Is there a war on prosperity?
If so, the stakes are enormous. It would be devasting to our country – and the world – if prosperity lost that conflict.
Earlier this month Amazon, faced with opposition from community activists and some local officials, canceled plans to open a second headquarters in New York City. When it pulled out, the online retail giant took with it 25,000 jobs and untold other economic benefits.
At least six states have instituted “millionaire taxes,” which impose jacked-up income tax rates on their highest earners. On the federal level, progressive darling Rep. Alexandria Ocasio-Cortez (D-NY) has proposed a 70 percent marginal federal tax rate on incomes over $10 million.
Charlie Munger, Warren Buffett’s partner in Berkshire Hathaway, castigated California and Connecticut during a recent CNBC interview, calling the states “stupid” for tax policies that target wealthy residents. Munger claimed that “all the rich people have been driven out of Connecticut” and that he knows “a lot of rich people who have left California.”
“I think it’s really stupid for a state to drive the rich people out,” Munger said. “[Wealthy people] are old, they keep your hospitals busy, they don’t burden your schools, police departments or prisons. Who wouldn’t want rich people?”
While I agree with the spirit of Munger’s comments and concerns, his statements require some clarification. High-tax, high-cost-of-living Connecticut is indeed facing a widely-acknowledged exodus. The departures are coming largely from two groups: those making $50,000 – $100,00 (that’s peanuts in Connecticut) and those earning in excess of $5 million. The top destination for the millionaires? Florida, which has no state income tax.
But on the flipside, California’s 13.3% tax on incomes in excess does not prompt high earning residents to leave the Golden State, except in extreme cases, according to a Stanford University study of data going back 25 years. In fact, millionaires are more likely to relocate out of California because of a divorce.
In my opinion, any attitude or policy that inhibits economic growth is an enormous mistake. Prosperity is a delicate and flighty thing. If you squeeze it too hard or even scare it, prosperity will find another home, another location.
And trust me, the problems created by economic growth – soaring home prices, traffic, income inequality – are much better than the problems that come with economic decline. A downward economic spin is hard to reverse. Companies leave, unemployment rises, neighborhoods decline, people leave, tax receipts drop… The second, third and fourth verses are the same as the first.
This scary scenario is why states must nurture, not undermine, prosperity. Prosperity doesn’t just happen. It has to be tended to on every level. Just as people and businesses must constantly develop and move forward, the economic environment must be steadily managed and improved, or it will reverse course. Any government leader or body that blocks economic growth for political or ideological reasons is inviting economic pain, which equals human pain. That’s not a system that I want to be a part of, and I doubt you do either.
So, let’s keep an eye on our leaders at every level of government; and remind them when necessary that prosperity is a gift to be cherished, cultivated and protected.