Here are the latest unemployment rates by state. Here are state income tax rates. California has a high rate (before the recent increase) of 9.3%, Michigan has a flat tax with a low, low rate of 4.35%. Oddly, Michigan has an unemployment rate of over 14%. Looks like a low flat tax didn’t magically bring business into the state, did it? Obviously there are many factors at play here, which is exactly my point. Here in Silicon Valley we’ve had layoff after layoff, and none of them are due to rich people suffering from high tax rates. The loss of wealth from the market crash had a much, much, bigger impact. One data point isn’t evidence of anything.
No, they are simply people with options that can and havemoved elsewhere if the tax differential is sufficient. But that does not mean, in some grand social-contract scheme, that we, the non-super-rich, “own” society and the rich live here on our sufferance, which is the usual justification for socking them.
Some must think those with high ability are real idiots. Wyoming is a lovely state, but a computer exec is not going to move there (except to retire) no matter how low their income tax is. When I came to California in 1996, housing prices and the cost of living were high, but it was well worth it. No one I knew who hit a top bracket during the bubble complained about those high Clinton taxes. We were happy to be making a fortune and if anyone was demotivated by paying 1% more on his next $100K I didn’t notice. I sure as hell wasn’t.
Nonsense. “We” includes the rich - just not scaled in import proportionally to their money like they think they should be. And the strawman you present doesn’t even resemble any of the usual justifications for “socking them”, which in my experince have more to do with marginal utility, pocket depth, and political expedience.
And ask for your quote - 2 data points is not a trend, nor an argument.
At the risk of ridicule, I’ll put out my story. My wife and I moved to California (San Francisco) about five years ago. Our combined income is 250-300 K per year. More toward the lower end these years, obviously.
We are planning on leaving California in the next 2-3 years because, with our first child on the way, and hopefully one or two more after that, it will be impossible to live on our incomes in this area.
I’m not asking for pity, obviously. We’re not poor, and I don’t mind paying my fair share of taxes. Hell, I don’t mind paying more than my fair share of taxes. Our salaries have served us nicely when it was just the two of us. We bought a reasonable house, own one car (a Honda) and have been on a real vacation once in the past five years. We work our asses off. We see each other infrequently. We have had some good fortune along the way. Neither of us works in a field where we had any sort of family connections. We pay our bills every month. We save and invest wisely.
We get hit with the AMT every year because we’re “rich”, despite the fact that this is not adjusted for cost of living. With a kid on the way, our budget will be very tight. With a second, our savings will be heading negative. We will be in Washington state before that happens.
I’m not stating that I think any of these taxes are unfair or shouldn’t be levied on the “rich”. I’m just stating that the numbers will not work out for my family and we will have to leave. We could probably sacrifice quite a bit and stay, but why would we when our quality of life can be better elsewhere?
Very well; argue on that basis then. I was responding to the idea that “rich people wouldn’t be rich unless they had society, so they should pay back to society,” which is half-assed.
Well, a flow is definitely a trend, and tax competition is a fact that should inform your argument.
I find it interesting that Fiveyearlurker, probably correctly, takes precautions to defend himself against personal attacks (“Rich whiner,” etc.) for making a rational choice as to which system he wants to live under - what should be a morally neutral decision.
BTW – I know this thread is about the flat tax, which I’m not passing a judgment on without more information. My point is that California is in trouble because of the high tax burden. Notice the correlation between tax burden and unemployment. These numbers are from the end of 2008.
The 10 states with the highest tax burdens:
1 - New Jersey at 11.8%
2 - New York at 11.7%
3 - Connecticut at 11.1%
4 - Maryland at 10.8%
5 - Hawaii at 10.6%
6 - California at 10.5%
7 - Ohio at 10.4%
8 - Vermont at 10.3%
8(b) - District of Columbia at 10.3%
9 - Wisconsin at 10.2%
10 - Rhode Island at 10.2%
The U.S. average is 9.7%.
And where do these 10 (actually 11 with D.C.) states rank in employment?
