Boring Economic Stuff
Gramm and Solon take a look at 6 states, the three biggest economic winners in the last decade and the three biggest losers. Arizona, Texas, Florida are the winners. Illinois, Michigan, and Ohio are the biggest losers. Unlike the NBC TV show, being the biggest loser economically is bad.
What they find is even though the populations of the biggest winners are expanding at double the national rate, the real income of their residents went up by over 21%, double the national average. The losers? The real income in those states only went up by 58% of the national average.
Unsurpisingly, they show that (DUH!) if you punish business through taxes and regulations, they leave your state for more friendly states. This seems like a no-brainer, but some folks don't get it, Gov. Granholm. Fully one third (3.7 million) of the new jobs in the US over the last 10 years have been created in the three "winner states" listed above. The losers? They've lost over a quarter of a million jobs between them.
Those who think more government programs can cure those 'loser' states should probably ask "why, if they already spend 20-25% more per person than the 'winners', and are still losing jobs"?
Why shouldn't Obama supporters read this? Well, Gramm and Solon point out something that lots of us have known for a long time. That top 1% that Barack wants to jack taxes up on; 75% of the filers in that group are actually small businesses filing as individuals to avoid the higher US corporate tax rate and regulations.
Since three quarters of our new jobs are created by such businesses, jacking up taxes on them will just stifle job creation. That group isn't some untapped treasure chest, it's the economic engine of our country.
If such tax increases hit, two things will happen, as business will have to react in one of the two following ways, because unlike economic assumptions, people actually react to tax changes.
The first, some of the folks filing as individuals, who'll see their tax rates go above the corporate rate will incorporate, and then pay themselves a salary that gives them a tax benefit. At the same time, since the corporation will be able to shield some income from taxation an individual can't, the business will also lower it's taxes. Net income to the treasury will go down, and no one will be able to figure out why.
Secondly, for the small business owners that incorporating doesn't make sense for, they still have to feed their families. That means they have to cut business costs. Either some sort of benefit cut for employees, or someone getting fired to make up that income difference.
What about that 25% that aren't small business owners? Like they always have, they'll find a way to shield enough income to nulify the tax code changes. All you have to do is look at the historic IRS tables to see that the higher the tax rate is on the upper 1%, the less they pay into the treasury.
There are armies of accountants and tax lawyers out there licking their chops at the idea of a 20% increase in the upper tax rate. They know that is a big enough increase to justify paying them to find away around it.