Soak the Rich, Lose the Rich

By ARTHUR LAFFER and STEPHEN MOORE

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).

Lady Justice is Blind, not "Empathetic"

Lady Justice is Blind, Not 'Empathetic'

By Carol Platt Liebau

Preparing to fill the Supreme Court seat soon to be vacated by David Souter, President Obama has announced that he wants a judge with "empathy." According to the President, his nominee must understand "justice" to be "about how our laws affect the daily realities of people's lives -- whether they can make a living and care for their families, whether they feel safe in their homes and welcome in their own nation."

As a former constitutional law professor, surely the President understands that possessing "empathy" in the abstract is an absolutely meaningless criterion for a judge. When a President emphasizes the importance of "empathy," the more proper question becomes not whether a particular judge has empathy, but rather, for whom? After all, empathizing with a woman who wants a late-term abortion necessitates a certain lack of empathy for her unborn baby. Empathy for accused criminals can feel like something very different to their victims.

In fact, by invoking a comfortably-undefined "empathy" as the indispensable quality in a justice, President Obama is deftly deploying warm, fuzzy rhetoric to signal that he intends to select a justice with a very specific left-wing policy agenda. Looking for a nominee who is concerned about whether people "can make a living and care for their families" means he is seeking a judge who will side with unions or plaintiffs against businesses. Nominating a jurist who worries about whether people "feel safe in their homes" means finding a person who will greet with skepticism the claims of law enforcement in search and seizure (or national security) cases. And selecting a judge pledged to make people feel "welcome in their own nation" means naming a justice with the politically correct views on hot button social issues ranging from gay marriage to affirmative action to immigration to removing faith from the public square.

Barack Obama won the election fair and square, so there would be no grounds for objection if he were listing the criteria for a nominee to a policy-making position. But he isn't. He is selecting a jurist, and therefore is supposed to be seeking someone who will uphold the rule of law by deciding cases impartially, based only on the law and the facts before him - and nothing else.

Instead, Obama wants a policymaker sitting on the Supreme Court - in fact, a super-lawmaker on steroids. He's looking for a judge willing to engage in an enterprise that has nothing to do with the actual process of adjudication - that is, interpreting the laws that have been passed by a legislature and signed by an executive. Rather, Obama's ideal nominee will eagerly seek to participate in the inherently political enterprise of deciding cases based - not on the Constitution and laws - but on whether s/he personally feels one particular outcome would be preferable to another. That's known as results-oriented jurisprudence. And it's dangerous.

The kind of judging the President approves is completely subjective. Justices pluck a phrase from the Constitution and imbue it with a new, hitherto- unimagined meaning in order to reach a liberal result consistent with their own personal political or social sympathies. By such formulations, the concept of "liberty" can be expanded at a Justice's own whim to authorize constitutional protection for everything from assorted abortion rights to gay sex (as, ironically, Reagan nominee Anthony Kennedy has done over the years). And in the future, if President Obama's justice has anything to say about it, "liberty" will be extended even farther to serve as a rationale for imposing gay marriage, eliminating restrictions on partial birth abortion, and validating any other trend du jour that the left embraces.

Eventually, should a Republican president start nominating justices based primarily on their "empathy," surely even liberals will realize that it is dangerous to install a judiciary that relies on feeling, rather than reason, as the indispensable guide to judicial decision making. After all, a judge's empathy extends most predictably to parties to whom s/he relates or with whom s/he sympathizes personally or politically. As such, relying on "empathy" undermines citizens' confidence that all will be equal before the bar of justice - and that adjudication itself will be impartial. That assurance is essential for a free people to remain free.

There is a reason that Lady Justice wears a blindfold. Justice is supposed to be blind to the race, gender, finances, politics - and every other "empathy"-eliciting - characteristic of those who seek it in good faith. Apparently, it's too much to hope that figuratively, at least, President Obama's justice will be, too.

Andrew Breitbart is a Great American

Why the pass fellas?

