Economics 101: If you raise taxes, they will leave
Posted by Dana Pico on 2011/08/25
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?
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. But this was not all that 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. The 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.
Cross posted on Common Sense Political Thought.
3 Responses to “Economics 101: If you raise taxes, they will leave”
Sorry, the comment form is closed at this time.