Taxing their way to greatness

As part of ongoing cost reduction via outsourced economic criticism, here are excerpts from a WSJ op-ed this morning by Arthur Laffer and Stephen Moore.

Soak the Rich, Lose the Rich
Americans know how to use the moving van to escape high taxes.

With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich.
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Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.

And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before.
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[W]e found that from 1998 to 2007 … the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
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We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.
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States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.

There is an assumption by California and New York politicians that taxes can be raised indefinitely, because certain high-income residents (Silicon Valley, Wall Street) have no choice but to live here. Given that assumption, there is no incentive to cut costs and improve efficiency.

That philosophy almost destroyed NYC in the 1970s. I will be curious to see whether these high income residents prove more mobile than anticipated.