Lion of the Blogosphere

Will the red-state model work?

There’s an interesting article in today’s Wall Street Journal about how Republicans are trying to implement a “red-state model” across state governments they control. In the majority of states, both the governorship and the state legislature are all controlled by the same party, which means at the state level we can see policies that are far more to the right, or to the left for that matter, than what can come out of Washington.

The red-state model is about cutting income taxes and cutting government spending, but raising sales taxes which Republicans, for some reason, like better than income taxes. Sam Brownback, the governor of Kansas, is spotlighted as a key proponent of the red-state model. (That’s the same Sam Brownback who raised his hand at a Republican debate to indicate that he doesn’t believe in evolution.)

I think the red-state model could have some benefits for states the implement it. It’s a lot easier to move between states than it is to move between countries, so it’s possible that we could see rich people moving to low-tax states, while undesirable poor people move out of those same states because they can get better welfare benefits in blue states.

But I’ve previously wondered why rich people don’t all move out of New York City for places that offer a much lower cost of living. It was even a question asked by Hannah in the first season of the HBO series Girls. What’s going to change if Kansas becomes slightly more attractive than it already is? Most rich people would rather pay high taxes than have to live in state where everyone is a gun-toting redneck and a Jesus freak (or at least that’s how rich people perceive it).

Written by Lion of the Blogosphere

February 5, 2013 at 8:34 pm

Posted in Politics

97 Responses

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  1. Taxing consumption in preference to income is appealing. A little bit of miserliness would be a good help to a lot of people. In and of itself, of course, a sales tax may not be much of a boon to savers, or much of a pinch to people who buy yachts. But even to honor the principle is a step in a positive direction.

    And speaking of red state governments: I see that some gentry elites are going apoplectic over a toe-dip move to put Virginia’s electoral votes on a proportional footing by congressional district:

    http://www.usnews.com/opinion/articles/2013/02/04/on-immigration-electoral-college-right-bargains-with-reality

    Lucius Somesuch

    February 5, 2013 at 9:29 pm

    • Taxing consumption in preference to income is appealing.

      I’d also like to swap both the employee and employer sides of the state and federal payroll taxes for more state taxes and a new national sales tax, respectively, because a payroll tax cut is more beneficial for the middle class and small businesses than slashing corporate and income taxes. It also rewards blue-collar whites who don’t work long hours but are fiscally prudent with a payroll tax reduction.

      I see that some gentry elites are going apoplectic over a toe-dip move to put Virginia’s electoral votes on a proportional footing by congressional district:

      I don’t like the idea of carving up Virginia’s electoral votes because VA is likely to remain a conservative state. Obama won the state twice only because of abnormally high black turnout and Romney getting about 800,000 fewer Republican voters to turnout than McCain did in 2008. And 2008 was already disastrous for GOP turnout. Romney would have actually gotten 2 million fewer total votes than McCain did in 2008 if Romney hadn’t won Independents 50-45. McCain on the other hand lost Independents 52-44.

      I’ll post these numbers again:

      Romney lost because the absolute number of Republicans actually fell compared to 2008. And 2008 was also a low GOP turnout election. Mitt wound up with more overall votes than McCain only because Romney, based on CNN exit polls, won the Independent vote 50-45 over Obama. McCain by contrast lost Independents by 52-44% in 2008. The result was Romney netted 2 million more Independent votes than McCain did but still lost because of an unenthusiastic base.

      Based on CNN exit polls, the voter turnout model for 2012 was D 38%, I 29% and R 32%. Total vote counts came out to 129,064,662. Romney Republicans 96-3%, Independents 50-45%, and lost Democrats 92-7%.

      In 2008, CNN’s voter turnout model was D 39%, I 29% and R 32%. The total vote count was 131,313,820. McCain won Republicans 90-10%, lost Independents 44-52%, and lost Democrats 89-10%.

      The total number of Republican votes for 2012 was 41,300,692 (0.32 * 129,064,662).

      The total number of Republican votes for 2008 was 42,020,422 (0.32 * 131,313,820).

      Romney lost almost 800,000 Republicans compared to McCain’s already dreadful performance.

      The Undiscovered Jew

      February 5, 2013 at 10:39 pm

      • The idea that Romney got fewer Republican votes than the conservative-hating unburied corpse McCain is absurd on its face.

        Tarl

        February 6, 2013 at 1:29 am

      • The reason why on a pure statistical basis that Romney got less self identified Republicans is because many of these people who are calling themselves Independents are far right Republicans, Tea Party Republicans, or Libertarians who used to be willing to call themselves Republicans but now simply call themselves Independent because they don’t want to be associated with the Republican brand.

        This is not evidence of Romney doing worse than McCain with conservatives. It is evidence that many conservatives no longer want to be called Republicans because they view the Republican party as not to the right enough for them.

        It’s just semantics that is causing the make-ups of the groups to shift. The voters are the same people, they just don’t want to be called what they used to be willing to be called.

        Apex

        February 6, 2013 at 11:14 am

      • Lion of the Blogosphere
        I’ve previously wondered why rich people don’t all move out of New York City

        Yikes.
        In The Land where
        Replies are longer than the OP
        Let’s just finally get The Revelation:

        If one is RICH enough to live in The Big Apple
        [Land O' $9 Biscuits]
        THEN one is RICH enough
        To stay there forever.

        Firepower

        February 6, 2013 at 4:52 pm

      • I wish I were as confident about post-Obama resurgence (of any kind). I’m not committed to the idea of congressional district-apportionment (I’ve hardly mulled it), but on the face of it, it is a ‘reasonable’-enough sounding idea, and yet–like anything that potentially advantages a GOP with any vestige of conservatism still clinging to it– it provokes mainstream vapors.

