Feeds:
Posts
Comments

Posts Tagged ‘Tax Competition’

I’m glad that Boris Johnson is Prime Minister for the simple reason that “Brexit” is far and away the most important issue for the United Kingdom.

Whether it’s called a Clean Brexit or Hard Brexit, leaving the European Union is vital. It means escaping the transfer union that inevitably will be imposed as more EU nations suffer Greek-style fiscal chaos. And a real Brexit gives the UK leeway to adopt market-friendly policies that currently are impossible under the dirigiste rules imposed by Brussels.

But just because Johnson appears to be good on Brexit, this doesn’t mean he deserves good grades in other areas. For instance, the UK-based Times reports that the Prime Minister is on a spending spree.

Boris Johnson is planning to spend as much on public services as Jeremy Corbyn promised at the last election and cannot afford the tax cuts he pledged in the Tory leadership campaign, a think tank has warned. The prime minister’s proposed spending spree would mean Sajid Javid, the chancellor, overshooting the government’s borrowing limit by £5 billion in 2020-21, according to the Institute for Fiscal Studies, which said that the government was “adrift without any fiscal anchor”.

Ugh, sounds like he may be the British version of Trump. Or Bush, or Nixon.

In a column for CapX, Ben Ramanauskas warns that more spending is bad policy.

…with Sajid Javid making a raft of spending announcements, it would seem as though the age of austerity really is over. …So it would be useful to look back over the past decade and answer a few questions. Does austerity work? …As explained in the excellent new book Austerity: When it Works and When it Doesn’t  by Alberto Alesina, Carlo Favero, and Francesco Giavazzi, it depends what you mean by austerity. …The authors analyse thousands of fiscal measures adopted by sixteen advanced economies since the late 1970s, and assess the relative effectiveness of tax increases and spending cuts at reducing debt. They show that…spending cuts are much more successful than tax increases at reducing the growth of debt, and can sometimes even result in output gains, such as in the case of expansionary austerity. …Which brings us onto our next question: did the UK actually experience austerity? …the government’s programme was a mild form of austerity. …Then there is the politics of it all. It’s important to remember that fiscal conservatism can be popular with the electorate and it worked well in 2015 and to a lesser extent in 2010. The Conservatives should not expect to win the next election by promising massive increases in public spending.

Moreover, good spending policy facilitates better tax policy.

Or, in this case, the issue is that bad spending policy makes good tax policy far more difficult.

And that isn’t good news since the U.K. needs to improve its tax system, as John Ashmore explains in another CapX article.

…the Tax Foundation…released its annual International Tax Competitiveness Index. The UK came 25th out of 36 major industrialised nations. For a country that aims to have one of the world’s most dynamic economies, that simply will not do. …Conservatives…should produce a comprehensive plan for a simpler, unashamedly pro-growth tax system. And it should be steeped in a political narrative about freedom… Rates are important, but so is overall structure and efficiency. …a more generous set of allowances for investment, coupled with a reform of business rates would be a great place to start. We know the UK has a productivity problem, so it seems perverse that we actively discourages investment. …As for simplicity, …it’s possible to drastically reduce the number of taxes paid by small businesses without having any effect on revenue. Accountants PwC estimate it takes 105 hours for the average UK business to file their taxes… Another area the UK falls down is property taxes, of which Stamp Duty Land Tax is the most egregious example. It’s hard to find anyone who thinks charging a tax on people moving house is a good idea…in the longer term there’s no substitute for good, old-fashioned economic growth – creating the world’s most competitive tax system would be a fine way to help deliver it.

To elaborate, a “more generous set of allowances for investment” is the British way of saying that the tax code should shift from depreciation to expensing, which is very good for growth.

And simplicity is also a good goal (we could use some of that on this side of the Atlantic).

The problem, of course, is that good reforms won’t be easy to achieve if there’s no plan to limit the burden of government spending.

It’s too early to know if Boris Johnson is genuinely weak on fiscal issues. Indeed, friends in the UK have tried to put my mind at ease by asserting that he’s simply throwing around money to facilitate Brexit.

