Stimulus Plan Saves the States – from What?

April 14, 2009 by  
Filed under Taxes

The citizens of New York and California – at least those who know how to earn a living – must be thrilled with the money their states are receiving from the federal spendulus plan.  This plan was designed to help those states with the most Democrat votes, was it not?

The Stimulus Payoff: More Runaway Taxes

So what has been the reward for those living in states that have accepted the most stimulus money? The payoff has been huge, but in a negative way. California raised its top state income tax rate to 10.55%. New York is right behind, adding 2% to the tax rate for individuals making $200k or more and for couples making more than $300k.

This brings the state income tax rate in New York up to 8.97%.  For those unfortunate enough to work in New York City, the combined state and local income tax rate now tops out at a whopping 12.62%! (And let’s not forget that in New York, dividends and capital gains are taxed as ordinary income.)

Congratulations state taxpayers – your faith in government has been vindicated! All hail to the stimulus plan!

The politicians are using the stimulus money to maintain spending at record deficit levels and then demanding that state taxpayers take care of the difference. New York in fact is increasing state spending on top of the stimulus money.

What kind of people can continue to live in a tax environment like that? Years ago I lived in upstate New York. Mrs. ToughMoneyLove was born and raised in NYC.  I am amazed that voters in those states continue to bend over and take that kind of governmental abuse.

I’ve remarked before – only half in jest – that we ought to just evacuate California (at least those who are there legally) and let nature take its inevitable course with earthquakes and wildfires.

Upstate New York (excluding Albany) probably has some value but I’m not so sure about New York City.  Wall Street has become permanently tainted by its own greed. Perhaps we should announce that we feel so bad about the Dutch taking advantage of those Manhattan Indians that we would like to deed New York City over to the U.N. They would be perfect for each other, competing over who could engage in the most extravagant spending with the lowest return on taxpayer investment.

Please Get Me Out of Here

It seems that Mr. ToughMoneyLove is not the only observer with a negative outlook on California, New York, and the ten or so other states who are trying to tax their way out of huge budget deficits but without a lot to show for it.

The term “runaway taxes” in this context has another meaning: people are literally running away. As well they should.

According to a report released in December 2008 by the California Department of Finance, more people have left the state than have moved into the state, four years running. During the last fiscal year, 135,173 more people moved out of California than moved in from other states. The only factor that prevents an actual decrease in California’s population is the euphemistically described “international immigration”. The demographers call this net “domestic out-migration.” I call it fleeing the tax and spend monster.

Remember the Kurt Russell movie “Escape from New York”?  The sequel is now playing.

New York has also experienced a significant domestic out-migration trend in recent years, according to this data from the U.S. Census Bureau:64962

Does anyone see the stimulus plan reversing these domestic out-migration trends? I don’t, as long as there are better places for hard working Americans to go, which there are.

North Carolina is one of those states that is experiencing an influx of New Yorkers. Why is that?

The population of North Carolina is approximately 9.2 million. The state budget runs around $21 billion annually. Does it make sense to you that in a reasonable world, one should be able to roughly extrapolate state budgets from state populations? Excluding states that can live off of their abundance of natural resources, like Alaska, comparing budgets by population makes a lot of sense to me as well. So how does that work with New York compared to North Carolina?

New York state has a little more than twice the population of North Carolina, at 19.4 million. A reasonable person might estimate that New York’s state operating budget would be a little more than twice that of North Carolina, say $45 billion. That reasonable person would be way off the mark. The actual 2009 budget number is $121 billion, a figure that New York politicians say is an “austerity” budget.

There we have it folks. New York has twice the population of North Carolina but spends six times as much.

It must be the road salt.

Seriously, what do New Yorkers have that North Carolinians do not, other than more stimulus money? Better weather? Lower taxes?  A best in class public university system? Free rent? The answers are “no” across the board. (But New York can claim Charlie Rangel and Donald Trump as their own. Such a deal.)

I’m sure I could find other examples of state budgets that are grossly disproportionate to state population. With the trend toward domestic out-migration in these states, and reluctance on behalf of tax and spend politicians to change their ways, the magnitude of disproportion will only increase.

Time for Tough Love in New York and California?

People with ambition and visions for the future are leaving states like New York and California, taking their money and tax base with them. Maybe we should let these states fall into a GM-like death spiral, go bankrupt, throw out the bum politicians, and let those left behind start over. Sending more stimulus money is only stimulating more spending, more taxing, and more out-migration. I pity those who cannot escape it.

I see one long term benefit of the out-migration from states with high taxes and real estate bubbles. If the smart people can leave faster than the stay-behinds can breed replacements, eventually these states will lose Congressional seats and Electoral Votes. Then the politicians will start pandering to the rest of us.

Image credit: Kaptain Kobold

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22 Responses to “Stimulus Plan Saves the States – from What?”
  1. TMN says:

    Certainly not the only explanation, but both NY and California happen to have a net negative effect from Federal taxes, while North Carolina has a net positive. Maybe it’s time to cut the south loose on that particular front and see how they do without the blue states propping them up for a decade or two.

