Wednesday, December 22, 2010

They never learn

Oregon raised its income tax on the richest 2% of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than the bean counters projected. ...

In 2009 the state legislature raised the tax rate to 10.8% on joint-filer income of between $250,000 and $500,000, and to 11% on income above $500,000. Only New York City's rate is higher. Oregon's liberal voters ratified the tax increase on individuals and another on businesses in January of this year, no doubt feeling good about their "shared sacrifice."

Congratulations. Instead of $180 million collected last year from the new tax, the state received $130 million. ...

One reason revenues are so low is that about one-quarter of the rich tax filers seem to have gone missing. The state expected 38,000 Oregonians to pay the higher tax, but only 28,000 did. Funny how that always happens. These numbers are in line with a Cascade Policy Institute study, based on interstate migration patterns, predicting that the tax surcharge would lead to 80,000 fewer wealthy tax filers in Oregon over the next decade. ...

All of this is an instant replay of what happened in Maryland in 2008 when the legislature in Annapolis instituted a millionaire tax. There roughly one-third of the state's millionaire households vanished from the tax rolls after rates went up.
Newsflash: When you penalize something, you get less of it.

This was entirely foreseeable, which is why the Cascade Policy Institute was able to predict it, and why this is not only a replay of what happened in Maryland, but in New York, California, New Jersey, and other states as well.

Government falls into a basic trap, time and again. They see taxpayers primarily as a revenue source and fail to recognize that they are people, who respond to incentives. If you tax them, do they not bleed? Of course they do. Then they move out of the state or figure out other ways to keep you from taking their money.

Those who continue to act like they can just pass laws and magically achieve only the intended results need to wake up and meet the Law of Unintended Consequences: Incentives, not intentions, matter.

Incentives are like gravity; they win every time.

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