Soak the Rich, Lose the Rich

With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.
Chad Crowe
Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that "tax increases, particularly tax increases on higher-income families, may be the best available option." A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to "raise tax rates for high income families right away."
Here's the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.
And the evidence that we discovered in our new study for the American Legislative Exchange Council, "Rich States, Poor States," published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.
Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies -- old and new -- have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.
Martin Feldstein, Harvard economist and former president of the National Bureau of Economic Research, co-authored a famous study in 1998 called "Can State Taxes Redistribute Income?" This should be required reading for today's state legislators. It concludes: "Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust. . . . A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees."
More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found "a significant negative impact of higher marginal tax rates on state economic growth." In other words, soaking the rich doesn't work. To the contrary, middle-class workers end up taking the hit.
Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. 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.
This result was all the more remarkable given that these were years when the stock market boomed and Wall Street gains were in the trillions of dollars. Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect. New Jersey now has one of the largest budget deficits in the nation.
We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.
Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states "race to the bottom" and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.
They're wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation -- even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.
Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation -- much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.
One last point: States aren't simply competing with each other. As Texas Gov. Rick Perry recently told us, "Our state is competing with Germany, France, Japan and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.
The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late.
Mr. Laffer is president of Laffer Associates. Mr. Moore is senior economics writer for the Wall Street Journal. They are co-authors of "Rich States, Poor States" (American Legislative Exchange Council, 2009).

Roadhouse Blues - The Doors

Tony Williams- Snake Oil

The Beatles - Money

gato barbieri - fiesta

NY Times: White House Forecasts No Job Growth Until 2010

This is the New York Times for crying out loud, geez at least they could have said "Job Growth Keeping Steady Pace" His Highness shall definately bring out the big teleprompter on this one!!!!!

David Frum: Something Bad is Happening in Obama's America

Something bad and dangerous is happening in Barack Obama's America.
The powers that the Obama administration claimed in order to arrest the financial crisis and mitigate the recession are being used and abused in ways that are underming the legal and financial stability of the United States. Investors: You are warned.
The first warning was the attempt to snatch Chrysler's assets away from their rightful owners to pay off administration friends and supporters.
The Obama plan to save Chrysler would have sold Chrysler's most valuable assets into a new company co-owned by the U. S. and Canadian governments, Fiat and the United Auto Workers (UAW) -- with the UAW getting the biggest piece, 55%.
The trouble was: those assets belonged to somebody else. They belonged to the company's bondholders, who had a legal first claim. Under the administration's plan, those senior-secured creditors would have received just 29¢ on the dollar.
For a failing company to shuffle assets so as to favor some creditors over others with a stronger claim is a very serious wrong, potentially even a crime. There's a sound economic reason for this rule of law: Bondholders accept lower returns in good times in exchange for greater security in bad times. Protecting bondholders in bad times ensures that future borrowers will be able to borrow in good times.
The bondholders squawked. Well -- not all the bondholders. Bondholders who had previously taken government bailouts for themselves, via the Troubled Asset Relief Program (TARP), kept quiet. That's bad enough. It means that these major lenders were breaching their fiduciary duty to their shareholders in order to placate their new masters in Washington.
But what happened to the non-TARP bondholders was even worse. When they squawked, the administration tried to muscle them. Lawyers for the bondholders contend that senior representatives of the Obama administration threatened them. Michael Barone, the ultra-knowledgeable (and normally unflappable) editor of the Almanac of American Politics called it "gangster government."
The Obama administration denies it threatened anyone. And yet over the past week, one by one, formerly protesting bondholders have abruptly gone silent. Last week, the non-TARP group represented bondholders holding $1-billion in Chrysler bonds. By the end of this week, the group had shrunk to represent only $300-million in bonds. As one commenter observed: that shrinkage suggests that the threats were real.
Then, on Thursday, another alarm sounded.
The state of California faces a desperate fiscal situation. California now has the worst credit rating of any American state. Governor Arnold Schwarzenegger and the Democratic majority legislature have struggled to balance the books, as they are constitutionally obliged to do. They have raised taxes dramatically, but they have also cut some programs. Among the cuts: a $2-an-hour cut in the wages of home health-care workers.
Those workers were unionized, and their union -- the Service Employees International Union - carries clout in Obama's Washington. On Thursday, California state officials told the Los Angeles Times that they had received a warning: The federal government would deny California $6.8-billion in stimulus funds unless the wage cut was rescinded. Since the wage cut will save only about $74-million, the state will have little choice but to surrender.
That missing money will have to be compensated for. Already, California's budget plans rely overwhelmingly on a mix of accounting tricks (selling future lottery revenues for an up-front payment) and tax increases. Now the state will need more tricks and more tax increases.
And so will the other states, as they too get the message: no pay cuts for unionized workers will be tolerated by Obama's Washington.
So, result:
In barely four months, Barack Obama has nudged the United States toward a future in which government will be bigger and more assertive -- where taxes will be higher and government unions more powerful -- where legal rights are less secure and contracts more uncertain.
In California, he is pushing a state toward the fiscal edge in order to favour a union ally. At Chrysler, he has put at risk the security of every contract in the country to please another union.
Meanwhile, his administration is planning changes to the regulation of finance that are likely to leave the United States less dynamic and less innovative in the years ahead -- at the same time as taxes rise and educational levels decline. (Already the Educational Testing Service-- the people who run America's SAT exam -- predicts a less skilled U. S. workforce in 2030 than today, with literacy rates declining by an average of 5% as unskilled immigration and rising rates of single parenthood take their toll.)
It's easy to lose sight of these wrong and costly choices in the turmoil of the immediate crisis. But it is these decisions of today that are preparing the crisis of tomorrow.

