Businessmen Take Their Marbles and Go Home

Raising taxes kills jobs.

As federal stimulus money runs out, the recession is finally beginning to bite state and local governments.  The New York Times is bleating about a "ruinous fiscal meltdown" in state finances:

In the first two months of this year, state and local governments across the U.S. cut 45,000 jobs. Additional layoffs are expected as states move ahead with their budgets for fiscal 2011.

What a tragedy!  22,500 government employees got the sack last month, assuming the sackings were evenly spread between the two months!  Even Senate Majority Leader Harry Reid had to admit that the private sector was suffering at a much greater rate:

Today is a big day in America. Only 36,000 people lost their jobs today, which is really good. [emphasis added]

Fewer government employees lost their jobs in a month than one day's worth of private sector job losses, and this is a ruinous fiscal meltdown?

Balancing State Budgets

Unlike the federal government which is allowed to borrow as much money as it pleases, most states are required by law to balance their budgets, or at least seem to.  There are four ways to deal with a state revenue shortfall:

  1. Raise taxes

  2. Lay off state employees

  3. Cut state employee pay

  4. Play fiscal games so the budget looks balanced

Highly-unionized states like California and New York have been playing budget games for so many years that they can't anymore: all the available games have been tried.  Foreign nations in similar situations such as Ireland and Greece have cut public sector pay, standing up to protests and marches from their own public-sector unions, but such actions are not acceptable to the unions who own "our" elected representatives.

Raising taxes is the unions' favorite solution, of course, but that no longer works either.  The Wall Street Journal reports that as income taxes go up, rich taxpayers vanish.

Last year, Maryland politicians said they expected to collect an extra $106 million by raising the income tax on millionaires.  Final tax return data for 2008 are now available:

The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million[emphasis added]

Some of the decline is due to the fact that millionaires lost income along with the rest of us, but notice the 30% drop in the number of Maryland millionaires:

One-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008. Some died, but the others presumably changed their state of residence. (Hint to the class warfare crowd: A lot of rich people have two homes.

A Bank of America Merrill Lynch analysis of federal tax return data on people who migrated from one state to another found that Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states. That's income that's now being taxed and is financing services in Virginia, South Carolina and elsewhere.  [emphasis added]

It doesn't matter whether politicians in other states learn from the lesson of Maryland - raising incomes taxes on the wealthy won't help them either because their rich people would rather leave than be taxed.

That leaves either laying off state employees or cutting their pay.  Those of us who've been paying taxes for years to support lavish government pay and benefits say "About time!"

Boost the Economy

There's yet another way to deal with a revenue shortfall, and that's to boost government revenue by boosting the economy.  With all the private sector jobs being lost and all the government hot air about their desire to create jobs, you'd think that the government might be interested in what some major job creators have to say, but you'd be wrong.  Bloomberg reports in a three-part series that Emerson Electric, a 100-year-old, $20 billion manufacturing firm with 140,000 employees, has declared that it no longer intends even to try to create jobs in the US.

Emerson Electric Co. Chief Executive Officer David Farr said the U.S. government is hurting manufacturers with regulation and taxes and his company will continue to focus on growth overseas.

"Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing," Farr said today in Chicago at a Baird Industrial Outlook conference. "Cap and trade, medical reform, labor rules."

"What do you think I am going to do?" Farr asked. "I'm not going to hire anybody in the United States. I'm moving. They are doing everything possible to destroy jobs."

The government employees who are supposedly charged with promoting trade blew Emerson off:

"This attack isn't supported by the facts," Kevin Griffis, a spokesman for U.S. Commerce Secretary Gary Locke, said today in an e-mail from Singapore, where they are attending the Asia-Pacific Economic Cooperation meetings.

"This administration has made a significant commitment to U.S. manufacturing, including reforming the country's health insurance system to bring down costs and make American companies more competitive globally," Griffis said.  [emphasis added]

OF COURSE Obamacare will bring down costs!  Our president has said so!

The officials who're charged with estimating the cost admit that they're too tired from chasing down all the rapid changes to Obamacare to be sure of anything, but they say it will cost more than $900 billion - a funny way to bring down costs.  They didn't say anything about making American companies more competitive globally, of course, that's not their job.

So who's right?  Will government involvement in health care "bring down costs and make American companies more competitive globally" as our government claims?  Or will Obamacare destroy jobs as Emerson says?  Fox News reports:

Caterpillar, the heavy-equipment maker that President Obama cited last year in making his argument for a massive economic stimulus package, is opposing the health care bill nearing final passage, saying the bill would ramp up the company's operating costs by $100 million alone in the first year and imperil coverage for its 150,000 employees and retirees.

In a letter Thursday to House Speaker Nancy Pelosi and Minority Leader John Boehner, and provided to, the Peoria, Ill.-based company urged lawmakers to vote against the bill, citing provisions in it -- such as new coverage mandates and the taxation of Medicare subsidies for prescription drugs -- that would drive up its health care costs by more than 20 percent[emphasis added]

Caterpillar doesn't believe what the government says about how much Obamacare will save and isn't afraid to let Mrs. Pelosi know it.  Even if taxes don't go up, which is unlikely, the cost of hiring people is going to go up if Obamacare passes.

Given that private sector jobs were still being lost even without Obamacare, there soon won't be much left to tax.  States which are required to balance their budgets may have to stop playing budget games and lay off even more state employees.

Stand by for more hand-wringing from the Times, and cheering from the shrinking number of taxpayers left.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Economics.
Reader Comments
It is a big problem that people in power do not think ordinary people, because they do not face problems everyday .. Unemployment has risen sharply, and those in leadership are the only ones who can do something for to change that.
March 24, 2010 9:52 AM
thank you !!! i would not get this type of info any where else.....local paper news broad cast nooooooo....... it is all 2 clear what is going on !!!.....oh so slowly...year by year...TYRANNY!!!Abraham Lincoln 1864 "we all declare for liberty;but in using the same word we do not all mean the same thing. With some the word liberty may mean for each man to do as he pleases with himself, and the product of his labor, while with others, the same word may mean for some men to do as they please with other men, and the product of other men's LABOR.
March 24, 2010 2:07 PM
here are two not only different but incompatible things....called by the same name.......LIBERTY. And it follows that each of the things the respective parties, called by two different and incompatible names.............LIBERTY and TYRANNY" Abraham Lincoln 1864
March 24, 2010 2:16 PM
It's very what is said here that rich people would rather leave than be taxed. A good decision by the government to chop off those extra heads that weren't needed in the first place.
March 25, 2010 12:37 AM
someone who can lead and have a great responsibility to give change so that unemployment does not continue to rise sharply
March 25, 2010 6:45 AM
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