By Kevin Meyer
A couple times a year I touch on the admittedly touchy subject of how tax policy literally attacks knowledge - and thereby revenue. It continues to boggle my mind that some people believe you can continue to increase taxes on the successful without suffering consequences. A story just the other day reinforced the oft-ignored reality.
New Yorkers are fleeing the state and city in alarming numbers -- and costing a fortune in lost tax dollars, a new study shows. More than 1.5 million state residents left for other parts of the United States from 2000 to 2008, according to the report from the Empire Center for New York State Policy. It was the biggest out-of-state migration in the country.
The impact?
"The Empire State is being drained of an invaluable resource -- people," the report said.
Bye bye knowledge. And what do knowledge workers have in common? They pay taxes. So...
It all adds up to staggering loss in taxable income. During 2006-2007, the "migration flow" out of New York to other states amounted to a loss of $4.3 billion.
New York isn't the only state hit hard.
High-tax California is experiencing the same refugee problem. According to Census figures, from April 2000 through June 2008, California lost a net 1.4 million people to domestic migration. The departees are not our welfare kings and queens. They are the young, the educated, the productive, the ambitious and the wealthy.
Where's everyone going? The low tax states like Florida and Georgia. Where are companies moving to take advantage of those pools of knowledge? You guessed it. Which states are then benefiting with more overall tax revenue even with lower tax rates? Yep, right again.
We've seen the effect between states. What will happen globally now that many countries, notably in eastern Europe, are lowering individual and corporate taxes while some of the developed world are raising them?
You may laugh at Laffer but Laffer may have the last laugh.
Evolving Excellence
It wasn't long ago that the Milken institute released a study illustrating the outflow of manufacturing jobs. In a nutshell, all the jobs that left California, went to Texas. I'd leave a link but those never show up. What's up with that?
Kev, I'm with you on the whole tax thing but I find it hard to believe taxes are the only reason jobs will migrate. In my industry (apparel manuf'g), CA and NY have traditionally held sway. Their problem is not taxes, it's everything else -regulation and the cost of square footage. Apparel has a high space foot print relative to value.
The engineering component in apparel is rarely quantifiable; knowledge is tacit, institutional knowledge is practically currency. Therefore, as much as you can, you produce in an area of knowledge concentration and by extension, your partner's resource connections. But now, particularly in CA, the cost of complying with regulations are tipping the balance in today's economy. As a result, more people are either operating illegally, moving out of state, or not going into the state to begin with. Or, just getting out of the business altogether.
CA has insane laws, with no definable legislation. Look up "prop 65", it's legislation by litigation with a whistleblower reward. Meaning, you can get a lawyer to take your case on contingency and sue major producers in the public interest, collect 25% of the award and legal costs for your efforts. In short, it's a fund raising initiative for consumer interest groups. It's gotten terrible. With donations down, not for profits are using strategies like this to cover their budgetary shortfalls. Again, I'd leave a link to several of these points but it wouldn't publish. Try looking up CEH (center for environmental health). Their big fund raiser for the year is suing everyone from target to victoria's secret because ...get this... there's VINYL linings in the women's make up bags they sell. Seriously. More to the point, vinyl contains lead and that can like, you know, kill people. Any amount. That it's not possible to make lightweight *pliable* waterproof material that can be sewn without lead, escapes them entirely. I guess they're expecting women to use baggies? Works for me. Until they decide to sue baggie producers too.
Anyway, CEH may get enough money to cover their operating costs from this lawsuit to keep going for five to ten years. I wouldn't do business in CA/NY unless I were forced to but taxes has nothing to do with it.
Posted by: kathleen | 01 November 2009 at 05:43 AM
CA is probably a special case. I have relatives who moved from Michigan to Tennessee so that they wouldn't have to pay taxes (income taxes, that is, but in their minds that was the only tax). I asked them if they thought roads, bridges, police and fire protection was free. They discovered that Tennessee has taxes, just different. Same with Florida (but services in Florida reflect reduced taxes) and Georgia. This is a reflection of perception overriding reality. Problem is usually business leadership.
Posted by: Gary Mintchell | 01 November 2009 at 05:52 PM