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Progressive Solution, As Always, Higher Taxes!

In last Sunday’s  Asbury Park Press commentary “Jersey losing luster due to lack of jobs”, writer Deborah Howlett, president of New Jersey Policy Perspective (some looney left-wing think tank) makes a number of assertions and policy recommendations that defy economic logic and actual economic experience.

It is her contention that the reason New Jersey suffers from an unemployment rate significantly higher than the national average is that we haven’t “invested” enough in government. But New Jersey has the highest state taxes in the country. If having a big government increased employment we would be the jobs capital of the nation.

The only way that increasing taxes could grow the economy would be if the money taken in taxes would otherwise have been buried in shoeboxes in peoples’ back yards. But it’s not. When people keep their own money they can only either spend it, invest it themselves, or save it so others may invest it. All of these options contribute to the economy. The truth is that government comes at the expense of the productive economy and every dollar spent on growing government is a dollar not spent or invested in that economy. Ms. Howlett’s prescription for economic growth is the public policy equivalent to scooping water out of the deep end of a pool and pouring it into the shallow end, hoping to make the shallow end deeper. It’s a zero sum game, worse, actually, because government (especially New Jersey’s) spills a lot of water on the way from the deep end to the shallow end. The only way to make the shallow end of a pool deeper is to add water, or in the case of an economy, increase productivity. But high taxes, particularly taxes on wealth creation such as income and capital-gains taxes, discourage production by punishing wealth creation. And our state’s labyrinth of regulations only further disincentivizes any sort of productive activity in New Jersey.

Lets look at the five states with the lowest unemployment. North Dakota is the lowest, at 3.3%. Their highest income tax rate is 4.86%. Their sales tax rate is 5%. Next lowest in unemployment is Nebraska at 4.1%. Nebraska’s top income tax is 6.84%, their sales tax 5.5%. After that we find South Dakota, with an unemployment rate of 4.7%. South Dakota has no income tax. It’s sales tax is a paltry 4%. Then we come to New Hampshire. NEW HAMPSHIRE HAS NO INCOME TAX AND NO GENERAL SALES TAX. By Deborah Howlett’s reasoning nobody in New Hampshire should even have a job, but actually they have a quite commendable unemployment rate of 5.2%! And the fifth best state in which to find a job is Oklahoma, at 5.5% unemployment. Oklahoma’s top income tax rate is 5.5% with a sales tax of 4.5%. So we see that low (and no) tax states also seem have the lowest unemployment. This is no coincidence. By keeping their governments small they have allowed their economies to flourish. This same phenomenon holds true when comparing tax rates and economic growth of the world’s nations.

Deborah Howlett correctly notes that there is increasing anger among the people who must work to pay New Jersey’s highest-in-the-nation’s taxes, but most of that anger is directed at the unions and the politicians who do their bidding. I haven’t seen much anger directed at the public workers themselves. By comparison, the vitriol spouted by protesting state workers and union officials is far worse than anything heard from any tax protestors.

Hewlett also claims the taxes were higher under Harry Truman. While the top rates were higher then, there were many, many, deductions in the tax code in his time that no longer exist. All sorts of things could be written off that are no longer allowed. The actual rate of income tax paid is far higher now than when Truman was president.

And regarding Oliver Wendell Holmes’ quote “Taxes are what we pay for a civilized society”, he said that in a speech in 1904. In 1904 there was no federal income tax, no social security tax, no state income taxes, no payroll taxes of any kind.  And there were no state sales taxes either. I’m sure even the super-progressive Holmes would never have dared dream of an America where many citizens forfeit upwards of half their income in taxes of one form or another.

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