Economics 101: If you raise taxes, they will leave

Governor Rick Perry (R-TX) has presided over the state with the greatest job growth since the start of the recession, and almost half of all American jobs since June of 2009. President Obama and the Democratic partisans will do everything that they can to diminish the Texas record, telling us that the figures are phoney, that the jobs created weren’t good ones, that if there were jobs created, Governor Perry had nothing to do with it, &c, &c, &c.

Well, there has been a state which has followed the economic prescriptions of our friends on the left, and increased taxes. How has that worked out for them?

Jeff  Carter

Jeff Carter

Obama’s Illinois Imploding

I don’t know if you saw this with all the news yesterday. Illinois lost 89,000 jobs since enacting the largest tax increase in the history of the state, as reported by the Illinois Policy Institute.

It was the largest job loss of any state in the nation.

Democrats will blame it on a poor economy. The truth is, higher taxes change behavior. Combine that with the fact that Illinois pols have given tax waivers to some large companies. John Deere ($JD), Motorola Mobility ($MOT, $GOOG), Sears, and others have gotten roll backs on the tax. So, like most tax levies it falls on small businesses and medium size companies.

Motorola Mobility promised to hire people for the tax rollback. Now that they have been purchased by Google, that promise goes out the window. Say goodbye to those jobs.

There is no doubt, other companies are exploring a move from Illinois. Recall that the Democratically controlled Illinois legislature didn’t just raise the corporate income tax, but they killed internet businesses too.

One major company, $CME, that actually has to pay it’s taxes said on the latest earnings call that they have had discussions with other states. I wouldn’t blame CME one bit for leaving. They can increase their earnings 9% simply by moving. I am one shareholder that endorses the move.

Hat tip to Gretchen for the article. But what has happened in the Land of Lincoln was not exactly difficult to predict. Duffy noted, on his site,:

Even Illinois which is Democrat down to dogcatcher is facing reality. Motorola is threatening to leave the state. The taxes are too high and the cost of doing business has made staying untenable. So what did Illinois do? They offered $100MM in tax breaks. One Hundred Million Dollars not to leave.

They have been forced to face the reality that they can only bleed so much from corporations before they leave. Motorola is not a small outfit and moving is going to be expensive. That said, I don’t think they’re bluffing. They’ve run the numbers and staying long term isn’t prudent.

Similarly, Sears the icon of Illinois is pulling up stakes. Think of what it says that the company with the most iconic tower in the midwest is thinking of leaving Illinois. How bad is the business climate? So bad, they’re considering New Jersey. They are also considering Texas which is unsurprising to anyone who’s been paying attention.

John Hitchcock said, explicitly, last March:

So the Democrat legislators already added another layer of taxes this year, and that added layer of taxes will decimate some Illinois businesses and send some Illinois businesses out of state. Yes, Illinois is busily butchering the goose that laid the golden egg, having already killed it.

And even earlier, last January:

Will businesses leave the state because of this? Yes. Will other businesses which cannot leave fail because of this final straw? Yes. Will The New York Times ever understand it’s not a revenue problem but rather a spending problem? No, of course not.

And I wrote, also last January:

Either the people of Illinois will wind up having to pay more money for the same goods — after having lost 2% of their net pay to taxes — or the companies which don’t believe they can raise prices will have lower profits, and at least some people will lose their jobs; actually, it’ll probably work out to some of both.

Now, some of our friends on the left disagreed that raising taxes was a bad idea. Our Kiwi Kommenter wrote:

Why are productive people fleeing the Pyrite State? With a marginal tax rate of 9.55% over $47,055 of income, you are talking thrice the income tax rate in Pennsylvania.

Well then – tax businesses. If they flee, that just opens uop a niche for other people to sell to the people of the State.

Wonder just how that’s working for the people of Illinois? Look at Mr Carter’s chart again: despite the recession, the number of people who were employed in Illinois was growing, right up until the time that the lame-duck Democratic legislature increased taxes. Now, it would be a post hoc ergo propter hoc fallacy to state that the tax increase was the cause of the loss of jobs, but it certainly could have been, and it seems that the predictions made by the conservatives here were the ones which turned out right.
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Cross-posted on Truth Before Dishonor.

7 Comments

  1. Pingback: Economics 101: If you raise taxes, they will leave « Truth Before Dishonor

  2. Uh-huh. (Hint – order the list by tax per capita).

    You’re citing a goddamned Townhall columnist. Didn’t the red nose and big floppy shoes give you enough of a clue?

  3. MD in one year lost one third of its Millionaires when greedy Maryland passed a Millionaires surcharge tax. The first year, 3000 filed, the next year, 2000 filed returns giving the state a net loss the second year. No one learns the long held and provable addage, You want more of, subsidize it, you want less of it, tax it.

  4. Interesting article by Slate’s Annie Lowrey arguing (rather convincingly) that Texas’ relative prosperity is due to the Other Lone Star State’s tight banking regulations that kept Texans from overleveraging, and thus kept Texas both a) out of the housing bubble and b) away from the personal deleveraging that’s weakened demand beyond where it would normally be in a recession (see Hitchcock’s post a couple up for the consequences of weak demand). That would seem to not only argue that Perry was not responsible for Texas’ prosperity, but that Texas is a direct argument against a central tenet of conservative thought… thoughts?

  5. No Jeff, CRA caused the credit bubble that burst. CRA, a Liberal, “Progressive” agenda item which forcefully loosened lending standards. The tighter lending standards are a free-market, smart business, government get out of the way, Conservative position.

  6. No Jeff, CRA caused the credit bubble that burst

    No, it didn’t. You are lying, again.

    Ninth Commandment, remember?

  7. ee here:

    Evidence on CRA and the Subprime Crisis
    Over the years, the Federal Reserve has prepared two reports for the Congress that provide information on the performance of lending to lower-income borrowers or neighborhoods–populations that are the focus of the CRA.3 These studies found that lending to lower-income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by CRA-covered institutions. Thus, the long-term evidence shows that the CRA has not pushed banks into extending loans that perform out of line with their traditional businesses. Rather, the law has encouraged banks to be aware of lending opportunities in all segments of their local communities as well as to learn how to undertake such lending in a safe and sound manner.

    Recently, Federal Reserve staff has undertaken more specific analysis focusing on the potential relationship between the CRA and the current subprime crisis. This analysis was performed for the purpose of assessing claims that the CRA was a principal cause of the current mortgage market difficulties. For this analysis, the staff examined lending activity covering the period that corresponds to the height of the subprime boom.
    [...]
    Two key points emerge from all of our analysis of the available data. First, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA- related loans appear to perform comparably to other types of subprime loans. Taken together, as I stated earlier, we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.

    Once again the Puffing Babbler, jh, is documented as a liar.

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