Taxes are driving wealthy New Jersey residents from the Garden State
Friday, November 18, 2011
Democrats who control the New Jersey legislature are vowing to revive the state's millionaire's tax.
The state's Republican governor releases data showing that higher taxes drive out New Jersey's top income earners.
Coincidence much?
No, politics as usual.
Dr. Charles Steindel, the top economist for the N.J. Treasury Department, and two colleagues this summer surveyed financial advisers who subscribe to the state's online newsletter. Of the 200 that responded, nearly half said they had advised personal or small business clients about leaving the state.
"The economic reasoning behind tax flight is straightforward: individuals respond to incentives, and they will choose to move to states with lower tax burdens, holding all else equal," wrote Steindel.
And which Garden State residents, according to their financial advisers, were ready to pack up and leave?
"Clients leaving, or interested in leaving the state, appear to have higher incomes, more wealth, and larger New Jersey business interests than smaller numbers who have recently moved to the state," said Steindel in the survey's executive summary.
Specifically, 75 percent of them have annual incomes over $100,000 and 15 percent earn more than $1 million.
Figures don't lie, but ...: Such studies are released now and then. In fact, regular readers might remember Christie citing a similar study done by Boston College earlier this year.
That's why the New Jersey treasurer's report is this week's Follow-up Friday feature.
And the current Garden State findings also are very similar to those earlier tax/move surveys: High tax rates encourage state residents to move away ... or not.
You did notice Steindel's phrase "holding all else equal" a couple of paragraphs ago, right?
That means that income taxes alone don't prompt folks to pack up and head to other states.
Sure, other out migration reasons include plenty of other taxes, such as property taxes and estate taxes. But, acknowledges Steindel, things such as retirement costs and housing prices also are big factors in moves.
And oh yeah, "some empirical research has suggested that individuals primarily select residences based on proximity to family or jobs, trumping any migration response to taxes costs," admits Steindel in the paper.
But, as I noted, this is politics as usual.
Democrats in the New Jersey legislature are looking to revive the state's millionaires' tax that expired in 2009. One of Christie's first moves as New Jersey's new leader was fighting reinstatement of that levy. He's vowed to veto it any new version that makes it to his desk.
So it's not surprising that Christie is touting Steindel's report, especially the state treasurer's analysis that the "migration effects" of something similar to New Jersey's 2004 millionaires' tax "could offset a meaningful share of the [projected] revenue boost."
As New Jersey lawmakers struggle to find enough money to run their state, look for a lot more parsing of this study by both political sides.
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The study is correct. People do in fact move away from high taxes, and the more wealthy a person is the more mobility they have.
Just look at California, North Dakota and Texas. California, despite it many advantages of climate and geography, is net/net losing jobs.
Texas and North Dakota,on the other hand, have harsher climates but much lower taxes and much less regulation and ligation. They are gaining jobs and their state governments are seeing increasing tax revenue.
You get less of anything that you tax or regulate. Tax wealth, and you'll have less of it in your state.
Look at the Texas gross receipts tax. Like all tax increases, it is producing far less revenue than it proponents predicted. That's because if you tax business revenue, you get less revenue.
This is just an economic law.
Posted by: Jim Howard | Friday, November 18, 2011 at 02:44 PM