        Lucius Somesuch

        February 6, 2013 at 9:28 pm

    • It is evidence that many conservatives no longer want to be called Republicans because they view the Republican party as not to the right enough for them.

      No, the 2012 Independent vote was less conservative than 2008 because McCain combined with voter Bush-fatigue did much, much, more to antagonize conservatives and drive them into the unaffiliated column than Romney did. In fact, Republican registrations went up in battleground states like Florida after the 2010 midterm elections. And many of those registrations were disgruntled independents who moved back to register as GOP.

      Romney lost because fewer Republicans showed up to vote for him than they did for McCain. If Mitt had simply equaled Bush’s 2004 turnout he may have carried the electoral vote.

      The Undiscovered Jew

      February 6, 2013 at 11:23 pm

      • Romney was missing ~3 million Republican votes compared to Bush in 2004. It was the GOP turnout that sunk Mitt because Independents flipped from Obama in 2008 to Romney in 2012.

        The Undiscovered Jew

        February 6, 2013 at 11:28 pm

  2. Intelligent retired people without strong ties to their current location often move for tax reasons, thus the red state model will draw them. This is a net benefit for the state financially, as they bring pensions, retirement funds, and social security money with them. However they rarely bring children, so there is little eugenic effect.

    Working age people will move based on cost of living, and taxes factor into this a little. However we are in an employer’s market so it doesn’t make sense for someone to uproot his family for a 5% difference in cost of living (based on taxes, the difference in cost of living might be much larger). Plus when people get a new job there is usually a significant pay raise as well, which would probably trump any tax difference. So I can’t really imagine that tax rates factor into long distance moves for workers.

    However there is an exception: employment regions that straddle state lines. Look at DC for example. Very smart people don’t live in DC unless they are very rich or very poor. Your typical middle-class person moves to Virginia (sort of a red state), and middle-class blacks move to Maryland (solid blue). You would probably see the same in NYC if there were a red state to draw away the middle class.

    If the world stayed the same, here is the trend that I think that we would see: move to blue state for first job, move to swing state in the metro area to start a family, move to red state for retirement.

    T

    February 5, 2013 at 9:29 pm

    • However there is an exception: employment regions that straddle state lines. Look at DC for example. Very smart people don’t live in DC unless they are very rich or very poor.

      The DC area – which now boasts 7 of the top 10 richest counties in the country and which is richer per capita than Silicon Valley – is wealthy because they transfer value from the productive states.

      The Undiscovered Jew

      February 5, 2013 at 10:45 pm

      • Oh yes, I am well aware that DC gets its money through theft. I live here and know what the local industry is. They are planning a streetcar system will cost more than a billion dollars are when all is said and done. We already have more than enough buses in the areas that the streetcars will serve and we have a decent subway system as well. The streetcars will be useless. The first line is going to have four stops, two of which are subway stations. As far as I can tell the purpose of the system is religious: trains are sacred to bobos.

        My point is that if you work in the DC area you have a choice between three different jurisdictions. DC, VA, and MD all compete for residents. Compare this to someone who works in California. He probably doesn’t have any real opportunity to move to a red state.

        Actually your point strengthens mine. Most blue states tend to be doing well because they use wealth transference to prop up their economies. Imagine DC without the federal government, NYC without finance, and Boston without education. They’d still exist but they would look very different.

        T

        February 6, 2013 at 12:30 am

      • LOL about the streetcar, I live in the same place. Meanwhile, damn county has a hole in front of my place where I used to park my car; haven’t filled it up for two months. Damn county also big on legalizing urban farming, so we can have chickenshit on every block (not like we don’t now!)

        Monroe Ficus

        February 6, 2013 at 7:23 am

      • http://www.salon.com/2011/11/22/the_red_state_model_is_also_broken/

        “The truth is that the red state social model is as broken as the blue state social model. The blue social model requires a swollen FIRE (Finance, Insurance, Real Estate) sector as a cash cow to fund government functions, a generous welfare state, and Starbucksy neighborhoods with subsidized mass transit for credentialed hipsters in brick-walled lofts. The red social model also depends on a swollen FIRE sector that can be tapped for subsidies to red state soldiers, agribusiness and megachurches, as well as to red state governments that take advantage of subsidies from blue America to lower their own taxes. Money from the bloated financial sector allows blue states to impose stifling environmental regulations, driving productive industries to the red states, which lure them not only with low environmental standards but also low-wage, non-union labor, supplemented by illegal immigrant workers.”

        Scipio Africanus

        February 6, 2013 at 10:37 am

    • If you work in DC but live in VA, you pay income tax to VA, not DC. However, if you live in NJ and work in NY, you pay income tax to NY, not NJ. So NJ-CT-NY don’t try to make it more appealing for residents; they try to make it more appealing for businesses. This has the effect of giving companies like UBS big tax incentives to move from NYC to Stamford. When the bank was in NYC, and people from CT went there, CT got no income tax from those people. Now that it’s in CT, CT gets income taxes from its own residents that work there, plus the income tax from the NYers doing the reverse commute. Since CT taxes are a little less than NY, those NYers that commute then have to pay the difference to NY (i.e., what they would have paid in NY less what they paid in CT).

      GMR

      February 6, 2013 at 12:09 am

    • Intelligent retired people without strong ties to their current location often move for tax reasons, thus the red state model will draw them. This is a net benefit for the state financially, as they bring pensions, retirement funds, and social security money with them.

      Attracting retirees carries a risk. Retirees = nursing homes = state Medicaid money.

