If you’re an average person whose tax money helped pay for the Wall Street bailout, what’s going on in New York and New Jersey could really make you angry. Especially if you happen to live there. These states, home to lots of firms and highly compensated folks who benefited from the bailout, are both running enormous budget deficits. But both governors — liberal New York Democrat Andrew Cuomo and conservative New Jersey Republican Chris Christie — are cutting social services to fill the gap and won’t even consider raising state income tax rates on the wealthy. What’s more, they’re even talking about cutting business taxes.
It’s a really cruel message if you think about it. It’s telling people who are needy — many of whom are suffering the toxic aftereffects of the Great Recession rather than having done anything wrong — that their needs are less important than those of upper-income types or businesses.
But you know what? It’s the rational way — and probably the right way — for Cuomo and Christie to behave. Given the intense state-to-state competition for jobs and tax money, Cuomo and Christie don’t have much of a choice.
As you can see from the pending congressional redistricting, high-tax, high-cost states such as New York and New Jersey are losing seats because they’re growing far more slowly than the national average, and low-cost, low-tax places such as Texas and Florida are gaining seats because they’re growing faster.
Before we proceed, please understand that I’m not an anti-public-spending kind of guy. Quite the opposite. I remember well that taxpayers in New York, where I grew up, gave me a chance to bootstrap myself to prosperity. They paid for my high-quality education at Brooklyn College (class of 1966), part of the City University of New York, which was tuition-free when I attended. I also got state scholarships and a low-interest, state-guaranteed loan to help pay for graduate school.
But the world has changed, to New York and New Jersey’s detriment, since my school days. That helps explain why governors as disparate as Cuomo and Christie are following similar tax and fiscal strategies. Sure, they’re doing a lot of political posturing. But they’re also recognizing economic reality.
In a world growing more interlinked and decentralized by the day, it’s relatively easy for people to move out of state if they’re retirees or have a lucrative gig (money manager, consultant, entrepreneur) that doesn’t require a regular presence in a high-cost-area office or factory.
You don’t have to worry much about people leaving the country to duck taxes, because becoming an expat is messy, complicated and expensive. Among other things, you have to give up citizenship and pay U.S. taxes on U.S. income for 10 years. But leaving a state? It’s a piece of cake. Sell your house, if you own one, buy or rent a place somewhere else, and go.
I think that governors such as Cuomo, Christie (whom I voted for) and Scott Walker of Wisconsin are behaving rationally by not wanting to raise income taxes.
But they’re going to extremes by blaming public employees for everything from pension shortfalls to kids who don’t thrive in school. A decade of dreadful financial markets has played a major role in pension shortfalls, and factors other than school — can you spell family or neighborhood or expectations? — are major influences on how well students learn.
In an ideal world, we’d handle state and local problems in a rational way, spreading pain among public employees, taxpayers and recipients of government services. That isn’t going to happen. Rationality seems to have vanished from public life — or at least from political life.
You might not like the idea of closing state budget gaps without asking for more money from high-income people (including me) who benefited directly or indirectly from the federal bailout. Some days I don’t like that idea either. But let’s get real. Raising income taxes in a world in which people and capital are ultra-mobile is a dangerous game for any state. Cuomo and Christie are wise not to be playing it.
Allan Sloan is Fortune magazine’s senior editor at large.