Given the importance of that issue, even I’m willing to forgive a bit of profligacy if that’s the price of escaping the European Union.

But, if that’s the case, Johnson needs to get serious as soon as Brexit is delivered.

Let’s close by looking at recent fiscal history in the UK. Here’s a chart, based on numbers from the IMF, showing the burden of spending relative to economic output.

Margaret Thatcher did a good job, unsurprisingly.

And it’s not a shock to see that Tony Blair and Gordon Brown frittered away that progress.

But what is surprising is to see how David Cameron was very prudent.

Indeed, if you compared spending growth during the Blair-Brown era with spending growth in the Cameron-May era, you can see a huge difference.

Cameron may not have been very good on tax issues, but he definitely complied with fiscal policy’s golden rule for spending.

Let’s hope Boris Johnson is similarly prudent with other people’s money.

P.S. If you want some Brexit-themed humor, click here and here.

P.P.S. If you want some unintentional Brexit-themed humor, check out the IMF’s laughably biased and inaccurate analysis.

Read Full Post »

The Tax Foundation churns out lots of good information, but I especially look forward to their International Tax Competitiveness Index.

It shows how nations rank based on key tax variables such as corporate taxation, personal income tax, and international tax rules.

The latest edition shows good news and bad news for the United States. The good news, as you see in this chart, is that the 2017 tax reform improved America’s ranking from 28 to 21.

The bad news is that the United States is still in the bottom half of industrialized nations.

We should copy Estonia, which has been in first place for six consecutive years.

For the sixth year in a row, Estonia has the best tax code in the OECD. Its top score is driven by four positive features of its tax code. First, it has a 20 percent tax rate on corporate income that is only applied to distributed profits. Second, it has a flat 20 percent tax on individual income that does not apply to personal dividend income. Third, its property tax applies only to the value of land, rather than to the value of real property or capital. Finally, it has a territorial tax system that exempts 100 percent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions. …For the sixth year in a row, France has the least competitive tax system in the OECD. It has one of the highest corporate income tax rates in the OECD (34.4 percent), high property taxes, a net tax on real estate wealth, a financial transaction tax, and an estate tax. France also has high, progressive, individual income taxes that apply to both dividend and capital gains income.

Here are some other important observations from the report, including mostly positive news on wealth taxation as well as more information on France’s fiscal decay.

…some countries like the United States and Belgium have reduced their corporate income tax rates by several percentage points, others, like Korea and Portugal, have increased them. Corporate tax base improvements have been put in place in the United States, United Kingdom, and Canada, while tax bases were made less competitive in Chile and Korea. Several EU countries have recently adopted international tax regulations like Controlled Foreign Corporation rules that can have negative economic impacts. Additionally, while many countries have removed their net wealth taxes in recent decades, Belgium recently adopted a new tax on net wealth. …Over the last few decades, France has introduced several reforms that have significantly increased marginal tax rates on work, saving, and investment.

For those who like data, here are the complete rankings, which also show how countries score in the various component variables.

Notice that the United States (highlighted in red) gets very bad scores for property taxation and international tax rules. But that bad news is somewhat offset by getting a very good score on consumption taxation (let’s hope politicians never achieve their dream of imposing a value-added tax!).

And it’s no big surprise to see countries like New Zealand and Switzerland get high scores.

P.S. My only complaint about the International Tax Competitiveness Index is that I would like it to include even more information. There presumably would be challenges in finding apples-to-apples comparative data, but I’d be curious to find out whether Hong Kong and Singapore would beat out Estonia. And would zero-tax jurisdictions such as Monaco and the Cayman Islands get the highest scores of all? Also, what would happen if a variable on the aggregate tax burden was added to the equation? I’m guessing some nations such as Sweden and the Netherlands might fall, while other countries such as Chile and Poland (and probably the U.S.) would climb.

Read Full Post »

Like most libertarians, I’m a bit quirky.

Most people, if they watch The Great Escape or Rambo II, cheer when American POWs achieve freedom.

I’m happy as well, but I also can’t stop myself from thinking about how I also applaud when a successful taxpayer flees from a high-tax state to a low-tax state.