      Peter

      ironrailsironweights

      February 6, 2013 at 6:43 am

  3. Republicans like sales taxes because it shifts the tax burden to the poor. This is not smart.

    However, sales taxes can be a good thing. Making consumption more expensive encourages saving, investment, and deferred gratification. This is the same reason high interest rates are good. Sure, getting a mortgage is harder; but there isn’t going to be a real estate bubble with 10% interest rates. It also means plain old savings accounts and CDs can offer good returns that outpace inflation and you don’t have to risk gambling in the stock market, which means fewer bubbles and stock prices that reflect the reality of companies more closely.

    Our present model of cheap credit to fuel ever increasing consumption is unsustainable. We are entirely too motivated by quarterly earnings reports where the sky is falling if not enough iphones are sold in one three month period.

    machomanmadness

    February 5, 2013 at 9:33 pm

    • Sales tax should lead to more savings. More savings means that there is more money available for people to borrow. Thus interest rates would be lower across the board for everyone, that’s just how supply and demand works.

      The reason that there is a correlation between cheap credit and ever increasing consumption (when it should be the opposite; interest rates should skyrocket when people increase consumption) is that interest rates are manipulated by the federal reserve. If you think of interest rates as the “price of money” then what we have is price manipulation. A free market in saving/investment/lending would result in much higher interest rates and lower consumption.

      T

      February 5, 2013 at 10:02 pm

      • Sales tax is a regressive tax. The lower your income, the worse off you are, given that everyone has a minimum cost of living threshold. It leads to more savings for wealthier folks, who end up buying less (or have the ability to make purchases from low sales tax states for high dollar purchases). Less savings for the pore and middle class and less consumption overall. Interest rates would not necessarily decline, since the demand to borrow would be higherfrom low and middle class folks. That and wealthy folks would borrow cheaply to drive rates up, given they can then invest their savings at higher rates than they borrow.

        ka

        February 24, 2013 at 9:30 pm

  4. It will work to the extent that it can work given that the deep-blue federal government is being used to harm the red states in any way possible

    anonymous

    February 5, 2013 at 9:55 pm

  5. Tax what you want less of and reduced taxes on want you want to encourage. Moving to a more sales tax centric tax system gets closer to an efficient, flat tax system. This isn’t hard to grasp. With the number of smaller and middle sized businesses that are set up as partnerships and s-corps, this might be a winner to get those companies to relocate. If they can reduce corp income taxes, then it helps even larger companies out. A state like Indiana with new Gov. Pence who is considering this approach as well can poach businesses from Illinois and Ohio. The previous comment on cheap credit is correct because if treasury rates jump, so will munis + state debt. States will have to make tougher decisions if that is the case.

    NYC is great, but not if you want to raise a family. After a while, that city life might drain on a person or they’ll become a Woody Allen parody where they can’t drive, can’t exist outside north of Westchester county or can’t leave the city altogether. The childless can mock flyover country or rural blue areas like Vermont, NH and Maine, but they mock people like you, Lion, in return. They can envision George Costanza and his empty life when they think of a NYC lifestyle, not just the flash of Carrie Bradshaw’s shoes, shopping and sex.

    SOBL1

    February 5, 2013 at 9:56 pm

    • There are basically 2 types of people residing in Manhattan. Other parts of NYC such as Queens and Brooklyn are the places where normal people raise a family. But we’re speaking of the prestigious island of Manhattan, which most people called “NYC”. Either you grew up in the city and can’t afford to leave, or you have deep pockets to live here forever. The former might be unhappy with their existence, but the latter sure love the consumption and fornication; those who’ve settled down, have the money to buy a big apartment and raise some kids in it.

      Just Speculating

      February 7, 2013 at 9:55 pm

  6. Why wouldn’t rich people move to a red zone? Easy… Red zones are boring. Sure they are cheaper… but that’s the point, they are cheap in many ways. They almost always lack culture and sophisticated thinking. They don’t have many amenities. Take Indianapolis for example. It’s a big city with a lot of services, but it’s not cosmopolitan. It has a few trendy/interesting/risky: restaurants, bars, shops, hang outs, destinations, but not many for its size. It makes you wonder what the rich people who do live and work there do with all of their money? I think they buy vacation properties somewhere nice and leave Indianapolis on the weekends.

    Kansas is the lame kind of red

    February 5, 2013 at 10:01 pm

    • The rich in Indianapolis are different than the rich in NYC or Los Angeles. I doubt if many of them go to NYC for the weekend except a couple times of year. They have their own social things to do and I doubt the 50+ y/o upper class of Indianapolis feel the need to be trendy.

      superdestroyer

      February 6, 2013 at 6:04 am

    • You are confusing cosmopolitanism with culture, when in reality cosmopolitanism is just one culture out of the millions that exist in this world. Where you think that you see the absence of culture you are merely seeing the absence of your culture.

      T

      February 6, 2013 at 9:49 am

      • indeed

        not too late

        February 6, 2013 at 8:54 pm

    • When I was growing up in Indianapolis the rich all lived on Meridian Street and now they all live out in Carmel. As is probably true for every big city, there’s businesses catering to them that the average person (like me) would seldom go to. They eat at St. Elmo Steakhouse or Oceanaire Seafood instead of Outback or Red Lobster, they send their kids to a private school like Park Tudor instead of the Public School #70 I went to, they shop at Keystone at the Crossing instead of Walmart and so on. For the average person here, it’s like the rich almost don’t even exist because they have a whole parallel structure of stores, restaurants, bars, clubs and schools that we don’t go to. So we never even see them.

      Mark

      February 6, 2013 at 11:56 am

    • Who wants to go to a risky restaurant?

