By Rex Sinquefield, Forbes Contributor
The Wall Street Journal reports that New York City Mayor Bill de Blasio is laying down the gauntlet on the issue of income tax increases. He is determined to increase taxes on high wage earners, even if the state legislature does not fund pre-K education. Clearly, de Blasio’s plan is one of the more aggressive, and likely most harmful, political moves in the grand tax experiment between the states. The stakes are high, and Mayor de Blasio is betting that raising income taxes on successful workers and entrepreneurs will not push them to warmer, friendlier climates.
As reported by the New York Times late last year, New York is falling fast in its state population ranking, and could very likely fall to fourth place this year, while the no-income tax state of Florida moves up a notch to third place. All eyes will be focused on this data, as it seems to carry with it a real threat to the stability of the state’s economy, along with the potential loss of even more congressional seats to growing states such as Florida.
At the center of the state income tax debate are those who believe in increasing taxes and redistributing wealth to low-income workers and the unemployed. Unfortunately these same policies discourage business growth and job creation. On the contrary, encouraging economic inclusion for all is best served by reducing income taxes. The most efficient and effective road to job growth is designing and implementing a system that broadens the tax base, lowers tax rates, and provides opportunities for workers and employers to accumulate and spend financial resources, ultimately leading to economic growth and more job creation. Policymakers and voters would do well to seriously consider which approach would successfully tackle the issue of joblessness in their own states.
Solid new evidence released this month by the nonpartisan Tax Foundation supports the position that reducing income taxes encourages job creation and correctly lays out the best path to economic inclusion. The report’s release comes at a very critical time: The experiment in tax policy looks to be gaining even more momentum this year. In addition to the 18 states that passed meaningful income tax reform last year, more governors and legislatures are gearing up to make their states competitive in the drive to attract workers and businesses in 2014.
In my home state of Missouri, legislators are reworking the tax reduction proposal that they passed last session, only for it to be vetoed by Governor Jay Nixon. According to a recent news account, a handful of tax reform ideas will be considered this year. Several Republican legislators are working closely with the Governor’s office to find common ground by revising last year’s defeated proposal. There also is a plan being promoted by Democrats that will cut income taxes for all those making less than $300,000 per year. The latter is clearly the least desirable measure as currently written; that is, if Missouri wants to compete with its neighbor to the west, the state of Kansas, which enacted comprehensive income tax reform in January 2013.
One can only hope that Governor Nixon is paying close attention to the tax changes leaders in Alaska, New York, Nebraska, Kentucky, and Oregon are considering. There’s a grand experiment taking place in the race for job creation, and the states that ignore what’s happening around them will fall behind if they’re not careful.