Roxanne

First Episode Of Gangster Government- Barone

Last Friday, the day after Chrysler filed for bankruptcy, I drove past the company's headquarters on I-75 in Auburn Hills, Mich. As I glanced at the pentagram logo, I felt myself tearing up a little bit. Anyone who grew up in the Detroit area, as I did, can't help but be sad to see a once-great company fail.

But my sadness turned to anger later when I heard what bankruptcy lawyer Tom Lauria said on a WJR talk show that morning.

"One of my clients," Lauria told host Frank Beckmann, "was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight."

Lauria represented one of the bondholder firms, Perella Weinberg, which initially rejected the Obama deal that would give the bondholders about 33 cents on the dollar for their secured debts while giving the United Auto Workers retirees about 50 cents on the dollar for their unsecured debts.

Gross Violation

This, of course, is a violation of one of the basic principles of bankruptcy law, which is that secured creditors — those who loaned money only on the contractual promise that if the debt was unpaid they'd get specific property back — get paid off in full before unsecured creditors get anything.

Perella Weinberg withdrew its objection to the settlement, but other bondholders did not, which triggered the bankruptcy filing.

After that came a denunciation of the objecting bondholders as "speculators" by Barack Obama in his press conference last Thursday. And then death threats to bondholders from parties unknown.

The White House denied that it strong-armed Perella Weinberg. The firm issued a statement saying it decided to accept the settlement, but it pointedly did not deny that it had been threatened by the White House. Which is to say, the threat worked.

The same goes for big banks that have received billions in government TARP money. Many of them want to give back the money, but the government won't let them. They also voted to accept the Chrysler settlement. Nice little bank ya got there, wouldn't want anything to happen to it.

Left-wing bloggers have been saying that the White House's denial of making threats should be taken at face value and that Lauria's statement is not evidence to the contrary. But that's ridiculous. Lauria is a reputable lawyer and a contributor to Democratic candidates. He has no motive to lie. The White House does.

Think carefully about what's happening here. The White House, presumably car czar Steven Rattner and deputy Ron Bloom, is seeking to transfer the property of one group of people to another group that is politically favored.