      DaveinHackensack

      February 6, 2013 at 3:17 pm

    • The specific examples you list don’t really attract rich people; they attract people who want to be viewed as wealthy and sophisticated, i.e. wannabes. The kind of people that, as we’ve discussed here before, get art history or other “trust fund” degrees believing that will make them upper class. As for your general comparison, I suspect a place like NYC has a much higher percentage of people who are wealthy because of inheritance and/or connections than Indianapolis has. Self made rich, as near as I can tell, seem to be more interested in building businesses than in trendy restaurants (unless they own the restaurant). Heirs not so much.

      I’d be interested in some expansion on your concept of “sophisticated thinking”.

      J1

      February 6, 2013 at 8:28 pm

  7. The Red State Model is also about making it simple to develop real estate quickly and cheap to create jobs.

    The problem with the Red State Model for Republicans is that when it works well, as in Texas in recent years, it brings in lots of low-skilled labor, much of it immigrant and minority. In the long run, this won’t be good for Republicans at the polls, although in Texas the GOP has done fine so far because of extraordinary degree of white solidarity in backing the GOP: Romney carried 76% of white Texans. But, in the very long run, the growth of the Hispanic population in Texas puts Texas’s Electoral Votes in play, and without winning Texas it’s very hard to see any route to the White House for any GOP candidate. But that’s still some time off in the future.

    Steve Sailer

    February 5, 2013 at 10:20 pm

    • The problem with the Red State Model for Republicans is that when it works well, as in Texas in recent years, it brings in lots of low-skilled labor, much of it immigrant and minority.

      Is this the fault of red state economics, though? Blue states like California and Illinois have also been hammered by both legal and illegal third world immigrants. At least red state policies help the white birth rate even if the states can’t do much about low intelligence immigrants.

      The Undiscovered Jew

      February 5, 2013 at 11:48 pm

      • Texas actually gets better folks from among the lower classes of hispanic immigrants because freebies in Texas are so danged meager. The really nasty folks prefer California. Texas is work, work, work for a Mexican and danged few bleeding hearts to sympathize with them or nurture their degeneracy. So, yeah, it is a drain on Texas, but California is worse. You won’t see Texans forking over $27k per student per year like LA does. The feds won’t allow states to withhold public ed. from them, but they can’t mandate cadillac teacher compensation and Texans won’t vote it on themselves because it is paid with property tax.

        not too late

        February 6, 2013 at 9:01 pm

    • My hope is that automation will slash the demand of high income people for low income servants. If we buy online and use robotic cleaning and mowing we won’t need quite a few local services. Already I’ve slashed my local spending drastically.

      • Amazon Prime has resulted in our family buying almost everything online. I only buy food, medicine, and gas locally, and sometimes I buy food (bulk vanilla extract) online as well.

        T

        February 6, 2013 at 9:24 pm

      • An example of how raising taxes causes tax-avoidance behavior.

        I, for one, prefer to buy from Newegg because they don’t charge NY Sales tax.

        Lion of the Blogosphere

        February 6, 2013 at 9:40 pm

      • So then sales taxes, by decreasing the demand for local goods and services, reduce the migration of the low income toward where the high income live. Sales taxes are anti-crime and anti-decay. What’s not to like about sales taxes?

        Higher minimum wages are also great. Reduce the demand for the low skilled. Any city that wants to lower its population of undesirables should jack up unemployment rates.

    • “The problem with the Red State Model for Republicans is that when it works well, as in Texas in recent years, it brings in lots of low-skilled labor, much of it immigrant and minority.”

      Immigration and internal migration seem like heads-the-Dems-win, tails-the-GOP-loses propositions. Blue state policies send blue staters to red states for jobs and lower costs of living, but immigration keeps the blue states’ populations from declining. And the immigrants tend to vote Democratic when they become citizens.

      DaveinHackensack

      February 6, 2013 at 12:21 am

    • Texas will become a blue state regardless of the migrations of low-skilled workers attracted by jobs. The “demographic cake” has already been baked, so to speak, regarding its future:

      http://www.dailykos.com/story/2012/07/30/1114634/-Projecting-Texas-The-Coming-Democratic-Plurality

      The only thing the current migration to Texas of low-skilled workers/immigrants will do is speed up the transition to a blue state by a bit.

      Jay

      February 6, 2013 at 3:06 am

  8. @Lucius “And speaking of red state governments: I see that some gentry elites are going apoplectic over a toe-dip move to put Virginia’s electoral votes on a proportional footing by congressional district:”

    The important people — like the incumbent governor — are going apoplectic because it would mean no Virginian would probably ever be on a national presidential ticket ever again. After all, they wouldn’t be able to deliver a single electoral vote in their home state.

    As a Democrat, I say fire away! These electoral-vote divides are good for Democrats everywhere but especially in states like VA and FL. Republicans are loony to think the party of government can’t organize to take advantage with laser focused turnout better than they can.

    Owen

    February 5, 2013 at 10:55 pm

  9. OT, Law school applications are crashing. 2013 applications are so far on track to fall by 24% compared to 2010. Even more interesting is the fact the most intelligent and highest IQ LSAT and GPA scorers are avoiding law school at the most accelerating rates. If the smartest law school applicants are going for other career options then this means the remaining law school students are those too dumb and or lazy to go into a more promising field:

    https://www.nytimes.com/2013/01/31/education/law-schools-applications-fall-as-costs-rise-and-jobs-are-cut.html?hpw

    http://www.minnpost.com/learning-curve/2013/02/minnesota-s-law-schools-feel-pain-student-applications-decline

    “The decline seems a little more pronounced at the top of the profile, where more are choosing not to apply,” he said. “There will be more attractive alternatives.”

