Fiscal Growth is No Game

Anybody here remember SimCity?

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.

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Comments

  1. Gail B says:

    Good job! Clear explanation that someone just waking up can understand.

    I fell through the crack on Sim City, as I was not into video games when they were going strong; but I understand the point you made.

    Maybe someone will give Obama/Soetoro a Sim City video game in an international exchange of gifts!

  2. Rix says:

    Jeff, you still play that outdated crap?! How about I mail you a highly illegal – don't tell anyone! – but still very enjoyable copy of SimCity4? The game, I swear, has more reality in it than reality itself. Oh, just thinking of it makes my right hand tickle! I firmly believe that no person should be allowed to run for Mayor unless he or she masters it.

  3. Gail B says:

    Here's a clean political joke:

    Little Mary Pat had a box of very small kittens that she was trying to give away,
    So she had them out on the street corner with a sign 'FREE KITTENS' next to
    Them.

    Suddenly a big line of big black cars came up
    With a policeman on a motorcycle in front.

    The cars all stopped and
    a tall man stepped out from the biggest car. It's President Obama.

    'Hi, little girl, what do you have there in the box?' he asked.

    'Kittens' Little Mary Pat says. 'They're so small, their eyes are not even open yet.'

    'What kind of kittens are they?' he asked.
    'Democrats' says Little Mary Pat.

    The tall man smiled,
    Returned to his car and they drove away. Sensing a good photo opportunity,
    President. Obama called his Press Manager and told him about the little girl
    And the kittens.

    It was planned that they would return the next day,
    Have all the media there and tell everyone about these great kittens.

    The next day, Little Mary Pat is standing out on the corner with her
    Box of kittens with the 'FREE KITTENS' sign and the big motorcade of black
    Cars pulled up with all the vans and trucks from ABC, NBC, CBS, BET and CNN
    But no FOX for some reason..

    Everyone had their cameras ready and
    Then, President. Obama got out of his limo and walked up to Little Mary Pat.

    'Now, don't be frightened,' he said, 'I just want you to tell all
    These nice news people just what kind of kittens you're giving away today.'

    'Yes sir,' Mary Pat said, 'The are all REPUBLICAN kittens.'

    Taken by surprise, President Obama said, 'But yesterday, you told me that
    They were DEMOCRATS.'

    Little Mary Pat says, 'Yes, I know. But today, they have their eyes open.'

  4. Gail B says:

    You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

    What one person receives without working for, another person must work for without receiving.

    The government cannot give to anybody anything that the government does not first take from somebody else.

    When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation.

    You cannot multiply wealth by dividing it.

    Ronald Reagan probably said it, but Jeff teaches it.

  5. Anonymous says:

    Magic Johnson was very business savvy early in his career. In 1990 he and a business partner bought a very large stake, from Pepsi Cola, in Pepsi Co's DC area bottling operations.

    This after he received a smaller percentage of another bottling operation as part of his endorsement of Pepsi.

    Johnson was, from the start, atypical for a pro athlete in that he understood that his sports celebrity was but a stepping stone from which to make real money in business. Apparently he was right.

    I'd also venture to say he deserves the most credit for gentrifying Harlem in NYC. He was the first to take the risk on an area historically tied to high crime, and open a mega movie plex, and shopping mall on 125th St.

    My point is that Johnson is living proof that jobs and wealth are created through intelligence, foresight, ingenuity, and the free market. Not through govt handouts.

  6. goddessdivine says:

    I'm still convinced that Obama and his cronies slept through their economic classes and just don't understand this basic principle.

    OR

    They just want to control our lives….no matter the cost.

  7. Anonymous says:

    Thumbs up to Gail B's comment. I'd like to see it printed verbatim on the front page of every newspaper and read/shown on every TV news show. It's clear, it's concise, it's common sense… and it's frightening that the powers that be don't see it.

  8. Dee says:

    The quote Gail posted was by Adrian Pierce Rogers (Sep 12, 1931 – Nov 15, 2005)
    American pastor, conservative, author, and a three-term president of the Southern Baptist Convention (1979-1980 and 1986-1988).
    I have copied it and sent it to my representatives in the past.

  9. Gail B says:

    Dee—

    Way to go! You're on the ball! Thanks.

    Gail

  10. Jan says:

    Free market and Capitalism at its finest! My daughters played Sims, especially the vacation one. Even morons like Michael Moore, you know the one Capitalism hasn't done a thing for, understand simple concepts like those practiced on these video games. It's the shell game that they pass off onto the gullible American public – or as in Gail's example – the Democrats.

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