America's Greediest State and Local Governments

I ran across two interesting lists showing how politicians at the state and local level are often just as bad as the ones in Washington, DC. First, Forbes has an article identifying the 10 states with the highest income tax rates. The top rate is a big deterrent to entrepreneurs and investors, but it's also important to look at the income level where the top tax rate takes effect. Yes, Hawaii, Oregon, and California have terrible tax policy, but Iowa, Maine, and Washington, DC, deserve special scorn for raping the middle class.

Hawaii: 11% (income over $400,000 (couple), $200,000 (single))
Oregon: 11% (income over $500,000 (couple), $250,000 (single))
California: 10.55% (income over $1 million)
Rhode Island: 9.9% (income over $373,650)
Iowa: 8.98% (income over $64,261)
New Jersey 8.97% (income over $500,000)
New York: 8.97% (income over $500,000)
Vermont: 8.95% (income over $373,650)
Maine: 8.5% (income over $39,549 (couple), $19,749 (single))
Washington, D.C.: 8.5% (income over $40,000)

Looking at the other major source of revenue for state and local governments, the Tax Foundation identifies the cities with the highest total sales tax rate - a number that often includes three separate levies by state, county, and city governments. Here are the top 10. Or should I say worst 10?

Birmingham AL 10.000%
Montgomery AL 10.000%
Long Beach CA 9.750%
Los Angeles CA 9.750%
Oakland CA 9.750%
Fremont CA 9.750%
Chicago IL 9.750%
Glendale AZ 9.600%
Seattle WA 9.500%
San Francisco CA 9.500%

One thing that stands out is that California is on both lists, which helps explain why the state is such a basket case. Seattle deserves a special mention because at least there is no state income tax in Washington.

Last but not least, it's worth mentioning that there's no sales tax or income tax in New Hampshire. Live Free or Die!

Taxpayers vs. Bureaucrats, Part XXXI

The competition to be the Greece of America has a lot of contestants. California and Illinois certainly are strong candidates. New Jersey was an early favorite, though Gov. Christie is actually doing some good things and pulling the state back from the precipice. But let's not forget New York. Here's an excerpt from a Wall Street Journal column about how bureaucrats are gaming this system to get absurd salaries:

Will there be a run on New York's debt, much like we saw in Greece this spring, causing interest rates to soar in Athens? With a $135 billion budget, New York State faces a shortfall of around $9 billion, which might be manageable if politicians had the courage to go "where the money is," says E.J. McMahon, a state budget expert at the Manhattan Institute. "The big problem," he adds, "is that no one will take on the unions and especially their gigantic pensions." A new Manhattan Institute report shows that it's been business-as-usual in the state's dealings with Big Labor, despite the fiscal crisis. Last year, 74,000 workers at the Metropolitan Transit Authority got a 2.4% raise even as their agency was teetering on bankruptcy. Some 8,000 MTA employees now earn $100,000 or more in annual salary, and 44 earn more than $200,000 a year, putting them in the top 3% of income in America. The latest plan, Mr. McMahon says, is for Gov. Paterson and the Democrats in the legislature to "cap rising pension bills by 'amortizing' them, which essentially means borrowing $2.5 billion from the pension fund in the next four years alone. Of course, this won't reduce costs -- it will merely push them into the future."

Helping New York...In Spite of the State's Awful Politicians

I have a column in the New York Post this morning explaining that big government is a losing deal for taxpayers in the Empire State. I'm tempted to say they deserve to be over-taxed and over-regulated because they keep electing collectivists like Chuck Schumer, but I grew up in the area and still follow the Yankees, so I hope the people of New York wake up and begin fighting big government. Here's an excerpt:

Federal spending has approximately doubled during the Bush-Obama years -- great news for special-interest groups, but bad news for New Yorkers, who pay a disproportionate share of federal taxes because of higher-than-average incomes. Needless to say, the IRS code allows no compensation for New Yorkers' higher-than-average living expenses. New Yorkers also lose on the spending side of the ledger. According to the Tax Foundation, the state gets back only about 80 cents for every $1 it sends to Washington. But the harm is actually greater -- because Washington takes that dollar from the job-creating private sector and returns the 80 cents in the form of handouts, subsidies and pork of very dubious economic benefit. And things are going to get worse before they get better. President Obama wants higher tax rates on income, higher tax rates on capital gains and increased double taxation of dividends. That will tilt the overall tax burden even further against New York. The taxes on investment, in particular, will hurt Wall Street -- on which the city's economy depends.

Weekly Economics Lesson: High Taxes Are a Recipe for Reduced Competitiveness

Politicians understand the economic impact of taxation when it serves their interests. They often brag about raising tobacco taxes to discourage smoking. It's not their business to dictate private behavior, of course, but they are right about higher taxes leading to less smoking (they also lead to more cigarette smuggling, but that's a separate issue). Those same politicians, however, conveniently forget about the economic effect of taxes when they impose high tax rates on work, saving, investment, and entrepreneurship. Or maybe they simply don't care. But as is explained in the Wall Street Journal, taxes on productive behavior matter a lot. More than one million people have escaped New York this decade, and punitive taxes clearly have played a role in this brain drain to other states:

Between 2000 and 2008, the Empire State had a net domestic outflow of more than 1.5 million, the biggest exodus of any state, with most hailing from New York City. The departures also have perilous budget consequences, since they tend to include residents who are better off than those arriving. Statewide, departing families have income levels 13% higher than those moving in, while in New York County (home of Manhattan) the differential was even more severe. Those moving elsewhere had an average income of $93,264, some 28% higher than the $72,726 earned by those coming in. In 2006 alone, that swap meant the state lost $4.3 billion in taxpayer income. Add that up from 2001 through 2008, and it translates into annual net income losses somewhere near $30 billion. ...no single reason can be fingered for a million migrants seeking their fortunes across state lines, but one place to start is New York's notorious state and local tax burden. According to the Tax Foundation, between 1977 and 2008, New York has ranked first or second in the country for its state-local tax burden compared to the U.S. average. In the years considered by the Empire Center study, New York's state and local tax burden ranged between 11% and 12% of income. The peak year for taxes, 2004, was followed by the peak year for departures—as New York lost nearly 250,000 people to other states in 2005. And that's before another big tax hike this year. That pattern is consistent with the annual migration patterns, showing that highly taxed and economically lackluster states were most likely to end up in residents' rear view mirrors. According to the annual study by United Van Lines, states like New York, New Jersey, Michigan and Illinois have been big losers in recent years. ...Liberals continue to insist that they can raise taxes ever higher without any effect on behavior, but the New York study is one more piece of evidence that this is a destructive illusion.