It’s like an escape from oppression to freedom, though I confess it might not be the best plot for a blockbuster movie.

In any event, here are two recent feel-good stories about this phenomenon.

Here’s a report about two members of the establishment media who are protecting their family’s finances from greedy Connecticut politicians.

After reports that married MSNBC anchors Joe Scarborough and Mika Brzezinski have been mysteriously broadcasting their show from Florida — sources speculated that the location is to benefit Scarborough’s tax situation. The “Morning Joe” anchors have been reportedly on a home set in Jupiter, Fla., but using Washington, DC, backdrops. Sources said the reason for the locale was a “tax dodge” — albeit a completely legal one — since Scarborough has a home in Florida and would need to spend a certain amount of the time there for any tax benefit. …Scarborough, who’s still presently registered to vote in Connecticut., on Oct. 9, 2018 registered to vote in Palm Beach County, Fla. according to public records. …By moving to Florida, he’d reduce his tax burden by roughly $550,000. Scarborough reportedly makes $8 million a year and would pay 6.99-percent state income tax in Connecticut, while there’s no state income tax in Florida, the Post’s Josh Kosman reports. To qualify as a Florida resident, he’d need to be there 183 days a year.

According to the story, Scarborough and Brzezinski are only making the move to be close to aging parents.

That certainly may be part of the story, but I am 99.99 percent confident that they won’t be filing another tax return with the Taxnut State…oops, I mean Nutmeg State.

Meanwhile, another billionaire is escaping from parasitic politicians in New York and moving to zero-income tax in Florida.

Billionaire Carl Icahn is planning to move his home and business to Florida to avoid New York’s higher taxes, according to people familiar with the matter. …The move is scheduled for March 31 and employees who don’t do so won’t have a job… Hedge fund billionaires have relocated to Florida for tax reasons for years — David Tepper, Paul Tudor Jones and Eddie Lampert being among the most prominent. But Florida officials have been aggressively pushing Miami as a destination for money managers since the Republican-led tax overhaul. …Florida is one of seven states without a personal income tax, while New York’s top rate is 8.82%. Florida’s corporate tax rate is 5.5%, compared with 6.5% in New York. Icahn’s move was reported earlier by the New York Post. The difference could mean dramatic savings for Icahn, who is the world’s 47th richest person.

These two stories are only anecdotes. And without comprehensive data, there’s no way of knowing if they are part of a trend.

That’s why the IRS website that reports the interstate movement of money is so useful (it’s not often I give the IRS a compliment!). You can peruse data showing what states are losing income and what states are gaining income.

Though if you want a user-friendly way of viewing the data, I strongly recommend How Money Walks. That website allows you to create maps showing the net change in income and where the income is coming from, or going to.

Since our first story was about Connecticut, here’s a map showing that the Nutmeg State has suffered a net exodus (red is bad) over the 1992-2016 period.

In other words, the state is suffering from fiscal decay.

And here’s a map for New York, where we see the same story.

Now let’s look at the state that is reaping a windfall thanks to tax refugees.

Florida, to put it mildly, is kicking New York’s derrière (green is good).

And you can see on the left side that Florida is also attracting lots of taxpayers from New Jersey, Illinois, Pennsylvania, and Connecticut.

By the way, some of my leftist friends claim this internal migration is driven by weather. I suspect that’s a partial factor, but I always ask them why people (and their money) are also migrating out of California, where the weather is even better.

P.S. Tax migration is part of tax competition, and it’s a big reason why left-wing governments sometimes feel compelled to lower taxes.

P.P.S. When the IRS releases data for 2017 and 2018, I’m guessing we’ll see even more people escaping to Florida, in large part because there’s now a limit on deducting state and local taxes.

P.P.P.S. I also cheer when people escape high-tax nations.

Read Full Post »

Speaking in Europe earlier this year, I tried to explain the entire issue of tax competition is less than nine minutes.

To some degree, those remarks were an updated version of a video I narrated back in 2010.

You’ll notice that I criticized the Organization for Economic Cooperation and Development in both videos.

And with good reason. The Paris-based OECD has been trying to curtail tax competition in hopes of propping up Europe’s uncompetitive welfare states (i.e., enabling “goldfish government“).

