The View From Here . . .

By Bob Morgan, Jr.

Some notes from the era of tax and spend -

An article this week in the Washington Post by economist Robert Samuelson, generally a political moderate, makes it clear how bad the boom in federal spending and debt has become. Mr. Samuelson begins his article by asking. "Just how much government debt does a president have to endorse before he's labeled "irresponsible"? Well, apparently much more than the massive amounts envisioned by President Obama." Mr. Samuelson describes Mr. Obama's 2010 budget as "political expediency and economic gambling".

Mr. Samuelson points out that under the Obama Administration's own projections, the federal deficit will grow by $7.1 trillion between 2010 and 2019, not including the $1.8 trillion for the 2009 fiscal year and the Congressional Budget Office projects 2010-2019 deficits at $9.3 trillion. Mr. Samuelson believes these figures may be understated, since Mr. Obama's budget includes only about half the cost of his health care reform and assumes very low increases in defense outlays, which could be an underestimate unless foreign threats recede.

Mr. Samuelson is unsure of the consequences of the huge budget shortfalls. At best, the rising cost of the debt "would intensify pressures to increase taxes, cut spending — or create bigger, unsustainable deficits." At worst, there could be a global financial crisis. American and foreign investors might not be willing to purchase Treasury debt, which would shatter global confidence, force up interest rates, and trigger worldwide consequences.

On the state level, the combination of relentless increases in spending and the general requirement that state budgets be balanced (although budget managers often use accounting gimmicks) have triggered substantial increases in taxes - and very negative consequences to high tax states.

In an op-ed piece in the Wall Street Journal , conservative economists Arthur Laffer and Stephen Moore spell out the consequences of excessively high tax rates. The authors report that from 1998 to 2007, more than 1,100 people a day on average moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine no-income tax states, including Florida, Nevada, New Hampshire and Texas. Moreover, 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.

Another consequence of state tax increases on the "rich" - generally families earning more than $200,000 — is that high earners are moving out of states enacting such increases. This is evidenced in a study (reported in the article by Mr. Laffer and Mr. Moore) by E.J. McMahon of the Manhattan Institute. Examining the effects of taxes on high earners in New York, New Jersey and Connecticut, Mr. McMahon found that 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." People do vote with their feet.

This week we saw an anecdotal example of a tax refugee from the Empire State in the person of Tom Golisano, the millionaire founder of the Paychex check processing company and owner of the Buffalo Sabres. Mr. Golisano explained that he was departing from New York to Florida because he was unwilling to keep paying $13,000 a day in state income taxes.

Tax and spend can have serious consequences, both at the state and federal levels.