For those who don’t, SimCity was–and presumably still is–a popular videogame in which players design, build and manage a small town and, with a little skill, turn it into a metropolis.
During a ten-minute break in the middle of my Federal Income Taxation class last night, I was speaking with a very liberal friend of mine about the Laffer Curve, which essentially demonstrates that increased tax rates do not necessarily increase tax revenue. In the past, he had said that the Laffer Curve wore such a name for a reason and that the idea that a reduced tax burden brings in more tax revenue was preposterous, and he used the opportunity yesterday to goad me a little. Because that’s what we do.
In response, I pointed out that the New York Post had just reported that day that wealthy New Yorkers are leaving the city in droves, running from a burdensome tax situation seemingly getting worse by the day. I also reminded him that, a few months ago, the Baltimore Sun and Wall Street Journal had reported a similar exodus of the wealthy from Maryland. What he said next was the inspiration for this particular piece of writing:
“Well, maybe that’s why I never could get my towns in SimCity to grow,” he said. “My brother would be building space ports, while I couldn’t get past the town stage.”
We both laughed, but I knew he had a point. And, I think, so did he.
Consider, first, this excerpt from the May 27, 2009 edition of The Wall Street Journal, specifically from a piece entitled “Millionaires Go Missing”:
Maryland couldn’t balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O’Malley, a dedicated class warrior, declared that these richest 0.3% of filers were “willing and able to pay their fair share.” The Baltimore Sun predicted the rich would “grin and bear it.”
One year later, nobody’s grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller’s office concedes is a “substantial decline.” On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.
Or this, a story about a flat tax and the New Jersey gubernatorial race from The Wall Street Journal just one day prior to the aforementioned piece about Maryland:
Whether a flat tax that modestly raises the tax payments of some Americans will fly politically is hard to know. The state and federal tax code are so laced with tax credits and exemptions that any base-broadening, rate-cutting reform is bound to raise taxes on someone. Our friend Steve Forbes, a New Jersey resident, believes that a flat tax that “cuts taxes for everyone” is the way to go. Mr. Lonegan counters that every working New Jersey resident should pay something — on the principle that everyone should bear at least some of the cost of government.
The larger point is that either reform would be far better than the current tax code for New Jersey’s poor, who suffer the most from the state’s high rates that drive jobs and capital elsewhere. A flat tax would help all income groups by attracting those resources back to the state. Surely Mr. Christie realizes that.
Both GOP candidates agree that the 103 tax increases, including income and sales tax rate hikes, under current Governor Jon Corzine and his predecessor, the disgraced Jim McGreevey, have done great harm to their state. From 2001 to 2008, New Jersey lost a net 25,000 private-sector jobs even as public employment grew by 65,000 workers. The state’s finances are such a mess that in late 2007 Governor Corzine proposed the political “Hail Mary” of mortgaging New Jersey’s toll roads in return for a guaranteed revenue stream. He lost, thanks to opposition led by Mr. Lonegan.
And, finally, consider these two excerpts from yesterday’s article in the New York Post:
More than 1.5 million state residents left for other parts of the United States from 2000 to 2008, according to the report from the Empire Center for New York State Policy. It was the biggest out-of-state migration in the country.
The vast majority of the migrants, 1.1 million, were former residents of New York City — meaning one out of seven city taxpayers moved out.
It all adds up to staggering loss in taxable income. During 2006-2007, the “migration flow” out of New York to other states amounted to a loss of $4.3 billion.
Of the 12 million people working in New York City and the nine million actually residing there, just over 44,000 people pay a whopping half of all income tax collected by the city. That’s insane. As the tax burden on the city’s wealthiest increases under Mayor Michael Bloomberg, is it any wonder that these people are leaving? Furthermore, is it any wonder why the exodus of those wealthy who make up those 44,000 returns is hurting the city so much?
What the president, his Democratic Party flunkies and liberals like by good buddy at law school don’t seem to understand is that economic growth is derived from freedom, not government. Reducing the tax burden in New York City would draw more people and more business, large and small, into the city and would in turn create more jobs, give more people more money to spend within the boroughs, and consequently increase tax revenue. It’s the Laffer Curve, and it’s anything but funny.
It worked for me as a kid playing SimCity, and it would similarly work for Michael Bloomberg and even Barack Obama on a much larger scale. As chief executives of the nation’s largest city and the nation itself, Bloomberg and Obama should be focused on facilitating growth rather than stifling it, creating jobs rather than providing reason to eliminate or export them, and for those reasons should err on the side of liberty when it comes to the tax and regulatory burdens foisted upon business and industry.
For example, consider something another classmate pointed out to me yesterday evening. A particularly ambitious individual, he was looking at a list of some of the country’s most wealthy people, and both of us were surprised to see on the list Earvin “Magic” Johnson, formerly of the Los Angeles Lakers, with a net worth of about $800 million.
“That doesn’t make any sense,” I said. “He hasn’t played basketball since the Dream Team in the ’92 Olympic Games.”
As it turns out, I was wrong. Partially, at least. Magic Johnson did in fact originally retire in 1991 after disclosing that he had tested HIV-positive (though he played in the 1992 Games), but he came back in 1996 for a brief, 32-game stint with the Lakers. I was right, however, when I insinuated that there was no way he amassed an $800 million fortune from his NBA salary from more than a dozen years ago. His fortune, it seems, has come from good, old-fashioned hard work.
As of November 2004, Johnson’s business enterprises owned more than 30 Burger King locations, 72 Starbucks coffee shops, six Loews movie theater complexes, eight 24-Hour Fitness Center locations, and nine residential and commercial real estate ventures. All in all, he was responsible for creating 10,000 jobs.
I don’t know what else he owns now, but it doesn’t matter — the point remains the same. Saddling Magic Johnson with a higher tax burden would restrict his ability to expand his business and build more restaurants, theatres and fitness centers, thus handcuffing job growth which could otherwise be fomented with proper respect and freedom for business owners. If the tax picture gets bad enough, like we’re seeing in New York, Johnson might even be forced to close some locations, putting workers out of a job in the middle of an economic downturn.
In the next few weeks and months, Congress will be considering two measures–health care reform and cap-and-trade–which will greatly increase costs and fiscal burdens on our nation’s businesses. Places like New York City should serve as a warning to the rest of the country, because when taxes are raised and regulations tightened across the board and across America, the wealthy will have no place else to flee except for outside our borders.
It’s either space ports or tumbleweeds. We simply cannot let the latter happen under our watch.