Houston Strategies

Houston and Texas best NYC on wealth and taxes

New York is home to the most profitable and highest-paying major industry on the planet: finance. Wall Street bonuses are legendary in their extravagance. Yet a recent study by their own Independent Budget Office shows they have been far less successful in generating broad-based opportunity and wealth across their population. From the NY Times story:

New York, despite its high concentrations of wealth, is far from being the richest big city per capita, the report found. New York’s gross taxable resources — the personal incomes of residents and the gross operating surpluses (income less employee compensation) of businesses — averaged $61,622 per resident, trailing Dallas ($74,383), Houston ($72,835) and San Diego ($63,814).

The reason?

New York City has long had a notorious reputation for high taxes, but an independent analysis released today shows just how much the city stands out in this regard: state and local taxes swallow $9.02 out of every $100 in taxable income, putting New York’s tax burden far above those of the eight other American cities with populations over 1 million.
...
In general, the cities with weaker tax bases — San Antonio, Philadelphia, Phoenix and Los Angeles — tended to have higher individual tax burdens than the wealthier cities of Dallas, Houston and San Diego. (Of the nine cities, Chicago was slightly below average in both per capita taxable resources and tax burden.) “New York City sits far outside the trend line,” the analysis found.

Of the nine cities compared, Houston had the second lowest tax burden of $5.53 out of every $100 in taxable income, just behind Dallas at $5.20. From the report:

In fact, as Figure 1 shows (see page 3), there is for the other large cities a fairly robust negative correlation between the strength of a city’s tax base (measured in per capita GTR) and its tax effort (collections per $100 GTR). Cities with weaker than average bases (San Antonio, Philadelphia, Phoenix, Los Angeles) tend also to have heavier than average taxes placed on those bases, while cities with strong bases (Dallas, Houston, San Diego) have relatively lighter taxation. (Chicago is just below average in both per capita taxable resources and tax effort.) But New York City sits far outside the trend line.

On a related note, talk of a state income tax pops up in Texas from time to time, but a recent Wall Street Journal op-ed noted that more and more states are trying to shift towards Texas' no-income-tax model:

If you're searching for the next big thing in American politics, it's wise to keep an eye on the states. Here's one possibility: the abolition of state income taxes.

In Georgia, Missouri and South Carolina, Governors and state legislatures are drafting serious proposals to repeal their income taxes to promote economic development. St. Louis, one of America's most distressed cities, may overturn its wage/income tax as a way to spur urban revival. And in Michigan, the legislature is in the last stages of phasing out its hated business income tax -- the most onerous in the land. "States are now in a ferocious competition to attract jobs and businesses," says economist Arthur Laffer, who is advising several Governors and legislators on the issue, "and one of the best ways to win this race is to abolish the state income tax."

...

The idea of financing state services without an income tax is hardly radical. Nine states today -- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming -- manage well without one. With a few exceptions, the non-income tax states are America's most prosperous. Meanwhile, the high income tax states, which tend to be congregated in the Northeast, keep surrendering jobs, people, and voters to the South and West.

State lawmakers also seem to have learned from two of the most recent states to adopt an income tax: New Jersey and Connecticut. As recently as 1965 New Jersey had neither an income nor sales tax, but managed to balance its budget every year. Now it has both taxes -- its income tax is the 5th highest in the nation -- but the state is facing what Stateline.org calls a "staggering budget deficit." Allied Van Lines reports that the Garden State is now one of the leading places for people to flee.

The latest state to adopt an income tax was Connecticut in 1991, but a new report by the Yankee Institute reveals that the tax has been a calamity. The state has ranked last in employment growth since 1991, losing 240,000 of its native born citizens between 1991-2002. No other state has since enacted an income tax, and lawmakers in Georgia, Missouri and South Carolina say Connecticut is now the model for how not to run a state economy.

Whether these states will be able to eliminate their income taxes in the next few years is an open question. But what's undeniable is that the debate in state capitals has swung decisively in the direction of chopping income tax rates, not raising them.

posted by Tory Gattis @ 8:11 AM