Most Liberal politicians are too stupid to understand that at certain tax rates it's cheaper for some millionaires to simply move out of state and take a helicopter to work. In my article So You want to be your Own Boss I wrote that the rich can easily evade higher state tax rates: "I have to split my business into a dozen separate legal entities and incorporate them in different states in order to stay in business against my competitors."

It happens that the very wealthy usually have homes in a number of states and can pick the one with the tiniest tax rate as their official domicile.

If a state truly wants to increase revenues, the smart thing would be to tax rich people the least because they are the ones who most easily can move to a favorable tax state and who cost the state the least in expenses. Let me explain (From my article Tax Cuts Should Favor the Rich):

It is well established that rich people have fewer children than others and so use fewer services from the government. Fewer children means fewer schools and the richer you are the less likely it is that your kids go to public schools anyway. Rich people rarely burden their local hospitals with unpaid medical bills. Rich people commit fewer crimes that cost the state money, and even when they do go to prison, they pay for the costs of their incarceration.

The converse is also true, if a state wants to make more money it should tax poor people the most. The poor have more children than the rich and consequently use more services, schools, hospitals, drug-rehab, prisons, etc.

Take my city, Bayonne. For years it took Mount Laurel monies from other municipalities that did not want to build affordable housing and used those funds to build affordable housing in Bayonne. The result? An unqualified disaster. Here's how it works in a nutshell: Let's take a city called X. X does not want poor people within its borders. But the state requires one unit of affordable housing for every 4 units at fair market; so City X pays $25,000 to Bayonne to build that one unit to satisfy the law. Now the morons in Bayonne probably thought this was a good idea: take someone else's money and build affordable housing.

What they did not count on was how expensive it was to house the dregs that occupy Section 8 apartments. Each affordable unit brought in a mother or father usually with two or three or more children. But for the sake of argument let's limit it to only two children. Those two children cost the city (or more accurately the taxpayers) more than $10,000 each for school, social services, health care annually. So that $25,000 may have built an apartment, but the kids from kindergarten through high school cost the city 10 times as much. And what did it get from the parents in return? Tax property monies? No, the parents didn't make enough to ever buy a home. The numbers of poor swelled into the city, bankrupting the city's only hospital, and putting the city into a financial crisis even before the national crisis.

If states truly want to increase revenues they have to make an investment: pay poor people to get the f* out of their state and never come back. Since poor people, over their lifetime can easily cost a state a few hundred thousand dollars, it might not be a bad idea to pay poor couples $20,000 plus 10 grand for each child to induce them to leave. I figure that the poorest 20% of New Jersey's population gobbles up 80% of the state's expenses. There are 8.6 million souls who count themselves as citizens of New Jersey. Assuming that 1.7 million are poor it would cost New Jersey only 17 billion dollars to get these buggers out. Those who won't leave should be taxed at 90% of their income. What? You say it's unfair to tax someone that much? Liberals don't think so.

New Jersey has the nation's highest state- and local-tax burden because the state caters to the poor. If it won't tax the poor, soon it won't have anyone else to tax. New Jersey will spend 26 billion this year and perhaps as much as 35 billion next year with no end in sight. Every special interest group is fighting to stop cuts in hospital charity, education expenses and aid for the disabled. I say spend $17 billion so that we can end up with a state budget of only 5 or 6 billion a year. In less than a few years the state can recoup the money it spent on getting rid of all those free-loaders who pay no state taxes, eat up social services, burden schools with kids who will end up in jail anyway, and burn through health care costs.

Soaking the rich will not solve our problems, getting rid of the free-loading poor will.

Notes

(1):

Wiki, Laffer curve

In economics, the Laffer curve is used to illustrate the idea that increases in the rate of taxation do not necessarily increase tax revenue. (For instance, whereas a 0% income tax rate will generate no revenue, neither will a 100% rate, as citizens will have no incentive to make money). Increasing taxes beyond the peak of the curve point will decrease tax revenue. The Laffer curve was popularized by Arthur Laffer (b. 1940) in the 1980s. However, the idea is not new to him, nor did he claim as much: it dates to the 14th century North African polymath Ibn Khaldun, who discusses the idea in his 1377 Muqaddimah. More recently, in his General Theory of Employment, Interest, and Money, John Maynard Keynes described how past a certain point, increasing taxation would lower revenue and vice versa.

(2):

WSJ, 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.

No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey (see here).

The Maryland state revenue office says it's "way too early" to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It's easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: "Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it's easy for them to change their residency."

(3): [Updated 19 Jan 2011: ] Or to be accurate, keep one million more in your portfolio compared to staying in Maryland. And if you don't have to do business in Maryland and you can avoid all that commuting, then keep 1.75 million more - not counting lost return on investment.