Hypocrisy rears its ugly head. To reiterate Breitbart's essential question, "Why are gay-activists giving Obama, Biden, Hispanics, and Blacks a free pass when it comes to gay-marriage, but crucifying the religious right?"

I'll give you a hint... there is no good reason. Read on and make your own decision.

"Greetings, from a poolside cabana at a trendy boutique hotel in Santa Monica. Oh, how I love these overpriced overnight stays. The sleek designs. The ambient music. The uniformly attractive and stylishly dressed young staffs. The plush beds with sheets of an absurdly high thread count. Weird faucets and weirder sinks. I bask in the attention to detail. W is my favorite letter. Philippe Starck is a personal hero.

As a realist, I've built into my mindset that the majority heterosexual population is less than exclusively responsible for creating this and countless other high-end consumer and artistic experiences. Plus, I have a ton of wonderful gay friends - even ones "married" and with children. If gay activists created "A Day Without a Gay" (as they promoted Dec. 10 of last year), I'd be the first to cry "uncle" - even before Cher. So, accordingly, I make philosophical and political accommodations. I'm - as the MTV generation says - "gay-friendly."

But lately, color me "gay perturbed." "Gay-friendly," a term once manifestly redundant, now seems a glaring contradiction.

The gay political-activist community - in my view, a small minority of left-wing agitators acting on behalf of the whole - has been on a binge of bad public behavior, and I'm not referring to the bare-buttocked-chaps look and inappropriately placed sparklers during "pride" parades.

The Mormon community was recently targeted for its support of Proposition 8, the pro-traditional-marriage initiative in California. Donors to the cause were isolated and even exposed on online maps. Businesses were targeted. People lost their jobs.

The latest high-profile act on behalf of the "community" came from the Miss USA pageant. Perez Hilton, the wildly popular Internet gossip and celebrity hit man, somehow got himself placed as a judge of female beauty at the Donald Trump-sponsored event. Not to be judgmental, but the apprentice behind that hire should be fired. But I digress.

At the point in the pageant when the young lovelies are asked questions by those who pick the winners, the flamboyantly gay man (who by day pries into the private lives of stars and scrawls human DNA-spewing phalli under the faces of those he doesn't like) asked Miss California, Carrie Prejean, whether she approved of gay marriage.

It was a setup.

Miss Prejean is a student at San Diego Christian College - the kind of place activist gay leftists are at war with, where Christians preach what they practice.

"Out of all the topics I studied up on, I dreaded that one: I prayed I would not be asked about gay marriage. If I had any other question, I know I would have won," she told Fox News.

Perez Hilton, whose real name is Mario Armando Lavandeira Jr., affirmed Miss California's fear: "She lost it because of that question. She was definitely the front-runner before that." Miss Prejean received zero points from Perez Hilton, who put her on the spot defending her faith. She finished in second place.

On display at the Miss USA event was the activist left's pageant of selective bullying, a concerted strategy to go after low-hanging fruit like Mormons. But the left leaves off its hit list members in good standing of its normal coalition - its "rainbow" coalition. In California, one of the gayest places on the map, blacks and Hispanics - who disproportionately disapprove of same-sex marriage - get a stunning pass from outraged proponents of gay marriage.

Since 9/11, the highly organized gay left has also been deafeningly silent on Islam's anti-modern approach to homosexuality - let alone same-sex unions. The mullahs in Iran somehow get a major pass while the director of the California Musical Theatre in Sacramento is targeted for ruin. This contradiction is not subtle. Indeed, it's obvious and pathetic.

In fact, in the beauty contest that was the 2008 presidential race, Barack Obama - the left's hand-tailored candidate and an icon of "hope" in the gay community - like his vice president, Joseph R. Biden Jr., shares Miss California's stance on gay marriage.

"I'm a Christian," Mr. Obama told the Chicago Tribune. "And so, although I try not to have my religious beliefs dominate or determine my political views on this issue, I do believe that tradition and my religious beliefs say that marriage is something sanctified between a man and a woman."

