Politics & Policy

Taxpayers Go Where Taxes Are Low

High state taxes only invite those who would pay them to move to low-tax states.

The only thing more stunning than the kleptomania of tax-hiking politicians is their unswerving faith that taxpayers, especially wealthy ones, simply will smile and surrender even more of their money. This fundamental misunderstanding of human nature is impervious to mounting evidence that taxpayers go where taxes are low.

French President Francois Hollande thought he could impose a 75 percent top tax rate and watch revenues flow into Paris like the Seine. Instead, actor Gérard Depardieu rushed into the loving arms of Vladimir Putin and Russia’s 13 percent flat tax. Former French president Nicolas Sarkozy, of all people, reportedly may move to London to escape Hollande’s thievery. (Potential fraud charges also may fuel Sarkozy’s wanderlust.)

Last year, a record 1,788 Americans renounced their citizenship, mainly in favor of countries with lower taxes and friendlier political rhetoric.

Golf great Phil Mickelson generated headlines this week when he suggested that high taxes might drive him from California — or perhaps America.

“There are going to be some drastic changes for me,” Mickelson said.

“If you add up all the federal [levies], the disability, the unemployment, the Social Security, and the state, my tax rate’s 62, 63 percent.” Imagine keeping just 37 cents of every dollar you earn. Is that a fair share?

Before President Obama, Washington Democrats, and even some invertebrate Republicans boost taxes any higher, they should read How Money Walks. Author Travis Brown demonstrates how Americans between 1995 and 2010 shifted some $2 trillion in wealth by abandoning California, Illinois, New Jersey, and other high-tax states and unpacking in low-tax states such as Florida, Nevada, and Texas.

“After spending several years mapping and analyzing these data, one correlation keeps popping up: Income moves to where it is most welcome, tax-wise,” Brown writes. “Money walks because opportunity talks.”

As I observe in an essay for Brown’s book, this reality is undeniable among the Empire State and its neighbors.

While New York City’s bright lights and endless excitement still lure people, Gotham also has watched many of its denizens decamp. While this state’s steep living expenses and anti-business tone repel potential residents, painful tax obligations lead too many New Yorkers to cry “Uncle!” — just before they hire moving vans.

“I have identified the most compelling incentive of all: a major tax break immediately available to all New Yorkers,” explained Tom Golisano, chairman of Paychex, Inc. “To be eligible, you need do only one thing: move out of New York State.” As he wrote in “Adios, New York,” a New York Post op-ed in May 2009, Golisano spent about 90 minutes transferring his voter registration, driver’s license, and domicile certificate from New York State to Florida. “Combined with spending 184 days a year outside New York, these simple procedures will save me over $5 million in New York taxes annually,” Golisano calculated. “By domiciling in Florida, which has no personal-income tax, I will save $13,800 every day. That’s a pretty strong incentive.”

“I left New York in 1997 strictly to get away from the onerous taxation,” Rush Limbaugh declared on his national radio program, soon after Golisano spoke up. “I don’t want to talk numbers, but it was humongous. . . . So I used my mobility and I moved.” Limbaugh landed in income-tax-free Florida.

#page#Unfortunately for the popular broadcaster, every day that he works in New York State (which he sometimes visits), the authorities tax his income proportionally. They do so despite Limbaugh’s protests and ongoing legal challenges. “My number is $20,000 a day, every day I work in New York, $20,000 a day,” Limbaugh noted. “Sometimes 18, sometimes 20. My income changes year to year, so I guess it averaged out $18,000 a day.”

One-way traffic from the Empire State to the Sunshine State is so steady that Harrington Moving and Storage, Inc., specializes in easing that exodus. “Our professionals work hard to ensure that you don’t have to during your move from New York to Florida,” boasts the Maplewood, N.J.–based company on its website. “You can rest assured knowing that your New York to Florida move will be smooth, relaxing, and seamless throughout.”

Contiguous with the Empire State, Connecticut still is smarting over the relocation of hedge-fund manager Edward Lampert. With an estimated net worth of $3 billion, according to Forbes, Lampert was considered the fifth-wealthiest man in the Nutmeg State. In August 2011, Connecticut increased taxes by $875 million, retroactively to that January. It cut the maximum property-tax credit from $500 to $300 and lifted its top state income-tax rate from 6.5 percent to 6.7 percent. Then, on June 1, 2012, Lampert moved his company, ESL Investments, to Florida. Lampert also took with him the $10.6 billion that ESL reportedly controlled at that time.

“We are all aware that the changes to the tax structure in Connecticut last year have given many people pause as to whether this is the best place to do business and reside,” Greenwich first selectman Peter Tesei told the Hartford Courant. “I am concerned about the departure of Mr. Lampert and his firm, and would ask the state of Connecticut to take another look at its policies.”

Supply-side economists Arthur Laffer and Stephen Moore found similar unintended consequences just across the Hudson from New York. In 2004, New Jersey boosted its top tax rate from 6.35 percent to 8.97 percent. As they wrote in the Wall Street Journal, “Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect.” State deficits soon erupted like Jersey barriers beside a ditch.

“Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place,” Laffer and Moore also pointed out. By definition, there is no way to measure, for instance, the positions that a retail chain does not create when it never opens stores in New York State because its owners prefer not to lose their shirts by crossing the George Washington Bridge into Manhattan.

For now, put aside the talent that New York State’s high taxes repel, the jobs and careers that they strangle in the crib, and the goods and services that New Yorkers cannot enjoy when the entrepreneurs who generate them vanish in disgust or simply stay out. Gotham’s and the Empire State’s punitive taxes are most pathetic for their counterproductivity. New York’s sadistic tax code almost certainly chases away more revenues than government would collect if it lacked America’s gold medal among per capita state-tax burdens.

Referring to local liberal Democrats who hope to succeed him at City Hall and then jack up taxes on wealthy New Yorkers, Mayor Michael Bloomberg said last October that this idea “is about as dumb a policy as I can think of.” Just before the Columbus Day Parade, Bloomberg elaborated: “If you want to drive out the 1 percent of the people who pay roughly 50 percent of the taxes, or the 10 percent of the people who pay 70-odd percent of the taxes, that’s as good a strategy as I know.” Bloomberg added: “That’s exactly the [way] to do it, and then our revenue would go away, and we wouldn’t be able to have cops to keep us safe, firefighters to rescue us, or teachers to educate our kids.”

From class-warrior-in-chief Barack Obama to sticky-fingered city councilmen, politicians always should remember that taxpayers are not oak trees. Shake them too hard, and they and their money soon will be gone with the wind.

— Deroy Murdock is a Manhattan-based Fox News contributor, a nationally syndicated columnist with the Scripps Howard News Service, and a media fellow with the Hoover Institution on War, Revolution, and Peace at Stanford University. Neal K. Carter of New York City furnished research for this piece.

Deroy Murdock — Deroy Murdock is a Manhattan-based Fox News contributor and a contributing editor of National Review Online.

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