In the process it is setting aside basic property rights in favor of rewarding the United Auto Workers for the support the union has given the Democratic Party. The only possible limit on the White House's power is the bankruptcy judge, who might not go along.

Michigan politicians of both parties joined Obama in denouncing the holdout bondholders. They point to the sad plight of UAW retirees not getting full payment of the health care benefits the union negotiated with Chrysler.

But the plight of the beneficiaries of the pension funds represented by the bondholders is sad, too. Ordinarily you would expect these claims to be weighed and determined by the rule of law. But apparently not in this administration.

What 'Empathy' Really Means

Obama's attitude toward the rule of law is apparent in the words he used to describe what he is looking for in a nominee to replace Justice David Souter. He wants "someone who understands justice is not just about some abstract legal theory," he said, but someone who has "empathy."

In other words, judges should decide cases so that the right people win, not according to the rule of law.

The Chrysler negotiations will not be the last occasion for this administration to engage in bailout favoritism and crony capitalism. There's a May 31 deadline to come up with a settlement for General Motors. And there will be others.

In the meantime, who is going to buy bonds from unionized companies if the government is going to take their money away and give it to the union? We have just seen an episode of Gangster Government. It is likely to be part of a continuing series.

Joshua Redman - Molten Soul

Dixie Dregs

Only 18% Say UAW, Government Will Do Good Job Running GM, Chrysler

Obama to Secured Creditors: Drop Dead

By Bill Frezza
Are you following the disembowelment of Chrysler’s secured creditors with an eye not just toward what it means for the moribund car company but for what it could do to the very concept of secured debt? Has it dawned on you what the consequences will be if the President gets his way and consideration is given to creditors not according to contracts, rules, and established legal precedents but according to which group is most politically favored? And do you believe the President advanced the cause of economic recovery by publicly excoriating “speculators” who once hoped to profit by lending money against hard assets to an ailing company?
Profit? There’s no profit to incentivize risk taking in this country, only sacrifice!
Law? There’s no law to protect the politically unfavored in this country, only derision!

How's that $787 billion stimulus plan working out?

One of President Obama's accomplishments during his first 100 days was the passage of a $787 billion stimulus plan. I think the idea of economic stimulus makes sense when an economy is in the middle of a deflationary spiral. As I posted, that's when a drop in demand leads to excess productive capacity, causing companies to cut prices and fire workers, which further lowers demand as more workers -- whose consumer spending accounts for 70 percent of GDP growth -- have less to spend.
So far, only about 10 percent of the stimulus money has been doled out and it's not having much effect in counteracting this deflationary spiral. How so? First quarter GDP plunged 6.1 percent -- compared to a 6.3 percent decline in 2008's fourth quarter -- and the preliminary numbers are usually adjusted downward. The unemployment rate is expected to hit 8.9 percent in April from 8.5 percent in March.

Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen. ~Winston Churchill

Kaus

Gibraltar

jeff lorber - columbus ave

Change We Can Believe In: Taxpayers to get rude surprise

WASHINGTON (AP) -- Millions of Americans enjoying their small windfall from President Barack Obama's "Making Work Pay" tax credit are in for an unpleasant surprise next spring.

The government is going to want some of that money back.

The tax credit is supposed to provide up to $400 to individuals and $800 to married couples as part of the massive economic recovery package enacted in February. Most workers started receiving the credit through small increases in their paychecks in the past month.

But new tax withholding tables issued by the IRS could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that will have to be repaid at tax time....

Christine M. Flowers: Sen. Weather Vane

THERE are two schools of thought about Arlen Specter's defection (or rather, homecoming) to the Democrats.

The first is that he was so desperate to keep his spot in Congress, so incapable of hearing his name without the honorific "Sen." before it, that he jumped ship to avoid being destroyed in the GOP primary.

That's probably true.

The other is that he no longer felt at home in a party that had become increasingly conservative, rejecting his views on abortion, stem-cell research and trillion-dollar budgets, etc.

That's also probably true.

