Wednesday, February 28, 2007

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 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.


At 10:53 AM, February 28, 2007, Anonymous Anonymous said...

The education system is much better in state's that have state income taxes. If you want a good education system, you have to pay for it.

At 11:34 AM, February 28, 2007, Anonymous Anonymous said...

That certainly is not a true statement. Using the link referenced here

you can see that the states without income taxes are all over the board on education and only two of the states mentioned are in the bottom quartile and there are plenty of high tax jursidictions (CA, anyone) in the bottom quartile.

At 12:05 PM, February 28, 2007, Anonymous Anonymous said...

But only one of the top ten has no income taxes (Montana).

And the states always ranked at or near the top (New England and Northeast states) has higher tax rates as compared to the rest of the country.

It certainly is not the only thing that makes good schools, but it is certainly a factor.

At 7:48 AM, March 01, 2007, Anonymous Anonymous said...

Re: Random thoughts

I don't think the correlation, or lack there of, between money and education attainment is going to be so clear. Massachusetts has significantly fewer children per working adult than Texas so it's easier to spend more per child. Even then, more per child isn't a perfect measure because the same education may cost more to provide in Mass. than in Texas. Also, given a stable population Mass. need not spend so much on school construction as Texas so you would have to consider classroom spending only. There are also demographic factors like the nature of immigrants. My guess is that Mass. gets more highly educated immigrants than Texas, so immigration may help their educational attainment while ours is hurt by immigrants who are typically undereducated. High costs of living can also skew the pool of students by incenting low income earners (assumed to be less educated) to move out of the state while retaining higher income earners who are likely to be better educated.

I had a college roommate from New Jersey who said his public, non-magnet high school averaged an SAT score of over 1200. At first I was really impressed, but then when he said that each person on the "college prep" track was required to take a one semester SAT prep course at school, and that anyone who was expected to perform poorly was asked to not take the SAT (like his brother), it made me a little more cynical of "high achievement" being assumed from one variable. You can't compare Kingwood and Milby without controlling for demographics.

At 8:18 AM, March 01, 2007, Anonymous Anonymous said...

I'd have to look into the matter, but I am starting to think that the alternative minimum tax (AMT) rules might be starting to creep up on legislators in state capitals.

For a long time, the argument for sticking a state income tax on the citizenry was that that it wouldn't matter so much because you could deduct your state taxes off of your federal tax returns. So both the feds and the states would have a direct hand in your pocket. It may well be that legislators in state capitals are starting to see diminished returns because of the AMT, ergo it's time to start thinking of picking pockets in another way.

If my analysis is true, then it would just go to show how people seeking preferential treatment causes others to get jealous. Hence more legislation is passed to stop out the loop holes sought by others, which in turn causes even more unforseen consequences down the road.


Post a Comment

<< Home