Wednesday, June 25, 2014

Why The NJ 'Millionaires Tax' Is A Shell Game

From our friends at the Save Jersey Blog:

By Irwin M. Fletcher | The Save Jersey Blog

Why do we ALWAYS have the same argument over a millionaires tax?

Scratch that, Save Jerseyans. Why do Democrats and newspaper editors, aka Harry & Lloyd, our friends from Dumb and Dumber, ALWAYS ignore the facts of this argument? I’m getting sick and tired of the facts staring them right in the face and then, instead of responding to logic and reason, they lie to our faces. When they say that people do not leave, that people do not flee a state when they institute a millionaires tax, grab a fire extinguisher, aim it at their pants and get ready to pull the pin.

Wealth flees, Save Jerseyans. Wealth flees. And here is what the FACTS tell us what happens when a state, any state, raises its millionaires tax.

In the first fiscal year they are enacted, taxes generally raise anywhere from 90 to 95% of the publicly estimated revenue to be raised. Sometimes it is more, sometimes it is less. This occurs for 3 main reasons: 1) They are usually retroactive for the current fiscal year, and since DeLoreans don’t come standard with flux capacitors, taxpayers can’t do much about avoiding taxes in June on income already earned 6 months ago in January; 2) Moving/fleeing doesn’t happen overnight. While millionaires have the resources to leave the state due to taxes, it takes some time. So while they cut through the red tape, their income stays and is taxed at the new higher rate; 3) The projections employed are usually the rosy best case scenario ones to make the TV sound bite better. $600 million sounds better than $500 million when you’re trying to close a budget gap. But the best case scenario is hardly ever the real case scenario.

It is also a fact that after the fiscal year of implementation, tax revenues come nowhere near projections. Nowhere near. The first years collections are a one-time windfall. Revenues fall drastically in year two. The funds that the millionaires tax was supposed to raise aren’t materializing. Not there. Year three, the gap between projected tax revenues and collected revenues is even bigger! Heck, sometimes it’s BELOW then where they started three years ago! States are collecting less income taxes than before their millionaires tax! By year four and year five, the tax revenue situation is so bad that Harry & Lloyd start up the same argument again.

While it varies from state to state, I believe one can say as a general rule of thumb that a millionaires tax provides a 12-24 month bump in revenue, then, all things being equal, tax revenue actually drops below the pre-millionaires tax level.

So let’s apply this well-documented paradigm to New Jersey.

In 2009, Jon Corzine’s millionaires tax was projected to raise $560 million and it did roughly that. Then revenue started to fall; we just got the predictable one time bump in 2009! But then in 2010, 87,630 taxpayers with a combined $5.5 billion in taxable income flipped New Jersey the bird and left the state. $5.5 billion we no longer got to tax. Now, at the old rate, i.e. the rate they were willing to stay and pay, that’s $350.4 million. At the new rate, Trenton was projecting those 87,630 taxpayers would cough up $493.4 million to the state house each year. At the new rate, those people paid $0.0 dollars in income tax in 2010. And in 2011, 2012, 2013, and 2014, Trenton was expecting $493.4 million each year from those 87,630 taxpayers.

And instead, we got $0.

In fact, since 2010, despite that fact that Harry & Lloyd insisted that people don’t flee high taxes and anyone who says otherwise is a fool and a liar, the Garden State has missed out on $1.8 -$2.5 billion, BILLION, in income tax revenue from those 87,630 folks. In other words, we passed up on collecting anywhere between $1.8 and $2.5 billion between 2010 and today just so we could collect an extra $560 million in 2009. That’s a HORRIBLE deal, right folks? A horrible deal Democrats and newspaper editors said could never happen.

It gets worse. Those are just the folks who fled in 2010! Just the monies we lost in one year! Fleeing doesn’t stop one year on; it’s a long continuous process. Don’t believe me? McGreevey’s millionaire tax hike occurred in 2003, and New Jersey lost $70 billion in wealth from 2004 to 2008, a four year period! Billions in long-term lost tax revenue for a one-time cash grab. We lost taxpayers in 2011, 2012, 2013 and 2014 because of that move in 2009, too (once that data is crunched, we can put exact numbers on it). Making that a very expensive $560 million to raise in 2009. Wouldn’t surprise me if it cost us $10 billion for that one time, $560 million cash grab.

Would you trade $10 billion for $560 million, Save Jerseyans?

Let me rephrase toreally help make my point here:

Are you dumb enough to trade $10 billion for $560 million?

I’m not. But Harry & Lloyd are.

And we are about to make another dumb trade. If Steve Sweeney and Vince Prieto get the millionaires tax increase they just pitched as part of their budget, it will probably raise around the $667 million they have predicted. THIS YEAR. We get the one-time cash grab, but no one in Trenton realizes it’s just a one-time windfall.

But then the next year, the monies won’t be there. Predictably. Same with the year after that. And after that. And we gotta get money somehow, because we’ve already spent it. Until we’re in such dire financial straits that all we’re left with is a Samsonite full of IOUs. Sound familiar?

That’s what happens when you Harry & Lloyd call the shots.

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