"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 Grover Norquist and Alex Hendrie • The Hill
The tax cuts passed by Congress and signed into law by President Trump six months ago are already impacting our nation in these ways.
Americans are paying less in taxes
Ninety percent of wage earners around the country are already seeing increased take-home pay because of tax reform. Under the bill, a family of four with annual income of $73,000 will see a tax cut of more than $2,058, a 58 percent reduction in federal taxes. Similarly, a single parent with one child with annual income of $41,000 will see a tax cut of $1,304, a 73 percent reduction in federal taxes.
Workers are getting raises and bonuses
Immediately after passing of the GOP tax cuts bill, businesses responded by giving their employees pay raises and bonuses. AT&T announced it would provide each of its 200,000 U.S. employees with a $1,000 bonus. Altria is Continue reading
The latest monthly Treasury report on taxes and spending shows that gross tax receipts in February were $1.4 billion higher than the year before. Weren’t the Republican tax cuts supposed to explode the deficit?
According to the report, the government took in $238.2 billion in taxes in February. The year before, tax revenues were $236.8 billion.
For fiscal year 2018, which started last October, taxes are up $50.5 billion compared with the same months last year, and are at a record high level for this five-month span.
The report does show that net receipts were lower in February compared with last year, but the main reason is that individual income tax refunds jumped $13.3 billion, while corporate tax refunds went up $4 billion, neither of which is the result of the tax cuts that took effect in January.
Even so, net receipts are up by $29.6 billion for the current fiscal year — a 2.4% increase — compared with the same period last year. That’s also a record high. (See nearby chart.)
Does this mean tax cuts are “paying for themselves”?
Not exactly. Income taxes collected in February were down $2.5 billion from last year — reflecting the new withholding tables. Corporate income tax collections, however, were essentially flat.
But remember, income taxes are hardly the only source of revenue for the federal government. And a faster-growing economy means more money pouring in from these other sources.
Payroll taxes, for example, are dependent on the number of people working and their wages. In February, the economy added 313,000 jobs, unemployment levels are now at or near record lows, and wages are climbing.
As a result, payroll taxes brought in $1.5 billion more in February than they did last year, and are up $11.4 billion this fiscal year. Federal excise taxes and customs duties are up $3.8 billion and $1 billion, respectively, this fiscal year.
What these numbers do show is that all the hand-wringing about the impact of the tax cuts on federal deficits was based on wildly exaggerated estimates of revenue losses, which failed to take into account the fact that a faster growing economy would offset at least of the lost revenue. That’s a point we’ve made repeatedly in this space.
In contrast, tax hikes almost always bring in less revenue than expected, because they dampen economic growth.
Democrats once understood this truism. It was JFK, after all, who said in 1962 “it is a paradoxical truth that tax rates are too high today and tax revenues are too low — and the soundest way to raise revenues in the long run is to cut rates now.”
Today’s Democrats, in contrast, uniformly opposed the Trump tax plan, and are now pushing to repeal most of it so they can spend an additional $1 trillion on government make-work infrastructure projects.
Their plan has no chance of being enacted, but at least voters will have a clear choice this November.
Brian Ellis • Investor’s Business Daily
Employers have until Thursday to implement new tax withholding guidelines, which determine how much they withhold from pay for federal taxes.
Fortunately for many Americans, job creators are already seeing lower rates and distributing larger paychecks. Treasury Secretary Steve Mnuchin estimates more than 90% of working Americans will see greater take-home pay because of the Tax Cuts and Jobs Act’s new withholding guidelines.
It’s further proof that tax cuts are working for the middle class. To date, more than 330 U.S. employers have publicly announced tax-induced wage hikes, 401(k) increases, and generous bonuses. While Apple and Wal-Mart grab the headlines, many beneficiaries of the Republican tax bill are small businesses, which account for two-thirds of new jobs in the country.
Missouri-based Dynamic Fastener, a construction hardware supplier, is rewarding employees with bonuses of up to $1,000, while also opening a paint shop, buying new equipment and Continue reading
By Elizabeth Harrington • Washington Free Beacon
The Treasury Department plans to eliminate nearly 300 outdated tax regulations, getting tax rules off the books that in some cases have not applied since the 1940s.
