Tuesday, February 22, 2011

Trickle Down Economics Goes Negative

It is amazing how short-sighted some people can be. In all the talk about Governor Dayton's tax plan (let's face it, it wasn't a serious "budget proposal"), folks seem to have gotten caught up in the idea that it's ok to raise taxes on the richest Minnesotans because they should pay their "fair share". We need a little clarity on what this plan really does before we get too comfortable with the concept of soaking the rich because they won't really miss it anyway.
This plan is not about whether a few dozen ultra rich people will leave Minnesota altogether to avoid taxation or will stay to ante up their "fair share". This plan isn't about whether those ultra rich people will take their income and spend it elsewhere, or even whether business owners in S corporations or LLCs will move their headquarters elsewhere to avoid the tax increase. That's not the real problem with Mark Dayton's tax plan.
Here is the sneaky truth of how Dayton's tax plan will kill jobs:
Dayton's tax plan affects any single filer with a taxable income of $85,000 and joint filers with a taxable income of $150,000 or more. The biggest group of people who will be affected by this tax increase will be people with jobs that pay between $90,000 and $130,000 per year. What kinds of jobs are those? They're upper middle management jobs - the department heads, the project leaders, the division managers. Those are the jobs that will start to dry up first. They are positions that can go unfilled in a recession if necessary.  If you do have them, they can be relatively portable (depending on industry) - even outsourced on a contract basis to consultants and free lancers using modern technology like that newfangled internet the kids keep talking about. Let's say I am a job seeker looking at two jobs in that pay range. One is in Minnesota, where the tax rate just shot up to the highest in the country, and one is just over the border in Wisconsin, Iowa or the Dakotas where the income taxes and the cost of government are much lower.  Which job do you think I'll take? If I have any flexibility at all, I’ll take the job in the lower-tax state.
Project leaders, division managers and department heads lead other employees. If you don’t have those positions, or if those positions move to another state, you don’t have the same division, department or project member positions either – the $50,000 to $80,000 a year jobs shrink even more. Without those division, department and project teams on site, their support employees aren’t needed in the same number either so those jobs shrink as well – those are the $35,000 to $50,000 a year jobs.
The loss or transfer of those jobs costs outside businesses as well: the dry cleaners, the lunch spots, the suppliers who base much of their revenue from the business of daytime workers also see their revenue drop in the absence of these positions. When revenue drops for these small business owners, they cut their own employees’ hours.  The slowdown continues to every aspect of life for any population center: without your leading community base (several studies show correlations between those who make $50,000 a year or more and those who contribute most to their local community activities), communities lose their vitality and their tax base.

Then the reality of tax increases on the “wealthy” shows its negative trickle-down effect on the rest of the economy. To put it simply, the loss or transfer of one $100,000 Minnesota job can easily lead to the loss or transfer of dozens of other jobs and their related economic activity, resulting in higher unemployment and lower tax revenues and, ultimately, the decline of entire communities. It doesn't happen overnight, but it happens as surely as the sun rises in the east.  This is the wrong direction for Minnesota. Governor Dayton’s proposal to raise taxes on $85,000 a year jobs will result in job loss for Minnesota. Republicans should relegate it to the trash heap and find ways to encourage employers to expand in Minnesota rather than take their jobs - and their prosperity - elsewhere.

1 comment:

  1. I did not or do not live in Minnesota. However, my wife and I did live in California. We are both engineers (both are in our late 50s and kids are gone). We are, basically, trying to accumulate as much wealth as we can to prepare for retirement. We both make a little above $100,000 per year. So, our combined income is perilously close to $250,000 per year. We have about five years to built our nest egg.

    We were paying well over $1000/month in California. we left in 2006 and moved to Houston, Texas. What a different world! Cost of living is low, no state income taxes, actually good government services (roads work, not jammed, good sewage, good police protection, etc). My only regret is that we did not do it years earlier.

    Well, if you get fed up with Minnesota, come to Texas.