I am no fan of Arthur Laffer (creator of the infamous “Laffer Curve“) but this piece in the Wall St. Journal has the data to back up his assertion that soaking the rich is a disasterous policy option for state governments. To wit:
Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the “soak the rich” tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.
Of course, the recession has now hit Texas, and 2009 will not be a wonderful year. But this statistic from the article still boggles the mind:
Texas created more new jobs in 2008 than all other 49 states combined.