The department announced its proposal to eliminate unnecessary tax regulations this week, in compliance with two executive orders signed by President Donald Trump last year to reduce regulatory burdens and simplify the tax code.
“We continue our work to ensure that our tax regulatory system promotes economic growth,” said Secretary Steven Mnuchin. “These 298 regulations serve no useful purpose to taxpayers and we have proposed eliminating them.”
“I look forward to continuing to build on our efforts to make the regulatory system more efficient and effective,” he said. Continue reading
By Ali Meyer • Washington Free Beacon
The Tax Cuts and Jobs Act, which was signed into law by President Donald Trump in December, is projected to push GDP growth higher than previously expected. Growth is forecast to rise to 2.7 percent in 2018, according to a report from the International Monetary Fund.
The changes from tax reform are expected to add to economic growth through 2020 so real GDP will be roughly 1.2 percent higher than it would be without tax reform.
The IMF previously projected that GDP would increase by 2.3 percent in 2018 and 1.9 percent in 2019. The group now projects GDP will increase by 2.7 percent in 2018 and by 2.5 percent in 2019.
“The growth forecast for the United States has been revised up given stronger than expected activity in 2017, higher projected external demand, and the expected macroeconomic impact of the tax reform, in particular the Continue reading
By Tripp Mickle • Wall Street Journal
Apple Inc. AAPL 1.65% said it would pay a one-time tax of $38 billion on its overseas cash holdings and ramp up spending in the U.S., as it seeks to emphasize its contributions to the American economy after years of taking criticism for outsourcing manufacturing to China.
The world’s most valuable publicly traded company laid out its plans Wednesday in a statement that was full of big-dollar figures, though it said that much of the money reflected Apple’s current pace of spending.
Apple said it would invest $30 billion in capital spending in the U.S. over five years that would create more than 20,000 jobs. The total includes a new campus, which initially will house technical support for customers, and $10 billion toward data centers across the country. It also will expand from $1 billion to $5 billion a fund it established last year for investing in advanced manufacturing in the U.S.
All told, Apple said it would directly contribute $350 billion to the U.S. economy over the next five years, with the bulk—about $55 billion this year, for example—coming from ongoing spending on parts and services from U.S. suppliers. That number also includes the federal tax payment and capital spending.
By Dan McLaughlin • National Review
The Republican tax plan has a lot of moving parts, but its centerpiece is a major long-term cut in corporate taxes. American businesses have been eagerly anticipating these cuts, and 2017’s strong stock performances were driven in part by an expectation in the market that they were coming. Liberal critics are apt to downplay the impact that corporate tax rates have on the competitiveness of American business — but the news from around the globe suggests that our economic competitors are very aware of the threat that the “Trump tax cuts” will lure more business back to the United States, or stem the departures of existing businesses, unless they take steps to keep up.
China: The Chinese government may not share America’s view of how to stay competitive, but it recognizes that the Republican plan improves America’s position. From the Wall Street Journal:
In the Beijing leadership compound of Zhongnanhai, officials are putting in place a contingency plan to combat consequences for China of U.S. tax changes as well as expected interest-rate increases by the Federal Reserve, according to people with knowledge of the matter. What they fear is a double whammy sapping money out of China by making the U.S. a more attractive place to invest.
by Alfredo Ortiz • Real Clear Politics
Pending tax cut legislation will eliminate the federal income tax burden on the average American family earning $59,000 a year. It will halve the tax bill for the average family earning $75,000. And it will allow the overwhelming majority of small businesses to protect nearly one-quarter of their income from taxes.
That’s the bottom line of the tax bill that needs to be said up front.
Given the critical media coverage of the bill, these benefits have largely gone overlooked. Rather than reporting on its provisions to double the standard deduction, double the child tax credit, and eliminate the 15 percent tax bracket in favor of a vastly expanded 12 percent rate, media coverage has claimed the bill is a gift to the rich. Rather than reporting on the new 23 percent tax deduction for small businesses earning less than $500,000 a year, media
coverage has claimed the bill is a budget buster.