  2. Retiredat40 says:

    You may not like New York but I doubt the average NYer is going to be heading to North Carolina anytime soon. NY is dominated by NYC which has no shortage of millionaires and billionaires. It takes a lot more to keep a city of that size operating than it does to maintain a tobacco spread in NC.

    As for California, it has sun, fun, movie stars and high tech jobs, and I doubt the average Californian is going to be headed for NC either. Those states have always had higher tax rates and always will and I doubt NC is going to pass them by anytime soon.

    Both are places people want to live and where many fortunes have been made. I suspect that will continue to be the case.

    Both are also a hell of a lot more important to our economy than North Carolina which I suspect is why they are receiving more money. Why would you send it to NC?

  3. SJ says:

    TMN: That chart is pretty good… tho I will say your net negative and net positive effects kind of confused me at first… usually positive is good right =)?

    Isn’t that in general the problem w/ fed. spending?

  4. Ahead of the curve? says:

    I can say unequivocably having left California in 1992 for Colorado is that taxes had nothing, nada, nyet to do with it. It was 100% completely about house prices in the San Francisco Bay area relative to the house prices in Denver. Although I was working in a high tech area, the same high tech industry existed also in Colorado (albeit smaller and less robust). I didn’t move to Idaho, or Nevada, or New Mexico, because the industry didn’t exist there. I’m not sure your analysis as to why out migration exists is accurate. In my opinion if you’ve got a good job and can afford a house, the annoying nibbling of state taxes going to be the monster going to make you move.

  5. Ahead of the curve? says:

    Whoops, restate last sentence as “the annoying nibbling of state taxes is not going to be the monster making you move.”

  6. Rick Beagle says:

    It is unfortunate that the comments sections provide more insight than your article. First of all, why are you complaining about NY and CA? The last time I checked they were providing a positive cash flow into the national coffers, while NC was being propped up by the rest of us. From that perspective, perhaps we should leave them alone and focus on what NC and the rest of the so called “welfare” states are doing wrong.

    As to state income tax, Ahead of the Curve is absolutely right. The states have attracted a large number of high paying jobs that a LOT of people want. If they want to leave their 300k job over a 2% increase in taxes, there are plenty of people willing to take their place.

    Rick Beagle

  7. Taking 10-12% of my income (with no end in sight) in state taxes is far more than a “nibble” when other states take none. This money seizure is particularly appalling when other costs of living remain so high in those states.

    Also, the notion that high paying jobs must be concentrated in California or NY is laughable. Some people (those who are leaving) have already recognized that. Those who remain are increasingly burdened by those who pay no taxes at all. If you want to compare the value of high paying jobs across state lines, you need to compare the relative standard of living. When you do that, those high paying jobs don’t look so “high.”

    The argument that California and NY return money to the federal coffers is worn out and meaningless to me. I pay federal taxes based on income – it doesn’t matter where I live. My state tax burden is another matter. As far as I am concerned, the federal government can re-direct all of that money it distributes to the states back into the taxpayer’s pockets and let us deal with things locally.

    I don’t live in NC but I have spent time there as a visitor and as a parent of a graduate of UNC Chapel Hill. I have lived in both NY and California. NC is heaven on earth (for a lot of different reasons) compared to NY and California. That’s why the smart money is moving out.

    I’m still waiting for someone to justify why NY’s budget is 6 times that of a state with 1/2 the population.

  8. Rick Beagle says:

    Oh, I’m sorry, I didn’t realize that the incredible amount of variables that go into a budget matter little. I will forgive you because I know you are pissed at the checks you just wrote, but really Mr. Tough, it isn’t just about you….

  9. My Journey says:


    Life Long Long Islander here (and no, I don’t pronounce Lawng IIIIIIIsland, or at least I don’t think I do)….


    You have no idea how mad this post made me

  10. MasterPo says:


    If it was JUST a 2% income tax hike I think more people would swallow it and go on with their lives (though if it was “only” 2% then why bother anyway? Let me keep it , right?).

    But it’s not JUST the 2% income tax. ALL New York City and New York State government taxes, fees, registrations, licenses, permits, and rates of government monopolies (like the MTA) have SOARED too!! Worse yet, the service is dropping faster the NYT’s readership numbers!! IOW, New York City/State residences are being forced to pay more and get less with no hope of anything like a return to previous status. And Gov. Patterson doesn’t seem to give a hoot – indeed, seems blissfully glee about it!

    That’s what it’s all about.

    ps- Just to day on the news it was reported the MTA announced they will need a SECOND fair hike this year in addition to the one already scheduled to take effect shortly that was suppose to carry them over for awhile. This in addition to cutting trains/buses. Pay more, get less. Gotta love it!

