Gov. Chris Christie of New Jersey launched an ad campaign intended to lure businesses from Illinois to New Jersey. He’s capitalizing on the fact that Illinois recently raised its top marginal income tax rate from 3 to 5 percent.
This shows that taxes influence people’s behavior. It typically occurs on states that share a border, such as Illinois and Missouri. I have previously highlighted examples of the use of tax rates in advertising on Show-Me Daily.
However, this can also happen between states that do not share a border. As David Stokes highlighted earlier this week, the recent Illinois tax hike caused Jimmy John’s to decide to move its headquarters from Illinois to Florida, which has no income tax.
Missouri’s own governor, Jay Nixon, would be wise to study Christie’s strategy. According to Christie’s advertisement, New Jersey levies lower tax rates that affect all businesses, without exemptions for favored groups. Nixon uses a different strategy to attract businesses to Missouri: He targets favored businesses and industries, giving them special exemptions, and leaves it to those who remain in the tax base to pick up the cost.
One last thought: The income tax is not the sole determining factor that influences a person’s behavior. Many people focus on the strict number of the top marginal income tax rate when considering the effects of tax policy, but they make a mistake when they fail to account for all the other wealth that the government takes from its tax base. Christie fails to consider this in his advertising campaign. For example, although Missouri assesses a higher top marginal income tax rate than Illinois, it has much lower rates on other measures. Specifically, Illinois has higher property taxes, worker comp payments, and excise taxes on selective products like cigarettes and alcoholic beverages.
