A recent Wall Street Journal article, Cash-Strapped States Turn to Millionaire’s Tax, caught my attention. I’m not a millionaire or even close. But, I’m not sure I exactly agree with the plans’ of many cash strapped states:
States hungry for revenue are turning to taxpayers to make up the shortfall as they deplete rainy-day and economic-stimulus funds. To avert a popular revolt, many are resorting to a so-called millionaire’s tax, which puts the burden on a smaller group of the very well-heeled.
A flurry of rate increases occurred this year, and tax analysts say the trend will accelerate in 2010.
The money has to come from somewhere I guess, but does increasing tax rates on the very wealthy really fix the problem? The extra tax income might fund the temporary deficit, but higher rates are causing an exodus of the rich from these states to those with lower or zero state income tax. And more often than not, the rich are successful entrepreneurs who provide jobs for others:
Through the early 1990s, several states maintained double-digit income-tax rates, but eventually brought them down partly because legislators realized they were driving out entrepreneurs. To keep good talent, create jobs and drive economic growth, state tax systems had to be competitive with their neighbors.
I don’t know what your situation is, but I consider myself lucky to to reside in a state with no state income tax. I owe much of what I have to the opportunities provided to me from successful business leaders. These entrepreneurs have been rewarded for the risks they began taking over a decade ago. I have to ask myself if I would be doing a job I love if these men had been subjected to a double digit state income tax. I’ll never know for sure, but I am a firm believer in the government allowing business to serve the public and provide jobs for those who need them, without unnecessarily penalizing them for their risks.
I really CANNOT wait to set up residency in my vacation property in Lake Tahoe, Nevada once I retire!
10% state income tax is killin me, and California is broke!
No one wants to get taxed more but it seems like the only source of income for States or the country for that matter is to tax the very wealthy. Not sure what other options they have.
@ Financial Samurai – I hear you. I love living in Texas for several reasons, only one of which is zero income tax. I’ve heard California is broke, but I haven’t heard anything about Texas. It does make you wonder if part of California’s problems have to do with their high state income tax. Are small businesses fleeing to safe havens with lower taxes?
@ Craig – I agree, not many happily agree to higher taxes. I’m no economist, but as Financial Samurai pointed out, California has one of the highest state income taxes and they are still broke. I’m not sure how Texas is doing financially, but I don’t think they are having the same problems, and they don’t have a state income tax. I find it interesting. Obviously spending is the other half of the equation…