Another reminder that raising taxes has consequences

Victor Joecks

Even though the New York Times has acknowledged that raising taxes hurts businesses and can lower state revenues, I get the impression that some people still want to increase taxes.

Dr. Burt Folsom, an economist and the author of New Deal or Raw Deal? How FDR’s Economic Legacy has Damaged America, examines how rich individuals are reacting to higher taxes in New York – by leaving.

As we approach the due date for tax returns, it’s useful to reflect on the current mania for raising taxes on the rich. We have the Obama tax hike from 35 to 39.6 percent on top incomes; we also have the cap on deductions for charity. Now states – led by New York, California, New Jersey, and Connecticut – are getting in the act with so-called “millionaires’ taxes.” These are state income tax increases that extract an extra 8 to 10 percent on incomes above $500,000. Thus, in those states, we have a combined federal and state tax of almost 50 percent on the rich-and that doesn’t include social security tax, medicare tax, telephone tax, and sales taxes, which put the tax over 50 percent for many wealthy Americans.

No wonder Rush Limbaugh speaks of his life in New York in the past tense. Donald Trump says he has spoken to a couple dozen of his New York friends who are also in exit mode. Many others are on the way out to tax-friendly states like Florida.

It shouldn’t be a surprise that individuals will act in their self interest to avoid paying taxes. Bono did it. During the Great Depression, Nevada successfully advertised its low tax rate to California millionaires to convince them to move here.

By 1936, the state of Nevada enjoyed a budget surplus. It shared that news with the nation and world while promoting its modest taxes. Gov. Richard Kirman joined business leaders from throughout the state in a “One Sound State” campaign. The intent was to draw wealthy people to Nevada. California millionaires were particularly targeted because the state income tax had been increased by the California Legislature in 1935. The extensive national marketing campaign advertised Nevada as a state with “no income tax, no inheritance tax, no sales tax, no tax on intangibles, but with a balanced budget and a surplus.”

Literally scores of millionaires – among them Max Fleishmann, LaVere Redfield, and E. L. Cord – established residency in Nevada. The taxes on all the property purchased at Lake Tahoe, in and around Reno and Las Vegas, and throughout Nevada, helped fill the state’s coffers. By 1939, the state surplus was so large that the property tax rate, which had been raised by the 1937 legislature, was cut by 20 percent. (h/t Lower Nevada Taxes)

As legislators are considering raising taxes by a billion dollars, they should remember that individuals react to tax increases. And there is no way to determine what the tipping point for each individual is. All we know for sure is that increased taxes are a reason for individuals to leave Nevada, not to stay here.

Is that really what we want?