of catalog and online retailers. According to the Government Accountability Office, this break cost states up to Continue reading
By Chuck DeVore • The Federalist
A California lawmaker recently came up with the bright idea that waiters who serve unrequested straws should go to jail for six months because … the environment. Another duo of lawmakers have proposed more than doubling California’s business tax under the theory that employers wouldn’t miss the cash, because the tax increase would only take about half of President Trump’s recent tax cut.
Lawmakers all over the nation introduce weird or controversial legislation. Most of these bills are harmless, as they’d never make it out of the legislature, much less be signed into law by a governor. In California, however, many such legislative proposals are taken seriously and often do get signed into law.
Why is this? Sure, California is a liberal state. But, one key governmental structural factor likely contributes to Golden State lawmakers’ seeming isolation from common sense: California lawmakers often make a career of full-time politics. Continue reading
Taxes: A new “study” in Britain suggests that by raising taxes sharply on Facebook, Amazon and Apple, the government could pay for a universal basic income (UBI) for all Britons. It’s an absurd idea, which is why it can’t be counted out.
The so-called FANG companies — the above-mentioned three, plus Google and Netflix — have been vilified now for years in Europe and in the U.S. as “monopolies” and, worse, “predators.” When such strident rhetoric is used by politicians, you know they’re going in for the kill. There’s money to be made in taking down big, successful companies.
In the case of Britain, the left-wing paper The Guardian reports, the Royal Society of Arts (that’s right, Arts) recommends that “Britain could raise new taxes on Amazon, Facebook and Apple to give every citizen under the age of 55 as much as £10,000 ($14,000) in a form of universal basic income … helping to counter the growing risk of job losses from automation and artificial intelligence.”
America’s FANG tech companies look like easy victims. Inevitably, since they have little in the way of a domestic British constituency, they will come into the cross hairs of Britain’s tax-happy, left-wing politicians. Continue reading
Ali Meyer • Washington Free Beacon
This year, taxpayers will spend 113 days working to pay for the nation’s tax burden, according to a report from the Tax Foundation.
Tax Freedom Day is April 23, 113 days into the year, and falls 5 days after taxes are collected on April 18. Tax Freedom Day would fall roughly two weeks later on May 7 if federal borrowing or future taxes were included.
“Tax Freedom Day takes all federal, state, and local taxes—individual as well as payroll, sales and excise, corporate and property taxes—and divides them by the nation’s income,” the report says.
Americans will spend upward of $5.1 trillion on taxes, which includes $3.5 trillion in federal taxes and $1.6 trillion in state and local taxes, according to the report. Continue reading
After-tax income has declined for some demographic groups since 2009
by Ali Meyer • Washington Free Beacon
The CBO uses a comprehensive measure of income, referred to as average household market income, that includes labor income, business income, capital income, capital gains, and retirement income. It combines this with government transfers to calculate before-tax income.
The budget office then subtracts individual income taxes, payroll or social insurance taxes, corporate income taxes and excise taxes to calculate average after-tax income. Continue reading