And guess what? The party is better off without him.

Specter is a weather vane, yielding to the strongest political wind. While he considers himself a "maverick" like his friend John McCain, the truth is that our senior senator is an opportunist.

Or, in his lexicon, a "moderate."

Moderates say they're for limited government spending, but then cast tie-breaker votes for trillion-dollar budgets.

Or think that subsidizing people who bought houses they couldn't afford is the right thing to do, even if those who lived within their means have to pay the bill...

Pelosi: Utterly Contemptible By Charles Krauthammer

 WASHINGTON -- Torture is an impermissible evil. Except under two circumstances. The first is the ticking time bomb. An innocent's life is at stake. The bad guy you have captured possesses information that could save this life. He refuses to divulge. In such a case, the choice is easy. Even John McCain, the most admirable and estimable torture opponent, says openly that in such circumstances, "You do what you have to do." And then take the responsibility.

Some people, however, believe you never torture. Ever. They are akin to conscientious objectors who will never fight in any war under any circumstances, and for whom we correctly show respect by exempting from war duty. But we would never make one of them Centcom commander. Private principles are fine, but you don't entrust such a person with the military decisions upon which hinges the safety of the nation. It is similarly imprudent to have a person who would abjure torture in all circumstances making national security decisions upon which depends the protection of 300 million countrymen.The second exception to torture rule is extraction of= information from a value enemy in possession likely save this case lacks white clarity ticking time bomb we know less about length fuse or nature next but do danger must act have no idea where how and t that until.
Under those circumstances, you do what you have to do. And that includes waterboarding.

Did it work? The current evidence is fairly compelling. George Tenet said that the "enhanced interrogation" program alone yielded more information than everything gotten from "the FBI, the Central Intelligence Agency and the National Security Agency put together."

Michael Hayden, CIA director after waterboarding had been discontinued, writes (with former Attorney General Michael Mukasey) that "as late as 2006 ... fully half of the government's knowledge about the structure and activities of al-Qaeda came from those interrogations." Even Dennis Blair, Obama's director of national intelligence, concurs that these interrogations yielded "high value information." So much for the lazy, mindless assertion that torture never works.

Asserts Blair's predecessor, Mike McConnell, "We have people walking around in this country that are alive today because this process happened." Of course, the morality of torture hinges on whether at the time the information was important enough, the danger great enough and our blindness about the enemy's plans severe enough to justify an exception to the moral injunction against torture.

Judging by Nancy Pelosi and other members of Congress who were informed at the time, the answer seems to be yes. In December 2007, after a Washington Post report that she had knowledge of these procedures and did not object, she admitted that she'd been "briefed on interrogation techniques the administration was considering using in the future."

Today Pelosi protests "we were not -- I repeat -- were not told that waterboarding or any other of these other enhanced interrogation methods were used." She imagines that this distinction between past and present, Clintonian in its parsing, is exonerating.

On the contrary. It is self-indicting. If you are told about torture that has already occurred, you might justify silence on the grounds that what's done is done and you are simply being used in a post-facto exercise to cover the CIA's rear end. The time to protest torture, if you really are as outraged as you now pretend to be, is when the CIA tells you what it is planning to do "in the future."

But Pelosi did nothing. No protest. No move to cut off funding. No letter to the president or the CIA chief or anyone else saying "Don't do it."

On the contrary, notes Porter Goss, then chairman of the House intelligence committee: The members briefed on these techniques did not just refrain from objecting, "on a bipartisan basis, we asked if the CIA needed more support from Congress to carry out its mission against al-Qaeda."

style="margin-top: 10px; margin-bottom: 10px; ">More support, mind you. Which makes the current spectacle of self-righteous condemnation not just cowardly but hollow. It is one thing to have disagreed at the time and said so. It is utterly contemptible, however, to have been silent then and to rise now "on a bright, sunny, safe day in April 2009" (the words are Blair's) to excoriate those who kept us safe these harrowing last eight years.