    The Undiscovered Jew

    February 5, 2013 at 10:58 pm

    • Beautiful!

      not too late

      February 6, 2013 at 9:04 pm

  10. Sales taxes are

    1) fairer, since there are not 10,000 exemptions and special rules
    2) flatter
    3) encourage savings, investment, and donations
    4) better for a given state since visitors will pay sales tax but not income tax

    Inter-state migration is already taking place. In the past 20 years, the red states have grown much faster than the blue states. Compare the electoral votes of New York and Texas.

    John

    February 5, 2013 at 11:19 pm

    • Nearly all state sales tax codes are riddled with exceptions for stuff that’s not subject to the tax.

      Lion of the Blogosphere

      February 5, 2013 at 11:28 pm

      • You’re speaking as a New Yorker. That’s not the case in most places. For example, here is deep red Indiana, there are few exemptions, if any.

        Buzzcut

        February 6, 2013 at 7:56 am

    • High sales tax with no state income state also helps small business men since they can shift much of their personal spending to a category that is except from taxation. The only way for a sales tax to really work is to tax BtoB sales at the same rate as consumer sales.

      superdestroyer

      February 6, 2013 at 6:06 am

  11. The “red-state model” may backfire.

    Texas currently has no state income tax but high sales and property taxes. The good economy in Texas is attracting a lot of people from places like California, which over time will make Texas more left-wing. If Texas turns “blue” due to all the transplants moving there, then the Republicans will be screwed nationally.

    Jay

    February 5, 2013 at 11:23 pm

  12. Rich people will pay a premium not to live near who they feel is the wrong sort of people, such as NAMs and lower class and/or right-leaning whites.

    Inkraven

    February 5, 2013 at 11:33 pm

  13. “…but raising sales taxes which Republicans, for some reason, like better than income taxes.”

    It’s because sales taxes are incredibly regressive. You really must not understand republicans. Jeesh.

    Reynald

    February 5, 2013 at 11:37 pm

    • I’m with Reynald on this. You can avoid sales taxes by not buying stuff. That’s great. Love it. If you earn much more than you spend then sales taxes are a boon.

    • More of this “regression” is needed. “Progressive taxation” is a baldfaced lie to cover up the smash and grab executed by hordes of welfare queens on the few wealthy people. F%$^ you, Welfare Queens!

      Grand Mariner

      February 6, 2013 at 1:32 am

      • Are you trying to be funny? The biggest winners from progressive taxation are the middle class and lower middle class because the middle class gets the most benefit from government services.

        Peter the Shark

        February 6, 2013 at 11:02 am

    • You can make any flat tax progressive by including a deduction. That’s essentially what the Fair Tax proposes: a flat, but progressive sales tax, with a “prebate” in lieu of a deduction.

      DaveinHackensack

      February 6, 2013 at 3:21 pm

  14. Taxes aren’t the only things that make states more or less competitive, however. Regulations have a big impact as well, of course. But there’s also climate, traffic, housing costs, business environment (i.e., inertia).

    If you’re established in one sector, you can sort of live off that momentum for a while. NYC is big in finance because it’s always been that way. It makes sense for companies to want to be in NYC to be close to the other financial firms. They can find people easier, and there’s all the ancillary support companies around. Sure, you can also open financial firms in Charlotte or Chicago or wherever, but NYC is where it’s at, even if it has higher taxes and crappier weather. Boston is a little the same way for mutual fund services. Silicon Valley for software (but also Austin to a lesser extent).

    GMR

    February 6, 2013 at 12:15 am

  15. I know in Nebraska they are talking about eliminating the state income tax. This seems much more desirable then lowering the tax rate. Get rid of it completely then some dude who is only paying a few hundred bucks to the state doesn’t have to pay someone 30 or 40 dollars to figure that out.

    mark

    February 6, 2013 at 1:38 am

  16. People with a lot of money (but who are not super rich) and who model themselves off George W. Bush types will be happy seeking a lower cost life in places like Highland Park, TX or Oklahoma City, but not the Bobos. Unless you’re an urban farmer type (and even that seems limited to trust-funded East Coast liberals who for whatever reason can’t quite fit in in a more cosmopolitan region), Fly-Over America is SO passe among them. Most Fly-Over communities don’t even have good places to eat apart from the big cities. All the stereotypical suburbs are loaded with chain food.

    lesocialcritique

    February 6, 2013 at 4:24 am

    • I think Paul Fussell said something in his book on Class about how eating in a restaurant is kind of bourgeois. The idea is that it is considered classy by working class people to go to a restaurant and be waited on. So people who grew up with less money but have now made some money are likely to do this. True bohemians (as opposed to bo-bo) would be likely to cook for themselves and have a more nutrient dense diet.

      shiva1008

      February 7, 2013 at 4:14 am

  17. “But I’ve previously wondered why rich people don’t all move out of New York City for places that offer a much lower cost of living.”

    For the most part rich New Yorkers usually do have second and third homes in quiet rural areas, the mountains or on the ocean. They keep their New York City residences for status reasons, for the entertainment options, and for the networking.

    Peter the Shark

    February 6, 2013 at 4:42 am

  18. Lower taxes, lax regulations, tax giveaways and “right to work” laws attract companies and jobs to red state. Blue states provide the competent, expensively educated workforce for those companies.

    Mark Caplan

    February 6, 2013 at 5:17 am

    • Not so much. Texas does a better job of educating people than either California or Wisconsin (the states I’ve seen comparisons for), and for less money. Compare test scores among individual demographic groups – blacks in Texas get better test scores than blacks in California or WIsconsin; the same is true for whites, hispanics, and asians.