As I stated in the second video, the bureaucrats sometimes admit this is their goal. In recent years, though, OECD officials have tried to be more clever, even claiming that they’re pushing for higher taxes because that approach somehow is a recipe for higher growth.

Let’s look at a new example of OECD malfeasance.

We’ll start with something that appears to be innocuous. Or even good news. A report from the OECD points out that corporate tax rates are falling.

Countries have used recent tax reforms to lower taxes on businesses… Across countries, the report highlights the continuation of a trend toward corporate income tax rate cuts, which has been largely driven by significant reforms in a number of large countries with traditionally high corporate tax rates. The average corporate income tax rate across the OECD has dropped from 32.5% in 2000 to 23.9% in 2018. …the declining trend in the average OECD corporate tax rate has gained renewed momentum in recent years.

Sounds good, right?

From the OECD’s warped perspective, however, good news for the private sector is bad news for governments.

As a result, the bureaucrats are pushing for policies that would penalize jurisdictions with low tax rates.

The Organisation for Economic Co-operation and Development is going to propose a global minimum tax that would apply country by country before the next meeting of G‑20 finance ministers and central bankers set for 17 Oct. in Washington, DC. …The OECD’s head of tax policy, Pascal Saint-Amans, said a political push was needed to relaunch the discussions and used the case of the Cayman Islands to explain the proposal. “The idea is if a company operates abroad, and this activity is taxed in a country with a rate below the minimum, the country where the firm is based could recover the difference.” …While this framework is based on an average global rate, Saint-Amans said the OECD is working on a country-by-country basis. Critics of the proposal have said that this would infringe on the fiscal sovereignty of countries.

And as I’ve already noted, the U.S. Treasury Department is not sound on this issue.

This would work in a similar way to the new category of foreign income, global intangible low-tax income (GILTI), introduced for US multinationals by the 2017 US tax reform. GILTI effectively sets a floor of between 10.5% and 13.125% on the average foreign tax rate paid by US multinationals.

There are two aspects of this new OECD effort that are especially disturbing.

In a perverse way, I admire the OECD’s aggressiveness.

Whatever is happening, the bureaucrats turn it into a reason why tax burdens should increase.

The inescapable conclusion, as explained by Dominik Feusi of Switzerland, is that the OECD is trying to create a tax cartel.

Under the pretext of taxing the big Internet companies, a working group of the OECD on behalf of the G-20 and circumventing the elected parliamentarians of the member countries to a completely new company taxation. …The competition for a good framework for the economy, including low corporate taxes, will not be abolished, but it will be useless. However, if countries no longer have to take good care of the environment, because they are all equally bad, then they will increase taxes together. …This has consequences, because wages, wealth, infrastructure and social security in Western countries are based on economic growth. Less growth means lower wages. The state can only spend what was first earned in a free economy… The OECD was…once a platform for sharing good economic policy for the common good. This has become today a power cartel of the politicians… They behave as a world government – but without democratic mission and legitimacy.

Veronique de Rugy of the Mercatus Center examined the OECD and decided that American taxpayers should stop subsidizing the Paris-based bureaucracy.

Taxpayers are spending millions of dollars every year funding an army of bureaucrats who advocate higher taxes and bigger government around the globe. Last year, the United States sent $77 million to the Organization for Economic Cooperation and Development, the largest single contribution and fully 21 percent of the Paris-based bureaucracy’s $370 million annual budget. Add to that several million dollars in additional expenses for special projects and the U.S. mission to the OECD. …despite the OECD’s heavy reliance on American taxpayer funds, the organization persistently works against U.S. interests, arguing for international tax cartels, the end of privacy, redistribution schemes and other big-government fantasies. Take its campaign for tax harmonization, begun as a way to protect high-tax nations from bleeding more capital to lower-tax jurisdictions. …The OECD may recognize competition is good in the private sector, but promotes cartelization policies to protect politicians. …The bureaucrats, abetted by the European Union and the United Nations, even started clamoring for the creation of some kind of international tax organization, for global taxation and more explicit forms of tax harmonization.

These articles are spot on.