1 - New Jersey at #25
2 - New York at #25
3 - Connecticut at #33
4 - Maryland at #15
5 - Hawaii at #12
6 - California at #48
7 - Ohio at #39
8 - Vermont at #19
8(b) - District of Columbia at #45
9 - Wisconsin at #17
10 - Rhode Island at #50
So out of the 10 states plus the District of Columbia with the highest state tax burdens, most of them fall in the lower half for employment numbers (or the top half of the unemployment numbers). Seven of these 11 states basically fall in the upper half for UNemployment. Hawaii is certainly not a typical state, and skews these numbers a bit. And out of our 11 (if you include D.C) that made the list with the highest tax burdens, four of them made the bottom 12 in terms of employment numbers. None of them made the top 10 for employment, with Hawaii as the closest at #12.
The 10 states with the lowest tax burdens:
1 - Alaska at 6.4%
2 - Nevada at 6.6%
3 - Wyoming at 7%
4 - Florida at 7.4%
5 - New Hampshire at 7.6%
6 - South Dakota at 7.9%
7 - Tennessee at 8.3%
8 - Texas at 8.4%
9 - Louisiana at 8.4%
10 - Arizona at 8.5%
And where do these 10 states rank in employment?
1 - Alaska at #39
2 - Nevada at #45
3 - Wyoming at #1
4 - Florida at #39
5 - New Hampshire at #6
6 - South Dakota at #3
7 - Tennessee at #35
8 - Texas at #19
9 - Louisiana at #15
10 - Arizona at #29
So out of the 10 states with the lowest tax burdens, five of the ten made the top 20 for best employment numbers. And only Nevada (which has likely been hit hard from lack of tourism dollars) made the bottom ten. Though Alaska was very close.
Let’s take one more view. Here are the 10 states with the best employment (lowest unemployment) numbers, and their respective tax burdens.
1 - Wyoming with 3.2% unemployment and a tax burden of 7%
2 - North Dakota with 3.3% unemployment and a tax burden of 9.2%
3 - South Dakota with 3.4% unemployment and a tax burden of 7.9%
4 - Utah with 3.7% unemployment and a tax burden of 9.6%
5 - Nebraska with 3.7% unemployment and a tax burden of 9.8%
6 - New Mexico with 4.3% unemployment and a tax burden of 8.6%
7 - New Hampshire with 4.3% unemployment and a tax burden of 7.6%
8 - Iowa with 4.3% unemployment and a tax burden of 9.3%
9 - West Virginia with 4.6% unemployment and a tax burden of 9.3%
10 - Oklahoma with 4.7% unemployment and a tax burden of 9.8%
Once again, the U.S. average for state tax burden is 9.7%. Out of the ten states with the lowest unemployment, only Nebraska and Oklahoma exceed the national average for state tax burden. And just barely at 9.8%.
What do these numbers mean? Well it’s difficult to draw many conclusions. Though there are some obvious correlations (notice I did not say cause and effect) going on here. Higher state tax burdens correlate with higher unemployment. And states with lower tax burdens typically have lower unemployment numbers as well.
So back to the beginning. How did California get themselves into such a financial hole? Just like a family, or just like a business, you go into debt when you spend more than you make. States “make” money by taxing people and businesses. It sounds obvious. And it is.
States like California favor large government programs. These programs require a lot of money to run. And California’s decision has been to tax their people at higher tax rates than most of the other states to pay for these programs. What happens when taxes go up? Employment goes down. The state’s economy suffers. And tax revenues into the state go down. So instead of cutting their spending, California just raises their taxes again. And again. Until they have one of the highest tax rates in the country. And high unemployment as well.
If you were a business owner, why would you put your business in California where taxes are high, and the cost of living is high? So now California has driven away new business opportunities. Which means no new jobs. No new tax revenues. And a ballooning state debt.
Sounds a little like what’s going on with our federal government. But that’s a discussion for another day.
The things is that people with that kind of money don’t give a crap about state taxes. they usually have the bulk of their wealth in laddered treasuries which are not subject to state taxes. I guess they could renounce citizenship and move to another country.
google California state tax rates. It doesn’t give you percentages at different income levels but I think if you look at the income levels you can figure things out on your own.