      The better campuses of the University of California are better than any in Texas, but I’m not sure I’d prefer a graduate of Cal State Dominguez Hills to a graduate of a random Texas college.

      Anthony

      February 6, 2013 at 10:12 am

  19. “so it’s possible that we could see rich people moving to low-tax states, while undesirable poor people move out of those same states because they can get better welfare benefits in blue states.”

    New Hampshire and Massachusetts have been competing “red-state” and “blue state” models for several generations now. NH has no income tax – just sales tax and fairly high property taxes. Mass. has income tax, and much higher social spending. There’s been some movement of middle and upper middle class to NH to avoid taxes over the years but I don’t think many poor people from NH move to Mass. Most of the smart ambitious kids from my NH highschool actually moved to the Boston area and haven’t gone back. The higher taxes are more than outweighed by the far greater economic opportunities in Massachusetts. Conversely, the far lower cost of housing makes NH an easier place to be poor. I’ve seen a steady increase in “undesirables” in NH over the past 20 years.

    Peter the Shark

    February 6, 2013 at 5:43 am

    • New Hampshire has no sales tax, either.

      Buzzcut

      February 6, 2013 at 7:59 am

      • No, of course it doesn’t, dumb mistake by me. Which is why people from Massachusetts try to buy big ticket items in NH whenever possible. NH does have state liquor stores, which is an indirect way to tax liquor consumption, and oddly socialist for such a generally libertarian minded state.

        Peter the Shark

        February 6, 2013 at 10:56 am

  20. Indiana is following the Red-State model to a T. We recently capped our property taxes at 1% of the home’s market value, in exchange for a 1% increase in the sales tax, putting it at 7%. There is now talk of cutting our income tax, which is already low at a flat 3.4% rate, by 10%.

    We also became right-to-work state last year.

    While I am not in Indianapolis, and while its downtown has gotten a lot better than it used to be, my impression of the place is that it is still “Naptown”.

    OTOH, I also believe that it is the next Houston, and longer term I wouldn’t bet against Indy.

    Buzzcut

    February 6, 2013 at 8:05 am

    • Wow, 1% is a low property tax, especially considering houses probably don’t cost much their. One wonders why New Jersey needs to collect so much more tax (which tends to be 2% on houses that cost three times as much)?

      Lion of the Blogosphere

      February 6, 2013 at 8:20 am

      • Because we don’t pay our “public servants” very much. They make a fraction of what they make in New Jersey, and there are far fewer of them.

        My county (Lake), with half a million people in it, has a budget of less than $100 million. I noticed that Nassau County, on Long Island, which has the highest property taxes in the nation, has a million people, but a county budget of $2 billion.

        Buzzcut

        February 6, 2013 at 10:30 am

      • The obvious answer is NJ spends a lot more than IN. In western NY, we pay about 3.5% of property value in annual property taxes. About 70% of that tax bill goes to the local public school system. If NJ relies on property taxes to fund schools, then much of the disparity between NJ and IN property tax rates are likely due to school spending. It looks like NJ raises $10k per pupil from local sources (most likely property taxes) while IN raises $5k per pupil from local sources. Check out table 11 here: http://www2.census.gov/govs/school/10f33pub.pdf

        Btw, just to comment on the rapacious property tax rates in western NY: if you take out a 30 year mortgage on a house at historically common rates (say 5%), you’ve paid for the house 3 times over by the time you’ve paid off the mortgage. Once for the principal of the mortgage, once in interest on the mortgage, and once in 30 years of annual property taxes.

        bitter clinger

        February 6, 2013 at 11:33 am

      • Part of the deal for the property tax caps was to take the operations budget of the public schools off of property taxes and have the state pay for it directly, which is why the sales tax was jacked up.

        The average school gets about $5500 per kid for operations. Stuff like buses and capital projects still come out of property taxes, and schools can bust the tax caps and get some property taxes for operations if they pass a referendum.

        I used to live in Buffalo, and the suburban schools in Indiana aren’t any worse than suburban schools around Buffalo (not surprising, because the people are the same Midwestern stock). Teachers do get paid a lot less, though. Indiana teachers start at $30k, and might top out at $70k. Probably half the pay of New York teachers, which explains how they do the same job for half the cost.

        Buzzcut

        February 6, 2013 at 3:56 pm

      • Teachers do get paid a lot less, though. Indiana teachers start at $30k, and might top out at $70k. Probably half the pay of New York teachers, which explains how they do the same job for half the cost.

        Which admittedly leads to an interesting policy question. If we lower teacher pay, would we get the same level of teachers in high cost of living locations like New York, or would we get even lower level graduates teaching students? One could extend this question to other civil servants as well. If Indiana is able to have a reasonable return on it’s low investment, is it because the low wages are enough to attract decent people to become teachers, or are low IQ types good enough to teach students with enough training?

        David Alexander

        February 8, 2013 at 4:58 am

    • Your property values will start to increase – rapidly if the old property tax rate was much more than 1% – because the price of a house is related to the monthly payment, and by lowering (and capping) property taxes, you’re lowering the part of the payment that isn’t available for debt service. Effectively, because you have lower property taxes, you can afford a larger mortgage on the same income.

      Did Indiana limit assessment increases?

      Anthony

      February 6, 2013 at 10:14 pm

      • Nope. Assessments are full value, market assessments, which makes it much easier to challenge your assessment if it is too high.

        When you start limiting assessments, you make it too complicated. Keep it simple.