As you can see from this interview, I’ve repeatedly explained why the OECD’s anti-market agenda is bad news for America.

Which is why, as I argue in this video, American taxpayers should no longer subsidize the OECD.

It’s an older video, but the core issues haven’t changed.

Acting on behalf of Europe’s uncompetitive welfare states, the OECD relentlessly promotes a statist agenda.

That’s a threat to the United States. It’s a threat to Europe. And it’s a threat to every other part of the globe.

P.S. To add more insult to all the injury, the tax-loving bureaucrats at the OECD get tax-free salaries. Must be nice to be exempt from the bad policies they support.

P.P.S. If you’re not already sick of seeing me on the screen, I also have a three-part video series on tax havens and even a video debunking some of Obama’s demagoguery on the topic.

Read Full Post »

When I write about Estonia, I generally have something nice to say.

Today, I want to add to my praise for this Baltic nation.

Unlike politicians in many other nations, lawmakers in Estonia responded wisely when they saw a tax increase was backfiring.

As Estonia tries to recover its alcohol customers lost to neighbouring Latvia due to high excise duty, the parliament in Tallinn has passed a 25% cut in excise duty rate. Estonian public broadcaster ERR reports that the bill was passed on Thursday, June 13, in the Riigikogu by landslide. In the final reading, the bill was passed by 70-9 MP in favour backing the cutting of the alcohol excise duty rates for beer, cider and hard liquor by 25% beginning July 1. The amendments to the Estonian Alcohol, Tobacco, Fuel and Electricity Excise Duty Law…are aimed at reducing cross-border trade of Estonians buying their drinks much cheaper in northern Latvia.

Of course, it’s worth pointing out that Estonian politicians shouldn’t have increased excise taxes on booze in the first place.

And they may have fixed the problem because they got on the wrong side of the Laffer Curve (i.e., tax revenue was falling), not because of a philosophical preference for lower tax rates.

But rectifying a mistake is definitely better than doubling down on a mistake, which is how politicians in many other nations probably would have reacted.

This approach, combined with the good policies listed above, helps to explain why Estonia is one of the few economic success stories to emerge from the collapse of the Soviet Empire.

Though, in closing, I’ll note that the country needs additional pro-market reform to deal with the challenge of demographic decline.

P.S. Read what Estonia’s Minister of Justice wrote about totalitarian socialism.

P.P.S. Also read about how Paul Krugman earned an “exploding cigar” with some sloppy analysis about Estonia.

Read Full Post »

Why do I relentlessly defend tax competition and tax havens?

Sadly, it’s not because I have money to protect. Instead, I’m motivated by a desire to protect the world from “goldfish government.”

Simply stated, politicians have a “public choice” incentive for never-ending expansions of government, even if they actually understand such policies will lead to Greek-style collapse.

Speaking at a recent conference in Moldova, I explained why tax competition is the best hope for averting that grim outcome.

In my remarks, I basically delivered a results-based argument for tax competition.

Which is why I shared data on lower tax rates and showed these slides on what politicians want compared to what they’ve been pressured to deliver.

Likewise, I also talked about reductions in the tax bias against saving and investment and shared these slides on what politicians want compared to what they’ve been pressured to deliver.

There’s also a theoretical side to the debate about tax competition and tax havens.

In a 2013 article for Cayman Financial Review, I explained (fairly, I think) the other side’s theory.

…there also has been a strain of academic thought hostile to tax competition. It’s called “capital export neutrality” and advocates of the “CEN” approach assert that tax competition creates damaging economic distortions. They start with the theoretical assumption of a world with no taxes. They then hypothesize, quite plausibly, that people will allocate resources in that world in ways that maximise economic output. They then introduce “real world” considerations to the theory, such as the existence of different jurisdictions with different tax rates. In this more plausible world, advocates of CEN argue that the existence of different tax rates will lead some taxpayers to allocate at least some resources for tax considerations rather than based on the underlying economic merit of various options. In other words, people make less efficient choices in a world with multiple tax regimes when compared to the hypothetical world with no taxes. To maximise economic efficiency, CEN proponents believe taxpayers should face the same tax rates, regardless of where they work, save, shop or invest. …One of the remarkable implications of capital export neutrality is that tax avoidance and tax evasion are equally undesirable. Indeed, the theory is based on the notion that all forms of tax planning are harmful and presumably should be eliminated.