That’s a shame because these benefits would bring long overdue relief to hardworking taxpayers who have borne the brunt of the slow growth Obama economy from which the country is finally emerging. Continue reading
By Glenn Kessler • The Washington Post
“On average, middle class families earning less than $86,000 would see a tax increase under the Republican ‘tax reform’ plan.”
— Sen. Kamala Harris (D-Calif.), in a tweet, Oct. 27
“The average tax increase on families nationwide earning up to $86,100 would be $794.00”
— Sen. Robert P. Casey Jr. (D-Pa.), in a tweet, Oct. 24
“Under GOP plan, U.S. families making ~$86k see avg tax increase of $794.”
— Sen. Jeff Merkley (D-Ore.), in a tweet, Oct. 24 Continue reading
By Ali Meyer • Washington Free Beacon
President Donald Trump’s tax reform framework could raise GDP by as much as 5 percent and wages by as much as 7 percent, according to a new study from Boston University economists.
“We find that, depending on the year considered, the new Republican tax plan raises GDP by between 3 and 5 percent and real wages by between 4 and 7 percent,” the economists explain. “This translates into roughly $3,500 annually more annual real take-home pay for the average American household.”
Economists believe this growth can happen due to the plan’s aim to reduce the marginal effective corporate tax rate from 34.6 percent to 18.6 percent, which they believe will grow the capital stock by 12 to 20 percent. Continue reading
By Peter Roff • USNews
Serious people are starting to wonder if tax reform can pass, largely because they’re only talking to people inside Washington.
Instead they should talk to the American people. Most of them are hungry for it. A quarter of small business owners surveyed by CNBC/Survey Money said taxes were the most critical issue they currently face. Overall it’s their No. 1 concern and, since small business is the engine of growth in the U.S. economy, that’s an important consideration.
Things have improved since Election Day 2016, but the economy is still not growing like it needs to if we are to have hope of ever paying down the national debt, now equal to about one year’s U.S. GDP. Continue reading
by Peter Roff • Washington Examiner
Though America has prospered since the end of the so-called “great recession,” the economy has grown by so little it’s hardly worthy of mention. The boom that began under Ronald Reagan ended with the collapse of the sub-prime mortgage industry. The country is no longer moving. Something must be done to get things going again.
The answer to our problems is simple. America needs tax reform to get moving again. There are a number of good, serious proposals out there from the Hall-Rabuska flat tax to the “Better Way” plan being pushed by House Speaker Paul Ryan. None of them is perfect but they’d all produce lower rates by eliminating deductions and credits. They’d all make the system simpler, and they’d all goose the economy to get annual growth in U.S. GDP where it should be, around three or four percent annually if not higher. Continue reading
by Ali Meyer • Washington Free Beacon
Sixteen CEOs from large companies are urging Congress to enact comprehensive tax reform that would end a tax on domestic production and make companies in the United States more competitive globally.
CEOs from companies such as Dow Chemical, Pfizer, Caterpillar, Boeing, and General Electric have written a letter to Speaker of the House Paul Ryan (R., Wis.) and Sen. Chuck Schumer (D., N.Y.) urging them to make the U.S. tax code more pro-growth and lower rates for businesses so they can actively compete with global competitors.
“We recommend enacting comprehensive pro-growth tax reform to remove a major impediment to economic growth—our outdated tax code,” the CEOs said. “We have the highest business tax rate in the developed world and are one of the few countries that taxes business income on a worldwide basis.” Continue reading
How Congress, Trump rework the tax code without abandoning conservative principles
Imagine going to your boss with your personal budget. The list would include things you want to spend money on, such as: your home, car, groceries, dining and entertainment projections, vacation plans, charitable giving goals, etc.
Now picture telling your boss he must fund your planned budget. You don’t bother to discuss your value to the company, but rather demand he fully fund your personal budget.
This is a difficult conversation to imagine because the real world doesn’t work that way. We don’t get paid based on what we want our personal budget to be, but rather the value we provide. Then based on what we receive, we budget accordingly. Yet, big government demands that it play by a different set of rules. Continue reading