Jeez, things are worse than I thought in California. Do you know what has to happen for income tax receipts to drop 33%. Do you guys have Hoovertowns over there now?
Well, they have less of a winner take all attitude over there. The unions are particularly strong and the tax rates are very progressive, the CEOs make less (and yet their companies seem to doing at least as well as our during this economic crisis). Thats not to say everything is better over there but they have less income disparity. Some people think it also has to do with the historic homogeneity over there, maybe it might make people a little less selfish.
We’ve been through this before. I have no problem with those who create lots of wealth getting a good chunk of it; I’m more concerned about those who destroy wealth also getting lots of money, since only they can get out of the hole they themselves dug. I’m concerned about stock incentives encouraging managers to push in income and lie about their balance sheets in order to cash out this year.
As for inheritance taxes, I’m still waiting to find that mythical family farm lost due to them. Godot will arrive first.
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When the stock incentives make sense if properly structured, they just haven’t been properly structured since McKinsey first floated the idea.
“We” don’t own society, “we” ARE society.
What was California’s relative unemployment rate 3 years ago?
Umm the money doesn’t evaporate, it goes right back into the economy in the form of teacher salaries, construction projects, etc. What do you THINK happens to the money?
Most state tax systems are relatively flat. Its hard to impose a very progressive state tax system on a progressive federal tax system. California’s system is kinda flattish.
No doubt the Evil Liberals ritually burn it in their yearly sacrifice to Satan.
That sounds like a cost of living problem more than a tax problem.
Democrats have been trying to reform AMT for years. They ALWAYS hit Blue States more than Red States because the largest driver for triggering the AMT is the state income tax deduction. This would be fine if the AMT were still fulfilling the its original purpose. The AMT was first introduced back in the late 60’s when marginal income tax rates were well north of 50% and a 28% AMT seemed reasonable for people who made more than $100K (or something like that). Nowadays the marginal tax rate is much lower and income are much higher but they never marked it for inflation and it now hits middle class professionals who live in states with high state taxes. The problem with AMT reform is that it would simply bust our budget to get rid of it unless we adopt a significantly more progressive tax system.
If the cost of living were the same as it was in Washington State (housing and all) would the taxes still force you to leave?
Yeah? So all the work I did the past ten years for people living in FL and CA means I will get similar work in TX? If I could find some salesman willing to work there…
Your correlation is at once weak and exaggerated.
You have about half of both lists above the middle and about half below the middle (the 25th state is in the top half or at least smack dab in the middle) in terms of unemeployment. At the same time your correlation implies that the 2.6% difference in state tax rates has created a 7% gap in unemployment rates between California and South Dakota?
Laissez faire economic policies?
I shouldn’t have brought up the AMT. It’s a separate issue and a hijack.
We’ve looked at what we can buy, house-wise, in Seattle, and the lower mortgage would certainly make things easier. I’m not going to pretend it’s just the taxes. It probably is mostly a cost of living issue. But that ends up being wrapped up in a tax issue because taxes aren’t adjusted that way. If I made 200K in Oklahoma, I could live like a king at any tax bracket. But 200K in California, has me paying the same federal tax, higher state tax, and much higher cost of living. The number is the same, but the end result is very different.
I’m decidedly middle class here. I use coupons and shop at Costco. I generally vote Democrat, and have no problem being in a higher tax bracket, but I feel like I keep getting caught in this “let’s tax the rich because we can” thing. I’m NOT rich! I have no idea how we’re going to pay for child care in a few months!
Again, I don’t know what the right answer is for the state, but the right answer for my family is to start moving toward the door.
Oddly enough, the homeless rate is dropping, as people move in with relatives, though more families with children, some of whom even have jobs, are becoming homeless. I haven’t studied this, but I suspect a lot of the drop is not from unemployment, but from the options of execs being underwater, and a reduction of bonuses. That would get taxed at the highest rate, and so has the biggest impact.
Yeah, they’d always work perfectly if people weren’t greedy. I wonder if we can call this the Greenspan Effect?