        Buzzcut

        February 8, 2013 at 7:48 am

  21. Sales taxes have two drawbacks when compared to state income taxes: revenues fall farther and faster during economic downturns, and online commerce is making collection more difficult.

    ironrailsironweights

    February 6, 2013 at 9:55 am

  22. That sales tax is regressive is a myth. If you want a math proof, Greg Mankiw has it.

    Sales tax is a flat tax because, although high income people spend a smaller percentage of their income and thus pays a smaller share of their income to sales tax, their savings are presumably going to be spent by them or their heirs some time in the future, and will be subject to sales tax at that time.

    AsianDude

    February 6, 2013 at 10:19 am

    • I may be reading that wrong but that sounds incredibly stupid. Their descendants/future selves are only going to spend a large part of their current income if they’re poor enough that they don’t have any other money. So the descendants/future selves only pay if they are not also wealthy. You seem to be assuming that people are only saving enough to live off of during retirement but there are plenty of people so rich that they will never spend any significant portion of their income or wealth.

      Reynald

      February 6, 2013 at 5:12 pm

      • Actually no. Even Bill Gates or his descendants will eventually spend everything down.

        Another way to look at it is that a consumption tax raises the prices that people have to pay for goods and services. This makes wealth worth less.

        AsianDude

        February 7, 2013 at 10:46 am

      • Even if “in the long run” all the money gets spent in the here and now the money actually being spent will be a much larger proportion of poor people’s wealth and income and rich people’s. The supposed flatness of the tax will always be theoretical and in the future and may actually go away if there is some change to the law, collapse of government, or increased ease of tax evasion/avoidance.

        It also allows the rich to increase their investments by a larger percentage than the poor could increase theirs. This would further skews future pre tax income distributions in favor of the wealthy. This may not technically bear on whether it is regressive or progressive but I would also consider this regressive.

        It allows rich people get to defer taxation until well after they (and often times their children and children’s children) die and passively accrue massive wealth from investments in the meantime. All of this they can pass on their descendants tax free (who in turn can just repeat the process). It’s just nasty, terrible idea and, I hate to break it to you, but if you’re spending time commenting about it on the internet, you’re not very likely to ever benefit from it.

        Reynald

        February 7, 2013 at 5:54 pm

      • If rich people just accrue more wealth by deferring taxation, then they will either 1) spend that bigger wealth down and pay more taxes 2) or continue to draw from that wealth in perpetuity, as you seem to suggest, and pay taxes perpetually. Either way, they don’t actually get to escape taxation, short of never spending their wealth, which of course defeats the whole purpose of being rich.

        The entire purpose of cutting income tax and shifting it to sales tax is to encourage investment and saving. You seem to hold an opinion that that is a bad idea. Which is fine. But no need to resort to personal attacks.

        AsianDude

        February 7, 2013 at 8:24 pm

      • You are ignoring the time-value of money. A dollar in taxes today is worth a lot more than a dollar of taxes in fifty years. And probably, at some time during the next fifty years, there will be some new tax loophole that allows the rich person to avoid paying taxes anyway.

        Lion of the Blogosphere

        February 7, 2013 at 8:30 pm

      • If you look at Greg Mankiw’s proof here (http://gregmankiw.blogspot.com/2006/06/consumption-vs-income-taxation.html) it factors in time value of money.

        In essence, the average rate of growth of investment determines the time value of money, the present value of sales tax is equal to income tax.

        AsianDude

        February 7, 2013 at 9:02 pm

      • “You are ignoring the time-value of money. A dollar in taxes today is worth a lot more than a dollar of taxes in fifty years. And probably, at some time during the next fifty years, there will be some new tax loophole that allows the rich person to avoid paying taxes anyway.”

        I agree. I made both those points.

        “If rich people just accrue more wealth by deferring taxation, then they will either 1) spend that bigger wealth down and pay more taxes 2) or continue to draw from that wealth in perpetuity, as you seem to suggest, and pay taxes perpetually. Either way, they don’t actually get to escape taxation, short of never spending their wealth, which of course defeats the whole purpose of being rich.”

        I never said the wealthy escape taxation entirely. I said it was regressive. And one of the points of their wealth is not to spend it but to set it aside for investment in varying degrees of permanency. Im sure if it were legal some people would permanently lock down wealth in investments to prevent their descendants from ever spending principal and prevent the principal from ever being taxed.

        “The entire purpose of cutting income tax and shifting it to sales tax is to encourage investment and saving.”

        That may be A (definitely not the) purpose but it also regressive and enriches the wealthy more than a flat income tax (let alone a progressive one). We’ve established it does this because:

        a) in the here and now it is regressive even if in THEORY, in the long run it is flat (which is also not progressive)

        b) By deferring a larger share of their taxes the wealthy can invest a larger share of their income than the poor all while having it grow faster than it would with an income tax.This further skews the pre tax income distribution in favor of the already wealthy.

        c) the deferment of taxes also benefits the wealthy because by having a large amount of deferred taxation built up they are better able to evade and avoid taxes as opportunities arise.

        Investment may be necessary but lets not pretend that making lots of money purely by already having lots of money is some kind of virtuous high minded process.

        Reynald

        February 7, 2013 at 9:45 pm

  23. Most of our economy is based on consumer spending. Sales taxes punish consumer spending, therefore punish the economy.

    ASF

    February 6, 2013 at 11:09 am

    • Yes exactly. It is only the supply siders that think that investment is always the bottleneck for more growth. All the most prominent supply side “economists” are really just journalists.As crooked and corrupt as academic economics is, not even they can get behind it.

      The solution for our financial problems probably lie in undoing ~30 years of supply side economics and reorienting policy to encourage more consumption.

