Arthur Laffer and Stephen Moore studied the effects of state income taxes on states’ budget deficits and concluded that "soaking the rich" is counter-intuitive to growth.
States facing large deficits should be taking a hard look at their bloated budgets, but instead, they are taking a page from the President’s playbook and raising taxes on “the rich.” One problem with this approach is that wealthy people enjoy a higher level of mobility than the rest of us and therefore, they can easily relocate to states with low or no income taxes.
Laffer and Moore discovered that between 1998 and 2007 nine states with the highest tax rates saw 1,100 people each and every day relocate to states with no income taxes. As the people left they took their jobs with them. Consequently, high tax states are facing the biggest deficits.
Liberals argue that taxes are necessary to provide for services the communities need and desire. Laffer and Moore use the example of New Hampshire, a state with no income tax and no sales tax, have one of the best school systems in the country. Conversely, California, a high tax state, has the highest teacher salaries yet it’s students have the second lowest test scores in the nation.
During this recession states should cut taxes not raise them. States should be attracting people and businesses not chasing them away. Liberals need to look at the overall effects of high taxes and realize that rather than re-distributing wealth, they are causing wealth to evaporate.