And I then explained why I think the CEN theory is highly unrealistic.

…the CEN is flawed for reasons completely independent from preferences about the size of government. Critics point out that capital export neutrality is based on several highly implausible assumptions. The CEN model, for instance, assumes that taxes are exogenous – meaning that they are independently determined. Yet the real-world experience of tax competition shows that tax rates are very dependent on what is happening in other jurisdictions. Another glaring mistake is the assumption that the global stock of capital is fixed – and, more specifically, the assumption that the capital stock is independent of the tax treatment of saving and investment. Needless to say, these are remarkably unrealistic conditions.

Since economists like numbers, I even created an equation to illustrate whether tax competition is a net plus or a net minus.

Basically, the CEN argument is only defensible if the economic inefficiency associated with tax minimization is greater than the economic damage caused by higher tax rates, plus the damage caused by more double taxation, plus the damage caused by a bigger public sector.

Needless to say, honest empirical analysis will never support the CEN approach (as even the OECD admits).

That being said, politicians and special interests are not overly sympathetic to my arguments.

Which is why I very much identify with the guy in this cartoon strip.

P.S. If you want more information, about 10 years ago, I narrated a video on tax competition, a three-part video series on tax havens, and even a video debunking some of Obama’s demagoguery on the topic.

Read Full Post »

I wrote a couple of weeks ago about how New York is committing slow-motion fiscal suicide.

The politicians in Illinois must have noticed because they now want (another “hold my beer” moment?) to accelerate the already-happening collapse of their state.

The new governor, J.B. Pritzker, wants to undo the state’s 4.95 percent flat tax, which is the only decent feature of the Illinois tax system.

And he has a plan to impose a so-called progressive tax with a top rate of 7.95.

Here are some excerpts from the Chicago Tribune‘s report., starting with the actual plan.

Democratic Gov. J.B. Pritzker embarked on a new and potentially bruising political campaign Thursday by seeking to win public approval of a graduated-rate income tax that he contended would raise $3.4 billion by increasing taxes for the wealthy…for his long-discussed plan to replace the state’s constitutionally mandated flat-rate income tax. Currently, all Illinois residents are taxed at 4.95 percent… Pritzker’s proposal is largely reliant on raising taxes significantly on residents making more than $250,000 a year, with those earning $1 million and up taxed at 7.95 percent of their total income. …The corporate tax rate would increase from the current 7 percent to 7.95 percent, matching the top personal rate. …The governor’s proposal would give Illinois the second-highest top marginal tax rate among its neighboring states.

And here’s what would need to happen for the change to occur.

Before Pritzker’s plan can be implemented, three-fifths majorities in each chamber of the legislature must approve a constitutional amendment doing away with the flat tax requirement. The measure would then require voter approval, which couldn’t happen until at least November 2020. …Democrats hold enough seats in both chambers of the legislature to approve the constitutional amendment without any GOP votes. Whether they’ll be willing to do so remains in question. Democratic leaders welcomed Pritzker’s proposal… voters in 2014 endorsed the idea by a wide margin in an advisory referendum.

The sensible people on the Chicago Tribune‘s editorial board are not very impressed, to put it mildly.

…how much will taxes increase under a rate structure Pritzker proposed? You might want to cover your eyes. About $3.4 billion annually… That extraction of dollars from taxpayers’ pockets would be in addition to roughly $5 billion raised annually in new revenue under the 2017 income tax hike. …How did Springfield’s collection of all that new money work out for state government and taxpayers? Here’s how: Illinois remains deeply in debt, continues to borrow to pay bills, faces an insurmountable unfunded pension liability and is losing taxpayers who are fed up with paying more. The flight of Illinoisans to other states is intensifying with 2018’s loss of 45,116 net residents, the worst of five years of consistent, dropping population. …Illinois needs to be adding more taxpayers and businesses, not subtracting them. When politicians raise taxes, they aren’t adding. A switch to a graduated tax would eliminate one of Illinois’ only fishing lures to attract taxpayers and jobs: its constitutionally protected flat income tax. …Pritzker’s proposal, like each tax hike before it, was introduced with no meaningful reform on the spending side of the ledger. This is all about collecting more money. …In fact, the tax hike would come amid promises of spending new billions.

