The further to the left or the right you move, the more your lens on life distorts.

Monday, July 02, 2018


Blue states opt to fund their profligate spending, underfunded pensions, and growing dependency programs by increasing taxes on the rich. In many cases, that means significantly higher income taxes for the very very rich. Politicians argue that the very, very rich account for such a tiny percentage of the populace that taxing them will have little political effect. There's only one problem, and the Wall Street Journal identifies it:
Call it the consummate New Jersey compromise. Governor Phil Murphy and State Senate leader Steve Sweeney have been fighting over whether to raise tax rates on individuals or businesses, and over the weekend they decided to raise taxes on both.

Messrs. Murphy and Sweeney agreed to raise the state’s income tax on residents making more than $5 million to 10.75% from 8.97% and the corporate rate on companies with more than $1 million in income to 11.5% from 9%.

This will give New Jersey the fourth highest marginal income tax rate on individuals and the second highest corporate rate after Iowa. The corporate tax increase will supposedly last two years and then phase out over the next two years, but that’s what politicians always say.

The two Democrats claim this will do no harm because about 0.04% of New Jersey taxpayers will get smacked. But those taxpayers account for 12.5% of state income-tax revenue and their investment income is highly mobile. The state treasurer said in 2016 that a mere 100 filers pay more than 5.5% of all state receipts. Billionaire David Tepper escaped from New Jersey for Florida in 2015, and other hedge fund managers could follow. Between 2012 and 2016 a net $11.9 billion of income left New Jersey, according to the IRS.

The flight risk will increase with the new limit of $10,000 on deducting state and local taxes on federal tax returns. This is why Mr. Sweeney wanted to avoid raising individual tax rates, but Mr. Murphy insisted on it. The new Governor is another progressive who became rich working for Goldman Sachs but seems offended that someone else might also get rich.
Every blue state politician will tell us about the benefits of "diversity," except when it comes to diversity of income. Even the most inexperienced private sector manager understands that an organization must diversify its income sources to reduce risk. A lack of diversity means that you are held hostage to one or more of those income sources leaving/disappearing, causing significant upheaval in your organization. And if you can't diversify your income sources? You'll need to reduce your expenses/spending to improve your bottom line, but that's anathema to blue state politicians.

And when state income taxes go up, and up, and up with spending going in the same direction? In blue states like CT, IL and NJ, over-taxed high income people are voting with their feet, leaving the blue states to move to more tax-friendly red states (Florida comes to mind).

All of this isn't new, but it does represent a level of fiscal irresponsibility that is dangerous, not only on a state level, but also nationally. Just another reason why calls by the left-wing "democratic socialist" arm of the Democratic party to provide "free" stuff by taxing the rich are a recipe for disaster. You don't have to believe me, just ask any objective observer in CT, IL and NJ (or for that matter CA) how it's working out for them.