Obama's Tax-the-Rich Scheme Won't Work, Just Look at Schwarzenegger's California

By Mary Kate Cary, Thomas Jefferson Street blog

California Gov. Arnold Schwarzenegger is in the news today, trying to drum up support for Proposition 16, a set of proposals that seek to close a looming $15 billion state budget deficit. The Washington Post is predicting a "potential landslide against the measures," as voters decide between higher taxes, spending shifts, borrowing, and other fixes:

If voters approve the propositions, spending cuts will be less severe but taxes will be raised by $16 billion. If voters reject them, lawmakers will have to convene immediately and consider a range of cost-cutting options that could include shortening the school year by seven days, laying off thousands of state employees and eliminating health care services for tens of thousands of low-income children.

Carol Platt Liebau, a California-based political commentator, writes today that California is liberalism's "canary in the coal mine" and that "it is an instructive and frightening—warning of the toll exacted by the kind of leftism now in vogue in Washington, D.C."

How did California get into this pickle? Over the weekend, economists Arthur Laffer and Stephen Moore described how widespread the problem is:

With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit.

Laffer and Moore supply the obvious solution—lower state taxes and stop soaking the rich, because people, businesses, and jobs are mobile and will move from high-tax states to low-tax states. They point out:

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

I added the emphasis, because it's clear that lower taxes mean more jobs and more income. In fact, Republican Gov. Rick Perry of Texas created more new jobs in 2008 than all other states combined, according to Laffer and Moore. This is an economic model for the national GOP to follow, because, as Perry says, "Our state is competing with Germany, France, Japan, and China for business. We'd better have a pro-growth tax system or those American jobs will be out-sourced." Republicans would be wise to get away from the big-government spending spree of years past and return to their low-tax, pro-growth agenda that's been proven to work in state after state.

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