And here’s a quirk that is sure to backfire.

For filers who report income of more than $1 million annually, the 7.95 percent rate would not be marginalized; meaning, it would be applied to every dollar, not just income of more than $1 million. Line up the Allied moving vans for business owners and other high-income families who’ve had a bellyful of one of America’s highest state and local tax burdens.

The Tax Foundation analyzed this part of Pritzker’s plan.

This creates a significant tax cliff, where a person making $1,000,000 pays $70,935 in taxes, while someone earning one dollar more pays $79,500, a difference of $8,565 on a single dollar of income.

That’s quite a marginal tax rate. I suspect even French politicians (as well as Cam Newton) might agree that’s too high.

Though I’m sure that tax lawyers and accountants will applaud since they’ll doubtlessly get a lot of new business from taxpayers who want to avoid that cliff (assuming, of course, that some entrepreneurs, investors, and business owners actually decide to remain in Illinois).

While the tax cliff is awful policy, it’s actually relatively minor compared to the importance of this table in the Tax Foundation report. It shows how the state’s already-low competitiveness ranking will dramatically decline if Pritzker’s class-warfare plan is adopted.

The Illinois Policy Institute has also analyzed the plan.

Unsurprisingly, there will be fewer jobs in the state, with the losses projected to reach catastrophic levels if the new tax scheme is adjusted to finance all of the Pritzker’s new spending.

And when tax rates go up – and they will if states like Connecticut, New Jersey, and California are any indication – that will mean very bad news for middle class taxpayers.

The governor is claiming they will be protected. But once the politicians get the power to tax one person at a higher rate, it’s just a matter of time before they tax everyone at higher rates.

Here’s IPI’s look at projected tax rates based on three different scenarios.

The bottom line is that the middle class will suffer most, thanks to fewer jobs and higher taxes.

Rich taxpayer will be hurt as well, but they have the most escape options, whether they move out of the state or rely on tax avoidance strategies.

Let’s close with a few observations about the state’s core problem of too much spending.

Steve Cortes, writing for Real Clear Politics, outlines the problems in his home state.

…one class of people has found a way to prosper: public employees. …over 94,000 total public employees and retirees in Illinois command $100,000+ salaries from taxpayers…former Chicago Mayor Richard M. Daley, who earned a $140,000 pension for his eight years of service in the Illinois legislature. …Such public-sector extravagance has fiscally transformed Illinois into America’s Greece – only without all the sunshine, ouzo, and amazing ruins.

So nobody should be surprised to learn that the burden of state spending has been growing at an unsustainable rate.

Indeed, over the past 20 years, state spending has ballooned from $34 billion to $86 billion according to the Census Bureau. At the risk of understatement, the politicians in Springfield have not been obeying my Golden Rule.

And today’s miserable fiscal situation will get even worse in the near future since Illinois is ranked near the bottom when it comes to setting aside money for lavish bureaucrat pensions and other retirement goodies.

Indeed, paying off the state’s energized bureaucrat lobby almost certainly is the main motive for Pritzker’s tax hike. As as happened in the past, this tax hike is designed to finance bigger government.

Yet that tax hike won’t work.

Massive out-migration already is wreaking havoc with the state’s finances. And if Pritzker gets his tax hike, the exodus will become even more dramatic.

P.S. Keep in mind, incidentally, that all this bad news for Illinois will almost certainly become worse news thanks to the recent tax reform. Restricting the state and local tax deduction means a much smaller implicit federal subsidy for high-tax states.

P.P.S. I created a poll last year and asked people which state will be the first to suffer a fiscal collapse. Illinois already has a big lead, and I won’t be surprised if that lead expands if Pritzker is able to kill the flat tax.

Read Full Post »

Older Posts »

%d bloggers like this: