Lee Habeeb’s reflections upon his father’s decision finally to leave New Jersey will have a very familiar feel for Rhode Islanders. He bought his house for $32,000 at a time when property taxes were so low he can’t remember how much they were. Now property taxes, income taxes, and sales taxes give him good reason to worry that his retirement income and savings won’t be enough.
(To some degree, it seems, Social Security is just a way to shift local taxes to younger federal taxpayers.)
Habeeb refers to people who leave a state to escape the confiscation of their property by the strong-armers in state and local governments as “refugees.” Rhode Island has produced a lot of those.
Unfortunately, experience suggests that Habeeb’s skepticism is amply justified:
… businesses are fleeing New Jersey for the same reason so many residents are fleeing: the high cost of doing business there. Indeed, New Jersey ranked 50th, dead last, in the Tax Foundation’s 2015 State Tax Business Climate Index.
It’s a vicious cycle, and stopping it is no small task. The country watched in disbelief as one of our great American cities, Detroit, created over a million refugees over five decades, as its population fell from a peak of nearly 1,700,000 in 1960 to its current 680,000. It spent, mismanaged, and shrank itself into bankruptcy. How states, cities, and nations treat capital — the human kind and the money kind — matters. How leaders think about capital matters too. The ability to manage, nurture, and preserve it, and to grow a healthy tax base (not destroy it), is what will separate winners from losers.
Megan McArdle gives some sense of the challenge when she writes about of the stupidity of rent control policies:
… this has one key advantage for local politicians: People who are not already living in your city cannot vote in local elections. Maybe in 25 years, when rent control has pushed unregulated prices sky-high and your city can’t grow because there’s nowhere to put anyone, this will become a problem for politicians. But those will be some other politicians in charge by then.
So while virtually all economists can agree that rent control is a terrible idea, local politicians may well think it’s splendid.
No development is more threatening to powerful insiders than successful non-insiders, especially those who don’t know the local rules of the game and want to do things just because (gasp!) they make sense.