Wednesday, December 26, 2012

Death Spiral taxes on the way?

Due to high taxation on both people perceived to be rich, and on businesses, and a high rate of regulation, there seems to be little incentive for people to create new businesses or to expand current ones in some states, like California.  In fact, thousands of people are fleeing California every day to states that have low tax rates and fewer regulations.

States like California are closing in on bankruptcy because of this.  They cannot garnish enough revenue to make up for the cost of all the government programs.  So in a last gasp to pay off this debt, they impose an export tax on people who leave their state.  This is similar to a tax the Nazi's imposed on Germans.

The idea is that people running these states believe that since the state set up an environment for these businesses to thrive, the state should be compromised when you leave.  It goes back to the idea of "You didn't build that."

The state built the roads for customers to get to your business.  The state created the phone lines.  The state created the Internet.  The state allowed you to keep the money you made.  And, now that you're bailing on the state, you will have to pay your dues; what you owe the state.

These taxes are called death-spiral taxes.  They are called this because their implementation is usually a bad omen for a nation, or a state.  States that incur a debt while you were a resident in that state can come back at you, even years after you left that state, and tax you for profits you made while you lived there.

Even if you live in another state, they can come back at you if they suspect you are still benefiting from what you set up "when they let you succeed."  For example, Stockton, California has $700 million in unpaid bills due to horrible government spending, and irresponsible government leaders who didn't rein in spending (kind of like what's going on in Washington under Obama, but I won't go there quite yet).

The 210,000 residents who lived there while the debt was incurred, while the leaders spent irresponsibly, will have to pay their share of the debt, whether they voted the incompetent boobs into office or not.  You lived there, you will pay

One of the advantages of Federalism is that if you don't like what one state does, you can live in another state.  If you want to pay high taxes, you can live in a high tax state.  If you want to live free from too much taxation, you live in another state.  The death spiral tax is the antithesis of federalism.

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