Exit Fee (cum grano salis) 
By Martin Harris

Two blue states (using the now-standard political color coding popularized by USA-Today for the 2000 presidential campaign) presently experiencing high-income-taxpayer flight are California and Vermont. Other high-tax states are experiencing upper-end property-taxpayer departures for similar reasons –Florida and New Jersey, for example—but, from the tax-man’s point of view, state governments don’t care because the real estate always remains, albeit under new ownership. The previous owner can’t very well depart without first finding his replacement, presumably someone more compliant and willing than he to cough up his annual "fair share".  Conversely, the exit of the high-income taxpayer leaves an unfilled monetary gap, as New York State and City have both recently learned when high marginal rate taxpayers have lost top-income-quintile jobs in the current downturn. They’ll get a refresher lesson when the first tranche of the New York Stock Exchange departure for the exurbs, from lower Manhattan to Mahwah, NJ, the re-location of the rapid-trading hub, soon takes place, but that’s another tale for another time.

Such flight is so patently unfair to state governments trying desperately to orchestrate just the equitable level of social justice via wealth-transfer from producers to consumers (with a little skimmed off the top for the orchestra-players and conductors, of course) that it oughtta be outlawed or at least regulated via an internal passport system. So it was in the Soviet Union, for example, about which Progressive enthusiast Lincoln Steffens wrote, after a 1921 visit, "I have seen the future and it works". But I propose only an eminently reasonable exit fee, primarily to discourage such anti-social behavior, but also for government to profit from it if it can’t be dissuaded (kinda like the cig tax, doncha know). For starters it could be applicable only to the highest income taxpayers, just like the new federal income tax in 1913 which initially applied a 7% rate only to the top 1% of wage-earners, but then it could quickly grow, as the income tax did,  to a top marginal rate of 77% by 1918. Today, of course, the income tax is applicable to the top 55%, as an exit fee oughtta be. A year’s worth of earnings, reflecting maybe 15 future years of lost-to-the-state taxable earnings at say 7% seems fair to me, as an objective observer. 

At first blush you might think that the US Supreme Court (not the States’ courts, which have come up with some doozies in their time, like the one in Vermont which found that a beer-drinker parked in his own driveway was actually on the public highway for ethanol-industry-support purposes) would frown upon such restrictions of free interstate commerce. Consider, for example, the SCOTUS rulings described in earlier columns in this space which required both wheat and marijuana grown for personal, intra-state consumption to be regulated just as if they were in inter-state trade; but then also consider the absence of a similar ruling regarding the presently-prohibited selling of health insurance across state lines, or the several never-challenged restrictions on interstate commerce involving a variety of internet-based sales, wine in particular. New York State and City, a couple of decades back, had some special taxes for NJ and CT commuters, and the Court never blinked. I’d guess that the new Court, with its new emphasis on empathy, particularly toward at-risk State budget goals, might turn a friendly judicial face to States seeking to discourage their more lucrative citizen/taxpayer profit-centers from departing. After all, SCOTUS itself has had some ideal-budget shortfalls and inflation-adjusted pay cuts in recent years, even before it became more group-identity-empathetic recently. If you’re uncomfortable with the bluntness of the "exit fee" label, you might consider an alternative, like the "negative impact fee".

Positive impact fees are already accepted governmental profit-centers in various jurisdictions across the country, billing new development based on estimates of the new costs it will generate for the taxpayers in existing development. A negative impact fee would cover the opposite calamity: taxpayers who abandon their rightful obligation and ungratefully flee. It should be argued that over the years, such undeservedly fortunate folks, who prospered under the aegis of a beneficial state government, didn’t actually pay for all the goodies they got. A score of years ago, op-ed writer Tim Ferguson made exactly that point for The Wall Street Journal when he wrote that farm income consisted not only of the admittedly skimpy proceeds from commodities, but more importantly the intangible joys of glorious sunrises, sunsets, and green fields as well (none of which would be theirs if it weren’t for the beneficial presence and labors of government, exit-fee advocates would claim) which the growers of corn and the milkers of cows got for free.

If the exit fee principle were applied, not only to the selfish rich, but to the working-age young adults in the 25-44 cohort now fleeing Vermont for better pay and cheaper cost of living elsewhere, it would be of great benefit to the already over-tasked and under-funded public school system, possibly ending the destructive pattern whereby these ingrates incomprehensibly take their children with them when they leave, causing enrollment declines which some critics use to argue (unreasonably) against further staffing increases. Of course, these younger folks in the middle-income quintiles wouldn’t be able to pay the exit fee so easily. They’d be sortta like eager-to-exit property owners, who need to, but can’t, find someone to take their place and assume their rightful obligations to state government. 

Martin Harris is a former Chairman of Citizens for Property Rights