As blue states hemorrhage tax base, they raise taxes and cut services.
Soaking the Rich and Big Corporations
By: George Noga – July 17, 2022
I begin with new IRS data that show the fiscal effects of the ongoing blue state to red state migration. This is followed by the paradox of the massive Trump tax cuts that actually produced (just as we predicted) a veritable gusher of new tax revenue.
Starting next week, I lighten up my posts for the remainder of July with blogs of a personal nature. Some long-time readers have suggested I try this; please stay tuned.
Tax Base Migration from Blue to Red States is Accelerating
The massive human and financial migration from blue to red states is surging, fueled in part by working from home. Just released IRS adjusted gross income (AGI) for 2020 shows NY lost $20B, CA $18B and IL $9B; other big losers were MA, NJ, and MD, all deep blue. The big winners were FL $24B, TX $6B, AZ $5B, SC $4B, NC $4B, NV $3B and TN $3B. Other winners were CO, ID, UT, WY and MT – mostly deep red.
Blue states are trapped in a vicious circle; they lose tax base, then to make up the lost revenue they raise taxes, cut services and neglect infrastructure. They lose even more tax base, and the cycle repeats. When will they learn?
The annual loss of tax revenue is $1.6B for NY, $1.4B for CA and $700M for IL. The loss of AGI has a compounding effect, as the lost income from the current year is added to prior losses. For red states, AGI gains also are compounded. As blue states hemorrhage tax base, liberals respond by raising taxes, cutting services and neglecting infrastructure, which causes even more people to flee, which further erodes the tax base and culminates in a vicious circle. Meanwhile, red states are in virtuous circle and use the tax revenue gained from blue states to further cut taxes, improve services and rebuild infrastructure. Will the last person leaving New York please turn off the lights?
Trump Tax Cuts are Soaking the Rich and Large Corporations
I have blogged repeatedly that the only way to soak the rich is by cutting – that’s right cutting – taxes. The 2003 Bush tax cuts resulted in the biggest tax increase on the rich in US history as their share of taxes doubled. The same thing is happening with the 2017 Trump tax cuts. Moreover, it also is occurring with respect to corporate taxes.
Hauser’s Law: Tax revenue is a constant share (around 18%) of GDP whether the tax rate is 90% or 28% – for reasons explained below.
Individual income tax revenue is up 68% while corporate tax revenue is up 21%. Overall revenue is up an astounding 39%. Just as we predicted, lower rates resulted in more revenue; yet, progressives want to jack up rates for class warfare purposes. Progressives really don’t want to soak the rich; they want only to appear to be soaking the rich. If they really wanted to soak the rich, they would cut taxes.
Lower tax rates work due to Hauser’s Law, i.e. when tax rates are low, the rich are disincentivized to take measures to reduce their taxes. When rates are high, the wealthy work, save and invest less; they barter, retire earlier, hide, defer and underreport income, convert income to capital gains and defer gains without offsetting losses.
With high rates, high-income taxpayers use tax shelters; seek tax-free income; change the amount, location and composition of taxable income; exploit ambiguities and loopholes; shift income to corporations and/or to lower-bracket family members. They lobby aggressively for tax breaks, move to low tax venues, transition into the occult economy, employ top tax lawyers and accountants and much, much more.
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Next week we lighten things up with: Travels with George 1968 to 1972.