  11. Rick Beagle says:

    Master Po,

    I honestly do not begrudge you your anger at your local and state governments, but to denigrate them by comparison to a “welfare” state is just wrong. If you feel that your state government is not taxing you fairly, then get involved in your local politics and change things. We have a number of activist groups where I live, and they by and large make a difference. With that said, griping about taxes is one thing, but coming up solutions that will bridge the gap between planned expenditures and revenue is much much tougher. And therein lies the rub, if people (imho) can’t help with the solution then they can either: 1)move or 2)pardon my straightforwardness -stfu.


  12. My Journey says:

    I always wonder where the HELL are the auditors/comptroller’s office? Anyone know where they are?


    I’ll vote for ya!

  13. TMN says:

    “I don’t live in NC but I have spent time there as a visitor and as a parent of a graduate of UNC Chapel Hill. I have lived in both NY and California. NC is heaven on earth (for a lot of different reasons) compared to NY and California. That’s why the smart money is moving out.”

    If you don’t mind living with a bunch of redneck jackasses, I guess that could be true. Personally I like a little culture around me, and the ability to do my shopping without driving 20 miles between every store. I like visiting family in NC okay, but there’s no way I’d willingly live there.

    My own guess on why budgets are higher in NY and CA is that their population distribution is completely different. North Carolina’s largest city is 2.5 million, density 2500 per square mile. NYC is 18.8 million, 27,000 per square mile. The type of infrastructure required to support that is going to have a totally different cost structure. Whether it’s worth it to you is a matter of personal preference, but plenty of people still think it’s worthwhile. Overall there’s still a pretty heavy population shift toward the city centers in this country.

  14. SJ says:

    The differences in federal spending per state — doesn’t that make NC even more a winner… subsidized moneies and what not right =)

    Also, this is just another redistribution of wealth right-o? Less incentive for the states receiving to make more, i.e. increases taxes etc.

    I think I agree with TMN, the difference in infrastructure causes the states to tax diffly.

    Doesn’t it just break down to the jurisdiction between state and federal?

    (Btw, if my understanding of what welfare state and tax dollars in/spent is wrong… do please correct me =) )

  15. Ahead of the curve? says:

    “Also, the notion that high paying jobs must be concentrated in California or NY is laughable.”

    Why do you say that Mr. TML? There are high paying jobs outside of those areas, but certain high paying industries are very concentrated in these states. Silicon valley. Biotech. Banking and finance. Yes, there are secondary centers for each, but I know from experience that maintaining your income and career momentum in a secondary center is much more difficult than in the primary center.

    When I lived in the S.F. Bay Area, many people would have gladly moved for quality of life issues, mostly related to being able to live in a nice neighborhood with good schools.

    There are places with no state income tax. There’s a reason. There’s nothing going on in those states. Do you think you could practice in Nevada? Maybe now with the internet, but, where’s the industry supporting you there? Also, I moved to Colorado. I pay state income taxes, lower than CA, but they’re there nontheless.

  16. Ahead of the curve: Certainly lots of high tech jobs go hand in hand with population, but not necessarily job density. The U.S. city with the most Ph.D. scientist and engineers per capita is Huntsville, Alabama. Research Triangle Park in N.C. is another example of a high concentration of high tech jobs. Nashville leads the world in development of healthcare information technology. The list can go on.

    I do not perceive a meaningful correlation between high state income taxes and things “going on” if you are referring to positive things. In many states, high taxes are used to support bloated state and local entitlement programs.

  17. TMN says:

    I agree, state income taxes do not strictly correlate to vibrant business cultures. Washington has no state income tax, but Seattle is easily the second largest technology center in the country.

    That’s not to say that we have no state budget, but it’s funded in other ways… property tax, business licenses, sales tax, and special levies on gasoline, alcohol, and tobacco.

  18. MasterPo says:

    BTW, don’t forget that Gov. Patterson’s 2% millionaires tax (on people making $300,000 – can anyone explain the math to me for that?!) is only *supposed* to be a 3 year “emergency” measure.

    Now taking bets….

  19. Rick Beagle says:

    I will take that bet! I bet in 3 years its repelled and replaced with a %4 tax!


    I know, I know… you hate me!

  20. Rick Beagle says:

    ugh, repealed and replaced with a 4% tax…. way too late for me obviously.

  21. MasterPo says:

    Rick – That’s probably the first time I agree with you! :-)

  22. Jasmine says:


    I’m a Long Islandier. A I do believe that there is some truth to what is being said here by Tough Money Love. Honestly anyone who lives there knows the taxes keep going up and up and up. And for years it has been happening.With nothing to show for it. Eventually whats going to happen which I think has already begun.The middle class is disapperaing and I don’t blame them either. I know I have since I moved my family and I to the South. I didn’t move to N.C. but I damn sure moved to Atlanta. Right at the perfect time. I was able to achive the American dream here far away from home with many more incentives that would have just be a remote dream if I would have stayed in N.Y. – Jasmine

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