Wednesday, February 17, 2010

How High Taxes Impede Wealth

Between 1999 and 2004, New Jersey experienced strong growth in the wealth of its citizens:

During those five years the Garden State had a $98 billion net influx of capital due to wealthy households moving into the state, and it enjoyed a corresponding $881 million increase in "charitable capacity."

The Garden State was blooming. Then the trend reversed. From 2004-2008, author John Havens found "a large decline in the number of wealthy households entering New Jersey" as well as "a moderate increase in the outflow of wealthy households leaving." The result: a net decline of $70 billion in household wealth while the "expected giving" became a net outflow of $1.132 billion.

So what happened in 2004? The study doesn't purport to explain what caused the wealth movements. But the state's most notable economic policy event that year was an increase in its top income tax rate to 8.97% from 6.37%, on incomes starting at $500,000. That's a 40% increase.

In America, the wealthiest 10% pay 68% of the taxes. If you raise their tax rates too high, they will take their money and leave. Then, to pay for the various entitlement programs we have created, tax rates on the middle class will have to go up, until there is no more middle class.

I don't want to find out what happens next.

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