      Reynald

      February 6, 2013 at 5:03 pm

      • There’s already too much consumption. We need less consumption, not more.

        ntk

        February 6, 2013 at 10:48 pm

      • Good God. How much more consumption do you want? Should we all give ourselves credit enemas?

        Lucius Somesuch

        February 6, 2013 at 11:44 pm

      • ntk: “There’s already too much consumption. We need less consumption, not more.”

        Says who? The economy is obviously really complicated and i’m weary of anyone making and definite pronouncement. Still, there’s plenty of investment but it mostly goes into US debt and other low risk ventures.because noone thinks they can make any money selling things to people.

        Supply side economics is just propaganda that appeals to rich people (and people convinced they’re about to be rich which is where the vast majority of the online support comes from)

        Reynald

        February 7, 2013 at 12:39 am

      • The World Bank figures show that household consumption expenditure in the US is a horrifying 72% of GDP, which is well above the high-50s level of countries like Germany, Switzerland and France. Sweden, Norway and Singapore have even lower consumption shares of GDP.

        The average American engages in grotesque, disgusting overconsumption and if higher sales taxes will finally batter it down, then I’m all for it.

        ntk

        February 7, 2013 at 8:29 am

      • ntk: Thank you for those figures. As you can probably tell I dont really know what i’m talking about.

        Reynald

        February 7, 2013 at 6:04 pm

      • You’re welcome!

        ntk

        February 7, 2013 at 6:39 pm

  24. State and local taxes are a proportionately small component of the cost of doing business. As a result, tax breaks don’t always produce much in the way of economic development. Low labor and real estate costs are MUCH more important when it comes to attracting companies.

    Peter

    ironrailsironweights

    February 6, 2013 at 6:37 pm

  25. Sales taxes are better than income taxes in 1 way. Criminals and illegal immigrants pay more. @ASF in the long run all cash held by people is spent, so sales taxes are flat, not regressive.

    dsgntd_plyr

    February 6, 2013 at 6:59 pm

  26. Well to do people do leave New York for places like… Florida.

    not too late

    February 6, 2013 at 7:29 pm

  27. One of the most repetitive errors you make is assume that the Rich in New York City are somehow representative of the rich in the rest of the country.

    The majority of wealthy, non Jewish whites are Republicans, and while they probably don’t want to live with “rednecks”, they do not consider people living in the Suburbs of Atlanta, Miami, Dallas, New Orleans, Indianapolis, Phoenix, or any of those places to be rednecks or Jesus Freaks.

    That said, I don’t think most people want to move to pay less taxes, even if it is a lot of money, primarily because, Most people (New Yorkers aside) live where most of their friends and family members and especially if they have kids, moving is a pain in the ass.

    mike

    February 6, 2013 at 8:03 pm

  28. Red States are cold and empty. Nobody is moving to Iowa to freeze their ass off and have nothing around.

    If Red States were on the coast and has SoCal weather everyone would move there.

    asdf

    February 6, 2013 at 8:21 pm

    • They did, and look what happened. California would still be blue even if all the Mexicans went home – they don’t vote enough to make the difference. It’s liberals from the rest of the country that ruined California.

      Anthony

      February 6, 2013 at 10:16 pm

    • Iowa may be white, but it’s pretty blue.

      California was a red state. Someone must’ve moved there.

      Lucius Somesuch

      February 6, 2013 at 11:48 pm

  29. Sales taxes are a pain in the ass for software companies that sell SaaS software. They need to figure out complicated tax collections for all the states, and they aren’t even certain where the users of their software packages are located.

    GMR

    February 6, 2013 at 10:40 pm

    • Are you sure. I thought that a company had to actually be physically present, in some sense, in a state to be obligated to assess sales tax for transactions.

      aandrews

      February 9, 2013 at 11:53 am

  30. Taxes play a role in where people and businesses locate, but there are many other factors that are more important. Cost of living is a big factor. The cost of living, aside from taxes, is much higher in many blue states like NY and CA.

    The Blue states are generally setup to attract high skill, high wage jobs and the businesses that employ those people. The Red state model is designed to attract low skill, low wage jobs and businesses that need those kinds of employees.

    Why is Silicon Valley still the center of technology innovation? It is one of the most expensive places in the country to live. Taxes are high in California, but it is the cost of homes and rent that makes Silicon Valley such an expensive place to live. Real estate costs are high here because so many people want to live here for the jobs. Silicon Valley and the San Francisco bay area have the open and tolerant cosmopolitan atmosphere that attracts the best and brightest from around the world. Ask the Indian or Chinese engineers that work here if they would like to live in a anti-immigration deep Red state. I doubt that many would.

    You might wonder where are all the native born Caucasian engineers? There are some. I’m one of them, but too many of the Caucasian best and brightest chose to go to Wall Street or other some other field. Silicon Valley became the technology leader by attracting the best and brightest from around the world to make up for the lack of native born engineers. That situation is changing. I know many Indians who have gone back to India because of the cost of living. In India a software engineer can afford a large house with servants. In Silicon Valley he could barely afford a tiny 2 bedroom condo. When you ask the ones who have not gone back why they are staying, the answer is almost always that their Indian wives will not move back to India because of the freedom and status they enjoy here compared to India.

    Where people live and work is much more complicated than just taxes.

    mikeca

    February 6, 2013 at 11:11 pm

  31. “But I’ve previously wondered why rich people don’t all move out of New York City for places that offer a much lower cost of living.”

    Rich people is an abstraction. How did they make their money? There is more to class than money. Geffen vs a technical/Henry Ford type.

    There’s no place like home.

    Nicolai Yezhov

    February 6, 2013 at 11:33 pm


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