Texas is the size of a large European country, in terms of population (30 million) and certainly geography. I lived there for sixteen years until last summer. You never see a barricaded town like this. You drive miles and miles and see development after development, business after business, campaign after campaign. Occasionally there is an old American road with a downtown level crossing dating from 1900 that is semi-unoccupied. But somewhere not far away there are construction cranes in action.
Build cranes. How do you put that much in a small place, Nashville, Tennessee? They are everywhere there. Nashville is where I moved from Houston. Houston, Nashville, why so busy? Because that’s where the capital, the investment wants to go. The three richest people in the United States, Elon Musk, Jeff Bezos and Bill Gates, live in Texas for the first and in Washington State for the second and third, respectively.
Each state mentioned so far has no income tax. Boarded up towns are a staple in Ohio, Illinois, Pennsylvania, Michigan, and New York, but not New Hampshire. The first five are income tax statements, the last is not.
Think of Pittsburgh. It has a three percent payroll tax. Pennsylvania has an income tax of 3.07 percent. If a business is considering hiring Pittsburgh-based labor, the wages offered must cover the over 6% income tax bill that workers owe the government. Six percent comes close to standard profit margins in business. In Florida (no income tax), the employer will earn the margin. The investment and hiring takes place in Florida rather than Pittsburgh.
It has been America’s history since the 1970s, when the great wave of state income tax imposition reached its peak, ending with Connecticut’s fatal decision in 1991 to create a tax on income. Investment is running out of steam in income tax states. The bolts of the capital, people leave, cities are barricaded. Zero-tax states are so exploding, worried about the influx of investment, that they are redefining the American dream.
How many people have lived extraordinarily in Washington since Bezos strangely decided to move from New York City in the 1990s to start Amazon? How many are there, concerned about their material success, have given themselves up to horses, vacations, great schools, amazing houses, hobbies, neat careers? Millions. Youngstown, Ohio (income tax from 1972)? A place from which one looks away.
I have a proposal for another place where I lived. This is the pathetic place I grew up in, the little borough immediately east of Pittsburgh called Wilkinsburg. Someone once said that rent control is better than bombing to destroy homes. In fact, the property tax beats them both. Wilkinsburg has a 4.4% property tax on the value of the house plus a 1% payroll tax, and then there’s the Pennsylvania 3% income tax. Search the Internet for pictures. It is unfair for the slums to use this insult in this case.
The situation is so bad that the place has closed its schools. It’s actually a great position. You can reduce tax rates with impunity. There is nothing to lose, no income. If Wilkinsburg eliminated its payroll tax and cut its property tax in half, the prospect is excellent for the place to experience a boom. It is four miles from the world’s largest computer science department, Carnegie Mellon University. If Wilkinsburg cut its overall tax rates like above, call it 60%, the investment would explode. Why build in Pittsburgh when you slip its payroll tax and get the 3% you should have paid your employees if they lived there? They can live next door and only pay state income tax and half the previous property tax rate.
Here’s a business proposition for a centimillionaire, a guy this country breeds like rabbits. With $ 10 million, use $ 5 million to buy and renovate 100 basement (but perfectly boneless) properties in Wilkinsburg. Put the remaining 5 million dollars to the rounding on the condition that it lowers and eliminates the tax rates as above. This will allow the place to overcome any income problems that could be accompanied by a significant reduction in tax rates. Within five years, if the return on the real estate investment of $ 5 million is at least $ 5 million, the borough’s debt is written off. I submit that the return within five years – the location is four miles from Carnegie Mellon – would be 400 percent or more.
Investing doesn’t just follow low or zero tax rates. It is too sweet a verb. She rushes into these places, transforming them into a new state expressing their highest potential. America is in a funny place these days. The country likes to prosper. It has prosperity in its essence. But all the onus – if that’s the right word – of being generous is on the nine zero-tax states. These are the ones mentioned above as well as Nevada, South Dakota, Wyoming, and Alaska. The rush to invest in these states is absurd. You wonder why so many boarded up buildings litter Illinois and the San Francisco Bay Area. Nashville needs the plywood for the concrete forms.