Why the pass, fellas?

I fear the vicious and hypocritical path that the activist gay left is headed on will eventually be met with a backlash. If it already hasn't. Activism goes both ways and somehow the majority has a way of having its say. Unless the gay community polices itself better and registers its displeasure against these pitiful and selective acts of political retribution, many tolerant Americans who hold the same beliefs on marriage as Mr. Obama and the Dalai Lama are going to begin to register their displeasure at the voting booth and through consumer boycotts against those who employ or support the thuggish tactics of Perez Hilton and his ilk.

"A Day Without a Gay" may become a prolonged and mostly unspoken reality. Trust me, I don't want to throw out all my John Waters DVDs. But if push comes to shove, and if the bullying continues, I'm more than willing to stay at a Ramada."

-Andrew Breitbart

Word up to my brother Vaclav

President of the Czech Republic, Vaclav Klaus

PRAGUE -- I am surprised at how so many people nowadays in Europe, the United States and elsewhere have come to support policies underpinned by hysteria over global warming, particularly cap-and-trade legislation to reduce greenhouse gas emissions and subsidies for "green" energy sources.

I am convinced that this is a misguided strategy -- not only because of the uncertainty about the dangers that global warming might pose, but also because of the certainty of the damage that these proposed policies aimed at mitigation will impose.

I was invited to address this issue at a recent conference in Santa Barbara, Calif. My audience included business leaders who hoped to profit from cap-and-trade policies, subsidies for renewable energy and "green" jobs. My advice to them was to not get caught up in the hysteria.

Europe is several years ahead of the US in implementing policies intended to mitigate global warming. All of the European Union's member countries have ratified the Kyoto Protocol and adopted a wide range of policies to lower their emissions and meet their Kyoto targets.

These policies include a cap-and-trade initiative known as the Emissions Trading Scheme, steep fuel taxes and ambitious programs to build windmills and other renewable energy projects. These policies were undertaken at a time when the EU economy was doing well and -- one hopes -- with full knowledge that they would have significant costs.

With the global financial crisis and the sudden economic downturn, two things are becoming clear. First, it will be difficult to afford these expensive new sources of energy. Second, energy rationing policies, like cap-and-trade, will be a permanent drag on economic activity. Ironically, emissions have not decreased as a result of these policies, but are doing so now as the world economy moves into recession.

This is not a surprise to someone like me, having been actively involved in my country's transition from communism to a free society and market economy. The old, outmoded heavy industries that were the pride of our Communist regime were shut down -- practically overnight -- because they could not survive the opening of the economy. The result was a dramatic decline in CO2 emissions.

The secret behind the cut in emissions was economic decline. As the economies of the Czech Republic and other Central and Eastern European countries were rebuilt and began to grow again, emissions have naturally started to increase. It should be clear to everyone that there is a very strong correlation between economic growth and energy use.

So I am amazed to see people going along with the currently fashionable political argument that policies like cap-and-trade, government mandates and subsidies for renewable energy can actually benefit an economy. It is claimed that the government, working together with business, will create "a new energy economy," that the businesses involved will profit and that everyone will be better off.

This is a fantasy. Cap-and-trade can only work by raising energy prices. Consumers who are forced to pay higher prices for energy will have less money to spend on other things. While the individual companies that provide the higher-priced "green" energy may do well, the net economic effect will be negative.

It is necessary to look at the bigger picture. Profits can be made when energy is rationed or subsidized, but only within an economy operating at lower, or even negative, growth rates. This means that over the longer term, everyone will be competing for a piece of a pie that is smaller than it would have been without energy rationing.

This does not auger well either for growth or for working our way out of today's crisis.

Václav Klaus is president of the Czech Republic, which holds the presidency of the Council of Ministers of the European Union until June 2009. He is the author of "Blue Planet in Green Shackles -- What Is Endangered: Climate or Freedom?"